Govt to allow int'l development partners to issue bonds in local currency

The international development partners, which want to issue bonds in local currency to mobilize financial resources in the domestic market, have to remain under the amount limit, should be synced with the government´s calendar and should be project specific, as per the guideline that is likely to be submitted to the cabinet by mid-August.
"The Ministry of Finance is working on submitting the guideline to the cabinet for approval by mid-August," Baikuntha Aryal, joint secretary at the ministry, told Repuiblica.
The MoF started developing the guideline after two development partners expressed their interests to issue bonds in local currency.
The International Finance Corporation (IFC), the private sector lending arm of the World Bank, and Asian Development Bank (ADB) have expressed interest to issue such bonds in the Nepali market.
"All the development partners can go for issuing bonds in local currency once the government endorses the guideline," Aryal said.
Once the guideline is issued, international financial institutions with top credit ratings will be allowed to issue such bonds in Nepal. The amount thus collected will then be extended in the form of loans to the private sector for long-term investment in sectors ranging from infrastructure and agriculture.
The budget for the fiscal year 2013/14 has also made a provision to allow international development partners to issue bonds in local currency.
"For the long-term investment in large scale infrastructure projects, necessary arrangements will be made to issue bond in local currency for the international agencies that have high ranking credit rating," reads the budget.
The government has envisioned allowing development partners to issue project-specific bonds in local currency to ensure that the liquidity mopped up from the market is utilized for the development of significantly important projects in the country.
According to a source privy to the issue, the development partners are seeking to issue bonds in local currency in basket so that they can mobilize financial resources of the domestic market in the projects that have low risk and high returns.
"The MoF has already shared major points of the guideline with the ADB and IFC," a high-ranking official said, requesting anonymity. "Both the development partners have said that they would consider the government´s policy guidance."
Allowing international development partners to issue bond in local currency in basket might have negative impact on the national economy. "On top of that, no country allows international development partners to issue bond in local currency without amount limit," the official added.
The international development partners, mainly ADB and IFC, are closely watching how the government would come up with the policy to allow them to issue bond in local currency, as per a knowledgeable source close to a development partner.
However, the government believes better yields and guarantee that money invested in the bonds will be returned back will lure funds that have so far remained outside of the banking sector, which, according to estimates, stands at around Rs 20 billion.

DoED starts preparation for Budhi Ganga project

The Department of Electricity Development (DoED) is all set to conduct Environmental Impact assessment (EIA) study and prepare detailed project report (DPR) for the Budhi Ganga (20 MW) hydropower project after the government allocated fund for the project in the budget for 2013/14.
“We will start works on EIA, DPR and updating the feasibility study of the project very soon,” Gokarna Raj Pantha, senior divisional engineer at the DoED, told Republica.
In the budget for 2013/14, the government has made budgetary allocations for two projects -- Budhi Ganga and Tamakoshi V (87 MW).
“We will start constructions works on Budhi Ganga project right after completing DPR as we don´t need to get generation license,” added Pantha.
This is the first time that the DoED has been allowed to develop hydropower projects after Nepal Electricity (NEA) came into being in 1985.
The government has allocated total budget for Rs 30 billion for the development of hydropower projects and transmission lines in this fiscal year. It has decided to seek loan assistance from the Saudi Fund for Development (SFD) and Kuwait Fund for Arab Economic Development (KFAED) for the development of the project that is estimated to cost around US$ 55 million.
The SFD has already agreed in principle to extend loan assistance for the project. According to DoED sources, the government has already signed $18 million loan agreement with KFAED.
The Achham-based project is one of many hydropower projects identified under the Medium-scale Hydropower Project Study, 1998. The DoED plans to complete project by 2019.

Budget neglects Investment Board

The Investment Board of Nepal (IBN) has lost its teeth after the government failed to propose any concrete plans in the budget for fiscal year 2013/14 to improve the institutional capacity of the high-level body established to facilitate the implementation of large-scale projects in the country.
The IBN that was established more than one and a half year ago through the Investment Board Act, 2011 had an ambitious target to bring in US$ 1 billion foreign direct investment (FDI) in the country in the first half of the fiscal year 2012/13. The whole fiscal year that was supposed to be celebrated as Investment Year 2012/13 was gone almost without unveiling any programs, let alone bringing in such a huge amount of FDI.
Unveiling a full budget of Rs 517.24 billion for the fiscal year 2013/14, Finance Minister Shankar Prasad Koirala announced several programs claiming that they would boost the confidence of the private sector. But the budget has remained vague when it comes to upgrading the institutional capacity of the IBN that even lacks adequate human resources and technical capacity to facilitate large scale infrastructure projects in the country.
"The Investment Board will be equipped with resources," reads the budget. The budget has no specific plans to upgrade the status of the IBN. The IBN had sought Rs 280 million for the fiscal year 2013/14 to hire different technical experts for different large-scale projects. But the government has allocated just RS 120.9 million to the IBN for the fiscal year.
Radesh Pant, chief executive officer of the IBN said that the board is in a ´wait-and-see´ mood for the time being as there is no parliament to carry out the policy reform process. "We are in the wait and see mood to kick-start the actual roadshow for the celebration of Investment Year," Pant told Republica.
The Babu Ram Bhattarai-led government had handed over a total of 14 mega projects, including five large hydropower projects, to the IBN in May 2012. The IBN that was also supposed to unveil different programs to lure investment from the foreign as well as domestic private sectors has lost its vigor as the government has earmarked a meager budget, and, that too, with no concrete plans, says a high-ranking official at the Office of the Prime Minister and Council of Minister, requesting anonymity.
A few development agencies are also in the wait-and-watch mood to actually provide technical assistance to the IBN as the government fails to show strong ownership to improve the institutional capacity of the board. Millennium Challenge Corporation (MCC), a United States Governmental agency, has been studying whether to support the IBN or not to develop infrastructure in the country.
"MCC is currently working to identify whether the government would move forth toward improving institutional capacity of the IBN or not," a source privy to the issue told Republica. MCC is trying to work in Nepal for poverty reduction by developing hydro infrastructure, improving labor relation and transport connectivity."

Sutlej expects PDA to be signed within two weeks

Indian power developer Sutlej Jal Vidyut Nigam Ltd, which is engaged in the development of Arun III hydropower project, is looking to sign project development agreement (PDA) before its survey license for the project expires on July 15.
Officials of The Investment Board of Nepal (IBN) and SJVNL have are holding PDA negotiations for the past two weeks. “The negotiation is moving ahead at a satisfactory pace,” Radesh Pant, chief executive officer of the IBN said.
The government had granted survey license to the SJVNL in July 2008.
The export-orientated project based in Sankhuwasabha district is being developed pas per the built-own-operate and transfer (BOOT) modality. The government has given the project to SJVNL for 30 years as per the BOOT Act.
The SJVNL will not have any difficulty in selling power generated by the project in India as one of its objectives is to address power deficit in India. Officials of SJVNL have said that they would export power to India even if two governments fail to sign power trade agreement (PTA).
As there is no problem in market management, the PDA negotiation being held in Kathmandu is gaining momentum.
“There lots of terms and conditions to be finalized. We want deal to be in national interest," Pant said. "We also want to ensure that the developer should not feel any obstacles while implementing the project."
SJVNL has agreed to provide 21.9 percent of the power generated from the plant free of cost to Nepal.

IBN officials to visit Malaysia

A team of officials from the Investment Board of Nepal (IBN) are all set to visit Malaysia this week to hold interaction with the officials from the Malaysian Investment Development Authority (MIDA).
"We will try to learn how the MIDA works and how it manages human resources," Mukunda Paudel, joint secretary at the IBN, said. Paudel will lead the Nepali team to Malaysia. Other members in the team include Krishna Acharya, under secretary at the IBN, Rita Regmi and Dilip Bahadur Kshetri. "The team will also try to learn how the MIDA runs promotional activities to lure fresh investment," Paudel said. The MIDA is the Malaysian government´s principal agency for the promotion of manufacturing and services in the country.

Government, Sutlej confident of inking key deal on Arun-III

The development of one of the largest hydropower projects in the country, the 900-megawatt Arun-III, has picked up momentum after 30 years of fuss and floundering, with the government and Indian power developer Sutlej Jal Vidyut Nigam Ltd (SJVNL) finally beginning negotiations on the project development agreement (PDA).
The government and SJVNL have both expressed a high level of confidence that the key agreement for commencing the project construction would be inked.
The Investment Board of Nepal (IBN) and SJVNL kicked-started the PDA negotiations last week. “We started negotiations with SJVN and things are taking a right direction,” Radesh Pant, chief executive officer of IBN, told Republica on Thursday.
Expressing confidence over developing the project, R. P. Singh, chairman and managing director of SJVNL, said there was no fear of losing the project. “Now the project is moving. The PDA discussions are on. It is right that the PDA was submitted around two years back. What can we do, this is the way with Nepal, our partners on the project,” reports Live mint, an Indian newspaper, quoting Singh. “I am quite sure, the way the negotiations are on with IBN, that it will be sorted out.”
The development of the project, which has always gotten politicized, seems finally to be happening as both the government and the developer express the same level of confidence. “I am sure the deal will be sealed. But I can’t say whether it will take just a few weeks or around a year to finalize all the terms and conditions of the PDA,” Pant said. The project based in Sankhuwasabha district was initially scheduled to be developed by the government itself with the assistance of the World Bank.
James Wolfensohn, then president of the World Bank, cancelled the project development in August 1995 in agreement with the CPN(UML)-led government, after a telephone conversation with then prime minister Manmohan Adhikari, according to a World Bank news release.
SJVNL, which has agreed to provide 21.9 percent of the power generated from the plant to Nepal free of cost, is yet to finalize different issues related to the PDA. The export-oriented project will get a generation license from the government after it demonstrates strong enough financial resources. SJVNL is targeting to utilize the energy generated from the project to meet the growing demand for electricity in the Indian market.
“SJVNL itself seems enthusiastic to take the project forward but it might just be a gesture,” said a legal advisor associated with Herbert Smith, an international legal advisory body based in London. Herbert Smith, which developed the PDA template -- a baseline document for PDA negotiations -- is also supporting IBN to negotiate with the developers.
SJVNL had already submitted a detailed project report for Arun-III in 2011. The report is still under consideration. The government has handed over the project to SJVNL under a built-own-operate-transfer (BOOT) scheme for 30 years. It is still unclear exactly how all the issues related to the project will move forward, Pant said.
Large export-oriented hydropower projects have been politicized in the past, mainly by the ultra-leftist forces. The Mohan Baidha-led CPN-Maoist is still against projects such as Upper Karnali, Upper Marsyangdi and Arun-III, in which Indian developers are involved.
Quoting former Indian ambassador to Nepal Shiv Mukherjee, Live mint has written, “Hydroelectric power and its potential have been highly politicized in Nepal. I won’t comment on specifics…”

SN Power, IBN holding second round of neogitation today

SN Power, the Norwegian firm involved in the development of Tamakoshi III (650 MW) hydropower project, and Investment Board of Nepal (IBN) are holding second round of negotiation for project development agreement (PDA) on Thursday.
The first round of negotiation between the two parties had ended without any conclusion after the Norwegian firm sought sovereign guarantee for the project.“The meeting scheduled for Thursday will be focused more on market arrangement for power generated by the project," a source privy to the issue told Republica on Wednesday.
The IBN, a high-level government agency formed to facilitate the implementation of large scale infrastructure projects on a fast track mode, has suggested to the SN Power to find market for power generated by the project on its own.
The source said officials of SN Power have already held talks with Nepal Electricity Authority (NEA), requesting the latter to purchase power generated by the project. “The NEA, however, has turned down their request,” the source added.
The PDA negotiation, which is supposed to scrutinize all the issues related to project development, is taking place based on the PDA template developed by the Herber Smith -- an international legal advisory body based in London.
“This time also the IBN will suggest the officials of SN Power to find market for power on its own,” the source said.
Radesh Pant, CEO of IBN, will lead the government side in the meeting, while SN Power will be led by Dr Sandeep Shah, vice president and country director of SN Power and Stale Rustad, project director for Asia of SN Power.
The first meeting of PDA negotiation was held on May 27.
Baikuntha Aryal, joint secretary at the finance ministry, who is also a member in the government´s PDA negotiation team, declined to divulge details of the ongoing negotiation with SN Power, saying that he has signed a ´non-disclosure agreement´.
The IBN and SN Power had signed the PNA almost a month ago. The document abides the developer to complete PDA negotiation within 18 months of the signing of PNA.
The government had granted survey license of the project to the SN Power in 2007. It has already approved environment impact assessment (EIA) report of the project, which is estimated to cost Rs 120 billion, prepared by SN Power.