Country cannot afford PPA in dollar: NRB Governor

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    KATHMANDU, Aug 9

    Course dollar increaseGovernor of the Nepal Rastra Bank (NRB) Dr Yuba Raj Khatiwada has advised to think seriously before signing power purchase agreement (PPA) with promoters of big hydropower projects stating that the country cannot afford to sign PPA in US dollar.

    Stating that the country has to meet several necessities through the limited foreign exchange reserve, he warned that the whole economy can unravel with exhaustion of the foreign exchange reserve while signing PPA in foreign currency. “We have foreign exchange reserve of Rs 650 billion. We will not have any foreign currency left if we were to sign PPA for big projects and make payment in foreign currency accordingly,” he told the Public Accounts Committee (PAC) of the parliament on Saturday.

    While conceding that domestic investment alone does not suffice for big projects, he advised for good analysis about the problems that can arise after signing PPA with big projects in foreign currency. “We have to strengthen Nepali currency and the national economy,” he urged. He opined that the country should not be destroyed by pegging everything with dollar. “We may have to need foreign currency at a level unaffordable by our foreign exchange reserve while exporting electricity to India through big projects. We cannot say what will happen to the exchange rate of Rs 160 (for IRs 100) in such situation,” he stated. He revealed that Rs 450 billion out of the current reserve of Rs 650 billion should always be there. “That is our baseline,” he quipped.

    Stating that unlimited exchange facilities have been provided for Indian currency, he advised that we should not do PPA in dollar with Indian investors. “We do business with India in Indian currency. We are guided by different agreements with India. The bilateral trade agreement among the countries should be amended if we were to sign PPA with Indian investors at a changing exchange rate of foreign currency. It is, therefore, not necessary to do PPA in dollar for Indian investment,” he elaborated. “Why should we sign PPA in dollar if we are capable to return investment to Indian investors in Indian currency?” he asked. He claimed that many bilateral agreements including the 1950 treaty will have to be changed to do PPA with Indian investors in dollar.

    He explained that Nepal will face problems when the investors from the other countries, who sell electricity to India by developing projects in Nepal, take back the investment.  Contractors for hydromechanical, electromechanical, consultancy, and import of cement, iron rods and other materials are also foreign companies. Stating that the saving of Nepalis is just Rs 160 billion a year, he clarified that the annual saving cannot all be invested on energy sector as there are many competing demands. “We have allowed investment of up to 50 percent which is around Rs 70-80 billion. There will be problem in returning investment if more investment is allowed as two-third of investment return back,” he reasoned.

    He opined that there has been problem as the Investment Board (IB) formed for development of the energy sector and to bring in investment as it is a parallel structure. Governor Khatiwada, who is also an ex officio member of IB, stated that there is an environment of distrust between IB and the parallel ministry. “Big projects cannot move forward until there is an environment of trust, and exchange of information and help. Let us, therefore, completely revisit that,” he advised.

    He said power development agreement (PDA) with promoter of Upper Karnali Project, GMR Energy, could not be signed in lack of decision on the issue of regulated flow of water. “We have to formulate an integrated water resources strategy,” he suggested.

    Source : Karobar Daily

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    Governor against dollar-based PPAs for export-oriented projects

    KATHMANDU, Aug 9 :Nepal Rastra Bank (NRB) Governor Yuba Raj Khatiwada has said that the power purchase agreement (PPA) with the projects developed with investment from third countries [other than India] should not be signed in US dollars as Nepal´s foreign currency reserve cannot sustain such payment.

    Speaking at a discussion organized by the parliament´s Public Accounts Committee (PAC) on Saturday, Khatiwada said that power trade with India, the only probable market for Nepal at present, will be done in Indian currency, so Nepal cannot pay for the electricity generated by the projects with third-country investment in US dollars.

     “At present, we have about US$ 650 billion in reserve and we must maintain it at at least US$ 400 billion all the time,” added Khatiwada. He also said that paying the third-country investors in US dollars will lead to devaluation of Nepali currency against Indian rupee.

    “We will be dollar-strapped if we provide foreign exchange rates to those big hydropower projects exporting to India,” added Khatiwada. There are a number of big projects being developed in Nepal targeting the Indian market. The projects are Lower Arun (400 MW) being developed by Brazilian firm Braspower and West Seti (750 MW) by a Chinese firm CWE Investment Company among others. 

    He also suggested to the export-oriented projects to sell electricity to India in US dollars so that Nepal´s foreign exchange reserve will not be affected.

    The statement by the chief of the central bank has come at a time when some senior government officials have been saying that foreign investors will be discouraged to invest in Nepal if PPAs are not signed in US dollars. Those supporting dollar-based PPA say that the investors have foreign bank loans which they must pay in US dollars. for the past two and a half months, PAC has been conducting discussions to decide what kind of PPAs should be signed with hydropower projects with foreign investment. 

    Khatiwada also suggested that PPAs be signed in Indian currency with the projects developed by Indian investors since such projects trade power with India only. Indian investors are currently conducting feasibility studies for a dozen mega projects in Nepal eying the Indian market.

    Even in case, dollar-based PPA is signed, the government and Nepal Electricity Authority should not bear all the risks associated with foreign exchange fluctuation, Khatiwada said. Khatiwada was of the view that NEA should under no circumstances sign dollar-based PPA with projects that are fully owned by Nepali investors. 

    Dollar-based PPAs that NEA signed in the past with Upper Bhotekoshi (45 MW) and Khimti Hydropower Projects (60 MW) are blamed for huge NEA losses and experts are of the view that such mistake should not be repeated. Some Nepali investors who are developing hydropower projects with foreign loans have been demanding dollar-based PPAs.

    Meanwhile, Governor Khatiwada also said Nepal banks and financial institutions have combined capacity to invest up to Rs 70 billion in the hydropower sector. “Nepali banking system has around Rs 140 billion and they can invest up to 50 percent in one sector as per the NRB policy,” added Khatiwada. A class commercial banks are required to invest 12 percent of their loan portfolio in the agriculture and hydropower sectors but banks have not been found eager to invest in the hydropower sector due to the risks associated and the longer loan payback period.

    Source : Republica