Govt to provide $40m loan to Kabeli project

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    KATHMANDU, NOV 24 –

    Kabeli-AThe government will provide $40 million loan (in US dollars terms) to the Kabeli A Hydro Electric project (37.6MW) after receiving the amount from the World Bank.

    Butwal Power Company, the developer of the project based on the Taplejung-Panchthar border, however, has to bear exchange rate risks as it will be receiving the loan in US dollar terms, although the interest rate will be cheaper. This is the first time the government is providing loans to any private sector hydropower project.

    “The government will provide Kabeli at libor rate plus 2 percent,” said Hari Pandey, under secretary at the Finance Ministry, who was one of the members of the team negotiating with the World Bank. The team also included representatives from Hydroelectric Investment and Development Company Limited (HIDCL), Kabeli, Ministry of Finance and Ministry of Energy.

    Libor rate is an average inter-bank rate fixed in the London money market by the London Bankers’ Association and it works as global standard for interest rate. The latest lobor rate has remained below 1 percent.

    The government will first take the loan from the World Bank at 0.75 percent plus 0.5 percent service charge. The government will receive $46 million, including grant of $6 million. Of the $6 million grant, $4 million will go to the Nepal Investment Board and $2 million to Department of Electricity Development, according to Pandey.

    The government will provide loans to Kabeli through the HIDCL as it cannot directly lend to a private company. The government will offer management charge to HIDCL for functioning as a medium. The project has been given an eight-year grace period.

    Earlier, Kabeli had refused to take loans from the government at 10.5 percent, which was to be financed through now-defunct Power Development Fund (PDF). The PDF was part of the Power Development Project financed by the World Bank to lend to private sector power projects. Kabeli had sought the loan at 5 percent, but the PDF’s tenure expired last January before taking any decision in this regard.

    The government awarded the project to BPC on October 7, 2009, under the build, own, operate and transfer (Boot) model with a 35-year production license. The project development agreement was signed on January 31, 2010.

    As per the approval, 40 percent cost of the project was supposed to be financed by the World Bank. Other international funding agencies and local banks were to provide the remaining 40 percent as debt finance and 20 percent would be borne by the promoter as equity. The estimated project cost is $92 million. Internatioal Finance Corporation (IFC), the private sector lending arm of the World Bank, is also planning to invest in the project.

    Kabeli has also received a favourable deal from the government on power purchase agreement.  The Cabinet approved the proposal of changing the structure of power purchase agreement (PPA) in January, under which the PPA will now be 60 percent in US dollar terms and 40 percent in rupee terms. Previously, the Cabinet had decided to sign the agreement in the ratio of 53:47.

    Source : The Kathmandu Post