IBN wants MoF to clarify stance on incentive

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    Ministry of FinanceKATHMANDU: Investment Board Nepal (IBN) has requested the Ministry of Finance (MoF) to make its stance clear on extension of cash incentive of Rs five million for every megawatt of electricity produced by the developer of the Upper Karnali hydroelectric project.

    In a letter forwarded to the MoF today, IBN has asked the ministry to clearly mention whether the cash incentive should be given to the developer of the 900-megawatt hydro project, a reliable source informed The Himalayan Times.

    The request was made to expedite the process of concluding negotiations with GMR Group of India, which is developing the hydroelectric project, and sign the Project Development Agreement (PDA).

    IBN, a government agency which is overseeing implementation of the Upper Karnali project, had resumed negotiations on PDA with GMR Group on Monday. 

    Although this leg of negotiations was supposed to deal with two contentious issues of minimising the effect of the project on irrigation projects downstream of the Upper Karnali site and extending cash incentive, both the issues could not be discussed elaborately.

    “We had called the irrigation minister and secretary to join the talks today, but they couldn’t as they were abroad,” the source informed. “And since we have just written to the MoF asking it to make its stance clear on cash incentive, we will have to give it some time. We have, therefore, decided to sit for negotiations at another date.”

    IBN had started negotiations on the PDA with GMR Group in April 2013. After numerous rounds of meetings, both the sides had agreed to sign the deal during Indian Prime Minister Narendra Modi’s visit to Nepal in the first week of August. 

    However, that did not materialise after some of the political parties raised objections, citing ‘more homework needed to be done’. Following that, a 13-member high-level committee was formed under National Planning Commission Vice Chairman Govind Raj Pokharel to find out pros and cons of the draft PDA. The committee, formed on August 2, was asked to submit a report to Prime Minister Sushil Koirala in three weeks. 

    Two issues were heavily debated during the committee’s meeting. First was on the impact that the hydroelectric project would have on irrigation projects like Rani-Jamara-Kuleriya, Rajapur and Surya Patuwa that lie downstream of the project site. This problem was immediately addressed, as the committee members agreed to deploy a team to conduct a study within six months of signing the PDA. 

    “We were supposed to discuss this issue in detail today, but couldn’t,” the source said.

    Another issue was proposal to extend one-time cash incentive of Rs five million for every megawatt of energy generated.

    Two members of the committee, namely Chief Secretary Leela Mani Poudyal and Nepal Rastra Bank Governor Yubaraj Khatiwada, stood stiff against this proposal as they argued the incentive should only be given to projects that generate electricity for domestic consumption.

    Upper Karnali project is an export-oriented hydro project, which intends to sell 88 per cent of the electricity in India. But cutting the project’s access to cash incentive may send a wrong signal to other international hydro developers who are planning to generate power here and sell it in markets like India, sources argued.

    Also, the fiscal policy for this financial year, introduced in July, speaks of providing ‘a grant of Rs five million for every megawatt of electricity generated and evacuated to the national grid’. 

    Last Friday, the high-level committee formed under Pokharel submitted a report to PM Koirala stating that the cash incentive be extended to the project developer as per the law. This implies the provision on incentive mentioned in fiscal policy has to be first approved by the Parliament, as ratification of the policy would turn it into an Act.

    “However, we don’t know when the document will be endorsed. So to give assurance to GMR and expedite the process of signing the PDA, we need a commitment from the finance ministry,” the source said.

    Source : The Himalayan Times