India’s Rs 100 billion Line of Credit


    Nepal lags behind Bhutan and  Bangladesh in spending

    KATHMANDU, July 1: Investment of Rs 100 in prioritized roads can give economic return of more than Rs 10. But rate of return of some proposed road projects to be built utilizing the Rs 100 billion line of credit (LoC) facility offered by India will have very little or negligible economic impact, according to officialsLoC_2014

    The government is building as many as 14 roads, half of them in urban areas, utilizing the facility. Minister for Finance Ram Sharan Mahat proposed the projects to the Indian government for approval during his visit to New Delhi two weeks ago.

    Officials say some of the projects have been taken up without conducting feasibility study and assessing their economic impacts. They say most of these projects are in election constituencies of political leaders as well as in areas selected by high-ranking officials and planners.

    Indian Prime Minister Narendra Modi had announced the credit facility during his visit to Nepal in August last year to invest in priority areas such as infrastructure and hydropower development projects. The framework agreement for loan assistance was signed in November on the sidelines of the SAARC Summit.

    The selected projects are not listed in the Priority Investment Plan (PIP) — the policy document of Department of Roads (DoR) that defines priority projects every ten years.

    Dinkar Sharma, former joint secretary of Ministry of Physical Infrastructure and Transport, said the government should have selected Kathmandu-Tarai Fast Track instead as it has better rate of return.””Along with connectivity, road projects should be prioritized on the basis of economic returns that it gives after conducting feasibility study,” Sharma said, adding that projects have been selected on the basis of political influence.

    Tulasi Prasad Sitaula, secretary of MoPIT, however, argued that most of the selected road projects are priority projects.””Some urban roads in Tarai have been selected taking into consideration factors like population density and fewer black-topped roads,” he said, adding that there has been very little investment in road projects in these urban centers in recent years.

    The framework agreement signed with India says that joint venture contractors of Nepali and Indian, with the Indian JV partner enjoying minimum of 51 percent ownership, are eligible to apply for the projects to be built using the Indian credit facility. Similarly, such projects should source at least 50 percent of construction materials from India.

    Previous projects built with Indian assistance had harsher terms and conditions.


    The government has selected two irrigation projects to be built utilizing the Indian credit facility.

    According to officials, Mahakali Irrigation Project III and Rehabilitation of Koshi Pump Canal and Distribution System will be built with a combined investment of US$ 200 million (Rs 20 billion). Though the first project is a priority project, Koshi Pump, which was built with Indian assistance in early 1990s, is no more viable.

    Madhav Belbase, director general of the Department of Irrigation (DoI), said Mahakali III project can be executed simply by updating DPR.

    Upon completion, the project will provide irrigation facility in 34,500 hectares of arable land in Kanchanpur and Kailali districts.

    “Pumping projects are not economically viable as agricultural output is very little compared to the cost of pumping water by paying electricity fee or running diesel generators,” an official said.

    However, Belbase argued that the project is feasible and that they have plans to run the project at full capacity by adding new equipment.


    India had announced similar line of credit to Bhutan and Bangladesh last year at the same time. Though Bhutan and Bangladesh have already spent about 30 percent of the credit facility, Nepal is yet to finalize a hydropower project to spend Rs 50 billion of the announced facility.

    Nepali envoy to India Deep Kumar Upadhyaya on Thursday met with Minister for Energy Radha Gyawali and requested the latter to select hydropower project to be built utilizing the Indian credit facility at the earliest.

    In his speech to the Nepali parliament in August, Modi had emphasized on hydropower development and said that Nepal’s hydropower can wipe out darkness from India.

    The initial discussion was on using the facility to develop Budhi Gandaki Hydropower Project (1200 MW). But the Ministry of Energy is likely to refuse the assistance for the project as the assistance would be insufficient to meet project cost of Rs 250 billion and that it would create complications in hiring contractors and acquiring raw materials.

    “We discussed the option of using the facility for civil and electro-mechanical works. But it was not possible as we cannot divide civil works among contractors as per the framework agreement conditions”” said Keshav Dhwaj Adhikari, spokesperson of Ministry of Energy, told Republica.

    Adhikari said that the government might select other projects as investing in small projects will not be feasible.

    Source : Republica