NEA to accept PPA in dollar terms under ‘certain conditions’

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    NEA_BuldingKATHMANDU, AUG 10 – Nepal Electricity Authority (NEA) has said it could accept power purchase agreement (PPA) in dollar terms only under “certain conditions”.

    With bitter experiences with Khimti and Bhotekoshi projects, NEA has been reluctant to sign PPA in dollar terms. It says it spends around 40 percent of its revenue to pay these two projects.

    However, a top NEA official on Saturday said PPA in dollar terms would not be problem if NEA is allowed to adjust power tariff as per the increment in PPA rate, and if a foreign exchange risk sharing mechanism is created.

    Speaking at an interaction organised by a study committee under the Parliamentary Public Accounts Committee (PAC) on Hydropower Policy and PPA, NEA Officiating Managing Director Ram Chandra Pandey said the power utility should be allowed to pass the hike in PPA rate on to the retail tariff.

    NEA hikes the PPA rates by 3 percent annually to Independent Power Producers (IPPs). “This should be made mandatory and determined by a formula,” said Pandey.

    According to NEA, had it been allowed to hike power tariff in line with the PPA rate hike, it would have made a accumulative profit of Rs 30 billion over the last 16 years.

    NEA has also put forward conditions for PPA in dollar terms, including development of a foreign currency risk sharing mechanism in large project with foreign investment. It says the PPA rate has to be fixed in both foreign and domestic currency terms based on such a mechanism.

    Pandey was of the view NEA could go for a modality whereby the utility and hydropower developers would share foreign exchange risks. “For this, the government should form a “US Dollar Fund” to be managed by the NEA to off-set currency risks,” he said.

    According to Pandey, PPA in dollar terms should be valid only until the foreign equity partner, in case of joint ventures, repays debts raised from international financial institutions.

    Although NEA has been claiming losses due to PPA in dollar terms with Khimti and Bhotekoshi, it has also signed the agreement with a few other projects, including Upper Marsyangdi, Lower Solu and Kabeli. However, the PPA with these projects are not 100 percent in dollar terms, said Pandey.

    NEA officials claim the power utility started to incur losses after it started buying power from Khimti in 1999. NEA had posted a profit of Rs 1.73 billion in 1998, but faced a loss of Rs 96 million in 1999. The state-owned power utility swung back to profit in 2000 after a tariff hike, but its accumulative losses have been on the rise.

    During the interaction, private sector representatives stressed on the need for PPA in dollar terms to attract foreign investment in the hydropower sector.

    Gyanendra Lal Pradhan, chairman of the energy committee at the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said NEA should not fear signing the agreement, adding losses Khimti and Bhotekoshi were due to bad deals. Pradhan also blamed huge leakages in industrial corridors for the NEA losses. “NEA should be strong enough to punish industries stealing electricity,” he said.

    Bhanu Pokharel, general secretary of Nepal Hydropower Association, said given the limitation of Nepali banks and financial institutions (BFIs) to invest in the hydropower sector, foreign investment is must.

    “And, it is difficult to attract foreign investors without PPA in dollar terms,” Pokharel said, adding NEA’s losses were not due to PPA in dollar terms, but due to non-adjustment of tariff for a longer period.

    Source : eKantipur