Payment for Environmental Services (PES) on Hydropower Projects

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    The Ministry of Forests and Soil Conservation has decided to impose Payment for Environmental Services (PES) on hydropower projects. According to the decision, the promoters of hydropower projects will now have to pay up to five percent of their net profit as PES which will be deposited in the Forest Development Fund. This decision of the ministry has raised independent power producers’ hackles. The immediate impact of this decision is that work at eight hydropower projects which would together produce nearly 450MW of electricity over the next few virtually stopped. The Independent Power Producers Association Nepal (IPPAN) has already expressed its dissatisfaction over the decision.

    We too feel that this decision of the forest ministry is impractical, at least in the present situation. Hydropower promoters are already paying VAT and tax deductable at source (TDS). They are also supposed to pay annual royalty to the government once the projects start commercial operation. And, after 35 years, they have to hand over the up-and-running projects to the government free of cost. In this context, forcing the hydropower promoters to cough up more money is certainly going to discourage them. In fact, it could be yet another hurdle in the way of hydropower development in the country.

    Despite immense possibility, the bogie of hydropower development has been crawling at a snail’s pace in Nepal. This is mainly because the investors are unsure of a good return from their investment in hydropower in Nepal due to various problems such as political instability, lack of enough government incentives, high interest rates, and protests by locals of the project sites, among others. Given this situation, the decision of the forest ministry to charge PES from the hydropower promoters is sure to boomerang.

    PES, if it is forcefully imposed, may add a few hundred millions of rupees to the government coffers, if the hydropower promoters eventually agree to pay it. However, this decision is certainly going to discourage new investors who are planning to put their money in Nepal’s hydropower. This clearly means that hydropower development in Nepal will further slow down. Load-shedding hours will increase even more in the years to come. Many more billions of rupees will have to be spent in importing diesel to run the generators of our industries and business houses. In short, it surely is a penny-wise pound-foolish decision of the government.

    It’s not been even a year that the government declared the next five years as a period of energy emergency. The government’s declaration of energy emergency in the country made us believe that it does realize the gravity of the situation arising from the acute power crisis in the country. The declaration came as an assurance from the government that it is ready to do all it can to encourage hydropower generation in the country. However, now the government has contradicted its own declaration by deciding to impose PES on hydropower projects.

    The country is losing billions of rupees every year to the grave power crisis. Lack of enough electricity has been not only hampering the production capacity of our industries but also holding back the country’s overall development. In this situation, the government is supposed to do whatever it can to encourage hydropower generation at a rapid pace and not obstruct the process in the greed of a few hundred million rupees. Therefore, the forest ministry should roll back its decision on PES. The sooner it is done, the better it will be.

    Source : The Corporate Weekly