KATHMANDU: Negotiations on Project Development Agreement (PDA) with developers of 900MW Upper Karnali hydropower project is almost 80 per cent complete, with deals on financial and local benefit packages remaining to be concluded.
“If we move ahead at this pace, we will sign the PDA with developers of Upper Karnali project within a few months,” joint secretary at the Investment Board Nepal, which is leading the negotiations on behalf of the government, Mukunda Prasad Poudel said.
PDA is a crucial document for developers of hydro projects as it sets out obligations of the government as well as project developers and protects interests of both the parties until projects developed under Build, Own, Operate, Transfer (BOOT) model are handed over to the government. Financial institutions in the country and abroad extend loans to hydro projects based on the content of the PDA.
“Once the PDA is signed, construction work will begin immediately,” he said.
The Upper Karnali project is being developed by a consortium comprising GMR Energy, GMR Infrastructure and Italian-Thai Development Project. Although it is an export-oriented project, the project developer is giving away 12 per cent of power generated by the project and 27 per cent stake in the company that is building the project free of cost to the government. Also, the project has to be handed over to the government for free within 30 years of the date of commencement of power generation.
“Despite these advantages, we have not been able to conclude PDA because of the delay in striking a deal on the financial package presented by the company,” Poudel said. The bone of contention here, according to Poudel, is the demand by the project developer on income tax concession.
As per the Financial Ordinance, companies involved in commercial hydropower generation and distribution need not pay income tax for the first 10 years from the date of commencement of power generation and need to pay only 50 per cent of the income tax thereafter for the next five years. But this condition only applies to firms that start construction work within August 23 and start commercial operation by mid-April 2019.
Likewise, companies that start commercial operation within mid-April 2019 are entitled to 100 per cent income tax discount for the first seven years from the date of commencement of power generation, and 50 per cent discount thereafter for the next three years.
“Since the project developer cannot start commercial operation within mid-April 2019 it is asking for extension of the deadline so that it gets income tax holiday for the first seven years,” Poudel said. “Likewise, the project developer is also asking for value added tax discounts and one per cent customs duty on imports of construction material and equipment as being offered by the government on imports of penstock pipes.” The government currently slaps one per cent customs duty on imports of penstock pipes.
The Ministry of Finance has taken these requests seriously. “But we cannot do anything right now as amendments need to be made to Financial Ordinance,” joint secretary at Finance Ministry Rajan Khanal said. “We will try to address these issues through new Financial Act which will be introduced along with the annual budget at the start of the next fiscal year.”
Along with this, negotiations are also being held on local benefit packages which include creating job opportunities for locals and building of schools, health centres and vocational schools in the vicinity of the project site. “We will have extensive talks on these matters when we hold the next meeting on January 12-13,” Poudel said.
Source : The Himalayan Times