KATHMANDU: There is good news for hydropower investors! The government may soon start extending cash incentive of up to Rs 10 million on every megawatt of hydroelectricity generation to lure investors towards the power sector, which is facing a severe crisis.
A high-level committee formed under Krishna Hari Banskota, secretary at the Office of the Prime Minister and Council of Ministers, has recommended that the government extend cash incentive to hydroelectric project developers to compensate the cost involved in paying value added tax (VAT) levied on construction materials, especially cement and steel.
“We have proposed that cash incentive of close to Rs 10 million be extended for every megawatt of electricity generation, regardless of the type of project (run-of-the-river or storage),” Banskota said, adding, “I have already forwarded the proposal to the Ministry of Finance. Hopefully, the finance minister will make some announcement in this regard through the budget speech.”
If the cash incentive of Rs 10 million is extended as proposed, the cost of building every megawatt of hydroelectric plant would come down by around six per cent, considering the cost of building per megawatt of plant at Rs 170 million.
Private sector power developers have long been demanding that construction materials be exempt from VAT citing almost all of the hydroelectric projects are built under the Build, Own, Operate, Transfer (BOOT) model and have to be handed over to the state for free within 30 years of official launch.
To address their demand, the Ministry of Finance, in 2011, had agreed to extend cash incentive of Rs one million on every megawatt of hydroelectricity generation.
However, private sector hydroelectric project developers had refused to accept the offer citing the amount was too low.
Since then the negotiations on VAT rebate has been going on. But the latest proposal of the committee formed under Secretary Banskota, which also comprised senior officials of the Ministry of Finance and the Ministry of Energy, has also tickled the fancy of the private sector.
“We would be more than happy if the government extends cash incentive of Rs 10 million on per megawatt of electricity generation, although project developers are spending Rs 11.6 million to Rs 12 million to cover the cost of VAT levied on construction materials,” said Khadga Bahadur Bisht, president of the Independent Power Producers’ Association, Nepal (IPPAN).
Earlier, in an interview with The Himalayan Times, Govind Raj Pokharel, vice chairman of the National Planning Commission, had also proposed extending cash incentive rather than tax rebates to attract investors towards the energy sector and make power outages a history.
Currently, the government has only been providing income tax holidays for hydroelectric project developers.
As per the financial ordinance, companies involved in commercial hydropower generation and distribution need not pay income tax for a period of 10 years from the commencement date of power generation, and extend only 50 per cent of the income tax thereafter for the next five years. This condition only applies to companies that start construction work by August 23 and begin commercial operation by mid-April 2019.
Likewise, companies that start commercial operation within mid-April 2019 are entitled to 100 per cent income tax rebate for a period of seven years from the commencement date of power generation and 50 per cent discount thereafter for the next three years.
Source : Republica