Promised incentive package for hydro projects remains elusive

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    KATHMANDU, MAR 04 –

    Ministry of EnergyThe government had promised to provide incentive packages to a number of private hydropower projects last year, but none of them has received the award so far. The Ministry of Energy had recommended 23 projects to the Ministry of Finance as potential recipients, and also urged government-owned banks to provide soft loans to seven of them.

    The government had pledged to provide facilities to boost the financial health of troubled power projects under its relief package programme and help them to go into commercial operation at the earliest.

    A taskforce formed by the government to study ways to ensure convenient access to necessary resources for such hydropower projects had recommended providing them soft loans at an interest rate of 10 percent. It had proposed such facilities for projects scheduled to be completed within 2014.

    It had created four types of incentives, including concessional loans, VAT waiver on construction materials for projects that are in the final construction phase, waiver of delay charges and hike in power purchase agreement rate.

    The plan also says that if projects receiving the facility fail to generate energy by 2014, they will have to pay double the amount of the benefits they have been given as delay charge.

    Bishwo Nath Kandel, executive chairman of Ankhu Khola Hydropower Company which is developing the 8.4 MW Ankhu Khola project, said that the incentive package has been just like a mirage for independent power producers (IPPs). “Apart from introducing the incentive package and promising to providing facilities to IPPs, the government has done nothing,” he added. “The scheme has now been nothing more than a way to fool the private sector.”

    IPPs have long been seeking government support citing difficulties in completing construction such as high bank rates and low power purchase agreement (PPA) rate. They have blamed the government of introducing a mere populist agenda by unveiling the incentive package when it had no intention of helping private sector developers.

    The government had also promised to increase the PPA rate for these projects by 20 percent. However, Subarna Das Shrestha, president of the Independent Power Producers’ Association of Nepal (IPPAN), accused the Nepal Electricity Authority (NEA) of refusing to sign PPAs at the revised rate. “The Energy Ministry has sent the names of around 14 projects to the NEA for signing PPAs,” added Shrestha. “However, the NEA has not been paying attention to the requests of these projects to sign the agreement.”

    “As the country’s entire hydro development sector is facing hardships due to the poor financial health of hydropower companies, timely supportive measures by the government are crucial,” he said. He also asked the government to increase the loan payback period to seven years.

    However, a high-level official at the Finance Ministry said that seven hydropower projects would get soft loans and other promised facilities soon. “With regard to 13 other projects, the ministry is yet to decide if the projects recommended by the Energy Ministry are eligible to receive the benefits,” he added.

    Meanwhile, ministry officials have pointed out that a VAT waiver cannot be given on construction materials as it would violate tax laws. The ministry has allocated Rs 2 billion to the projects for the entire package.

    Currently, the average cost of hydropower projects stands at Rs 140 million per MW. The action plan had pledged to provide soft loans of Rs 20 million per MW at an interest rate of 10 percent. More than 50 projects had applied to the Energy Ministry for the facility.

    Source : The Kathmandu Post