Taskforce proposes soft loans at 10pc interest for power projects

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    A taskforce formed by the government to study ways to ensure that hydropower projects have convenient access to necessary resources has recommended providing them soft loans at 10 percent interest. It has proposed providing such credit to projects scheduled to be completed within a year.

    The taskforce led by Nepal Rastra Bank (NRB) deputy governor Maha Prasad Adhikari submitted its report to Finance Minister Barsha Man Pun on Monday.

    The Ministry of Energy (MoE) had earlier asked that such loans be provided at 8 percent interest since the Nepal Electricity Authority (NEA) has been borrowing money from the government at an average interest rate of 8 percent.

    Introducing a Load-Shedding Reduction Action Plan in February, the Ministry of Energy (MoE) had announced four types of incentives, including providing loans at concessional rates. The action plan has pledged to provide soft loans worth Rs 20 million per megawatt at an interest rate of around 7 percent.

    The taskforce has suggested to the government to provide such loans through banks and financial institutions (BFIs). “The government will not lend the money directly to hydropower projects but use the network of BFIs,” said Sher Singh Bhat, a member of the taskforce. The payback period of such loans will be seven years after the project goes into operation.

    The taskforce has recommended that the soft loans be provided through Rastriya Banijya Bank (RBB) to BFIs. RBB will then lead consortium partners. Generally, hydropower project financing is done through consortium loans with more than one BFIs being involved. “We have proposed that such loans be provided within seven days of the request by hydropower projects,” said Adhikari.

    The taskforce has also suggested that such soft loans be extended to other hydropower projects that will come online by 2071. “The report has suggested providing soft loans to other projects also once the government completes providing loans to projects to be completed within a year,” said another member of the taskforce.

    The Finance Ministry had formed the taskforce in response to the MoE’s recommendation to provide easy credit and value added tax (VAT) exemption on construction materials to seven hydropower projects as per the government’s Load-Shedding Reduction Action Plan.

    The Energy Ministry has so far received loan applications from 50 projects. “Once these seven projects are approved to get the facility, the ministry will recommend other projects,” said Energy Secretary Hari Ram Koirala.

    The projects for which the MoE has sought soft loans are Akhu Khola I (8.4 MW), Bijayapur I (4.4 MW), Lower Modi (9.9 MW), Jiri Khola (2.2 MW), Mid-Chaku (1.8 MW), Indrawati Khola (4.5 MW) and Lower Chaku (1.7 MW).

    MoE officials said that though it had asked the MoF to provide soft loans at 8 percent interest, loans at even 10 percent interest would make life much easier for hydropower projects.

    MoF sources said there had been understanding to provide Rs 2 billion to these projects. However, Finance Ministry Spokesperson Rajan Khanal said that the ministry was studying the report and would reach a decision soon.

    by : Ekantipur Report