We Are Receptive To Private Sector’s Suggestions For PDA

Bishwa Prakash Pandit

Secretary

Ministry of Energy

The Ministry of Energy (MoE) is in the process of finalising the Project Development Agreement (PDA) for power projects. The Corporate weekly’s Janardan Baral spoke to Bishwa Prakash Pandit, Secretary at the MoE about the issues of draft PDA, Power Purchase Price and power transmission lines. Excerpts:

The Ministry of Energy (MoE) is about to finalise the template for Power Development Agreement (PDA). What are the major provisions? 

The Electricity Act of 2049 still exists and foreign and local investors develop the projects remaining within the parameters set in that Act. The PDA is being practiced in recent years throughout the world to increase the security of investment. Private sector entrepreneurs in Nepal too want PDA system. Frequent changes in policies and tax rates have increased the cost in hydro power development and there are risks posed by natural settings as well. The PDA template will include the issue of how such risks are to be shared. We have included this under ‘force majeure’. Similarly, the issue of quality and security are also addressed in the PDA template. As the project is eventually to be transferred to the government, the quality issue is important. The social responsibility of the developer is also necessary to be included. The process of handing over the project to the government and disputes settlement mechanisms are also being included. 

To what extent are the private sector’s suggestions going to be included in the PDA template? 

The private sector’s suggestions are largely included in the template. The PDA will balance the profit interest of the private sector with the national interests. 

It is said that the PDA drafted by the MoE is not bankable. Why did not the MoE take care about making the PDA bankable? 

We do understand that the PDA should be bankable. In case the current template is not bankable then we want suggestions from the private sector to make it so. We are preparing the PDA template to make it private sector friendly and have been receptive to the private sector’s suggestions. 

Most of the power projects developed by the government suffer time and cost overrun. Why? 

Nepal is still in the process of drafting the constitution. Political instability has continued in Nepal for quite long. And is the main cause of time overrun in projects. Similarly, frequent change in government brings change in the leadership of the power projects programmes. Also the practice of starting a project without enough funds arranged is to blame for this. Similarly, there is the challenge of getting the support from local communities. 

Independent Power Producers’ Association of Nepal (IPPAN) has urged for change in the Power Purchase rates. How is it possible to consider their demand when the only buyer Nepal Electricity Authority (NEA) is in perpetual loss? 

It is said that the reason behind NEA’s loss is the low electricity tariff. The government has a policy to revise the tariff as required by the time. NEA has thus formed a committee to prepare a model power purchase agreement so as to accommodate the view that the power price should be based on generation cost. The committee is considering also the view that a certain Internal Rate of Return should be assured to the developers. 

Why is the delay in inking PPA with the ‘super-six’ hydropower projects? 

The government has entrusted the super-six hydropower projects to private power producers selected through a bidding process. But the government is not able to fulfill its commitment regarding these projects. However, the MoE is determined to fulfill those commitments. The problem of these projects is lack of transmission lines. Current FY budget has allocated funds for development of these transmission lines. But this budget allocation alone is not enough to hope that there will be transmission lines. I believe that there has been a great mistake of granting license for the super-six projects before the development of transmission lines. We collected money from the private sector but could not prepare the transmission lines on time. Therefore, the private sector is suffering a lot in this regard. Thus, I commit to create situation for these super-six projects to start construction as soon as possible. 

Private sector power producers have been asking for PPA in US dollars and NEA is refusing it. This discourages foreign investment. Is it possible to develop hydropower only from domestic investment? 

PPA in US dollar will not make any difference if the generated electricity is exported. Nepal’s currency is not strong enough and costs have increased by signing PPA for Khimti and Bhote Koshi projects in US dollars. This experience is the reason why NEA is hesitating from PPA in US dollars. The MoE, however, has formed a committee to work for agreements in US dollars. 

FY 2013\14 budget has allocated Rs 13 billion for the hydropower and energy sector, focusing on development of transmission lines. Will the transmission line problem be solved now? 

It is necessary to have a sufficient budget for transmission lines. Foreign grants are included in the budget for the development of transmission lines. But for land acquisition, which is one of the major problems for the transmission lines, the government itself should allocate a budget from its own resources. This is lacking in the budget. We are currently in dialogue with the Ministry of Finance to solve this problem. 

The budget did not address the demand of the private developers for a waiver of VAT on construction materials used by power projects and other demands of the private sector. Why is this so? 

We are in the discussion about such demands from the private sector. A conclusion is yet to be arrived at on this. So it was not included in the budget. We are, however, determined to encourage the private investors.