NRB’s LC decision affect hydropower dev

Nepal Rastra Bank's (NRB's) decision prohibiting import of construction goods for hydro projects above five MW from India through Letter of Credit (LC) on convertible foreign currency has affected hydropower development.

NRB's decision has increased project costs by 25 percent from the estimated cost.
Generally, it costs about Rs. 150 million to generate MW. However, the NRB decision to stop issuing LC to domestic developers for projects above five MW is expected to increase the project costs by more than Rs. 30 million for each megawatt.

The foreign exchange department of NRB in March 2006 had decided to allow 'A' class financial sectors to issue LC for promoters with capacity below five MW to import construction goods from India.

According to Bishwa Nath Kandel, executive director of Ankhu Khola Hydro Electricity Project (seven MW), local developers involved in hydropower projects with more than five megawatt capacity have been affected. "Most developers who were in the process of acquiring hydro project construction materials from India have been seriously affected," he said.

The Indian government has provision of exemption of income tax, excise duty and other fees for goods that earn foreign exchange.

In 2008, NRB had decided to issue LC to import 124 different construction materials and equipment. "However, the NRB decision to stop issuing LC to projects above five megawatt has seriously impacted the construction of the hydro projects now," said Kandel.

More than one dozen hydro projects with capacity of about 50 MW have entered power purchase agreement (PPA) after implementing the policy.

"Some projects that are underway or have already finished PPA are likely to be affected due to the NRB decision," said Yagya Prasad Subedi, promoter of the 20 MW Lower Balefi Hydro Project.

"The decision goes against national developers working for hydro development in the country," said Kandel.

Source: eKantipur