The energy sector has multi-dimensional impact on Nepal’s economy. This sector has played an important role directly and indirectly. As a result, investment in Nepal’s hydropower sector has also increased significantly in recent period. Due to the contribution made to the economy, the encouragement of the government and related agencies, and the interest of investors, this sector is becoming very widespread. Investors should be more responsible and all state agencies should cooperate to make the future sustainable and widespread. Expected benefits can be derived from this only through coordination and cooperation of the concerned parties for energy production.

In order to strengthen the energy, various bodies should move forward by coordinating from their respective places. In this, the role of the government, Nepal Rastra Bank, Hydropower Regulatory Commission, Securities Board, Department of Hydropower Development and other bodies is very important. It is not enough for one sector to increase investment in the development of the energy sector. Energy promoters can also work effectively if different sectors work in a coordinated manner.

The Nepal Rastra Bank (NRB) has adopted a good and prioritized policy in the hydropower sector.TAG_OPEN_em_60 Commercial banks are required to disburse at least 10 percent of their loans to the energy sector by Ashad end, 2084 BS. The government has made provision to disburse 7 percent of the loan, 8 percent by the end of 2083 BS and 10 percent by the end of 2084 BS. It is believed that this will contribute a lot to the development of the energy sector.

Nepal Rastra Bank’s efforts

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Credit flow of banks and financial institutions is increasing. The loan limit in the hydropower sector as of mid-October 2082 is Rs 516.43 billion. During this period, Rs 430.22 billion has been invested in this sector. The bank has made provision for loan loss on the loan issued by the bank in the hydropower sector. Once the banks and financial institutions extend the grace period, such loans will be considered as restructuring÷rescheduling. Accordingly, the credit loss provision has to be maintained. However, the NRB has made a provision that the restructure÷rescheduling of the hydropower project will not be considered as if the grace period is extended due to the construction of the transmission line due to the completion of the hydropower project or the completion of the hydropower project and the start of production.

For good loans disbursed in infrastructure construction projects including energy with a grace period of more than one year, a proportionate loan loss arrangement can be made every year and a general credit loss of 1 percent in the last year can be maintained. For example, if a loan has a grace period of 4 years, then the general credit loss system can be maintained at 0.25 percent in the first year, 0.50 percent in the second year, 0.75 percent in the third year and 1 percent from the fourth year.

The government has also made a provision to extend the loan to hydropower projects for five years and to reservoir-based hydropower projects by adding up to 1 percentage point in the base rate during the loan period. In case of the loan issued by the bank in 11 different sectors, the interest can be capitalized by the board of directors of the concerned bank. Among them is the energy sector.

In case of hydro and hydropower projects which have not been able to operate in full capacity due to the construction of the transmission line but have not been constructed after the completion of the transmission line, the interest amount can be partially capitalized to the extent borne by the net sale income until the construction of the transmission line is completed. Similarly, in case of interest-capitalized hydropower projects, the amount in ICTL can be transferred from ICR to the accumulated profit if 60% of the project is completed.

The licensee can disburse fund-based loans and non-fund-based facilities up to 50 percent of the primary capital in renewable energy projects, hydropower, transmission line and cable car construction projects. The definition of a mutual relationship has also been relaxed. Under this, in the case of national priority hydropower projects, a guarantee can be given only on the basis of a customer’s guarantee by specifying the condition that they do not fall into the group of mutual relatives. If such projects are not completed within the stipulated time, such exemption will automatically be canceled.

Nepal Rastra Bank (NRB) has adopted a good and prioritized policy in the hydropower sector. Commercial banks are required to disburse at least 10 percent of their loans to the energy sector by Ashad end, 2084 BS. The government has made provision to disburse 7 percent of the loan, 8 percent by the end of 2083 BS and 10 percent by the end of 2084 BS. It is believed that this will contribute a lot to the development of the energy sector.

There are policy provisions to facilitate the availability of long-term investment means to the energy sector. Provision has been made for banks that have experience of investing in the energy sector to issue energy bonds after obtaining approval from the concerned body. The amount collected from the agricultural and energy bonds so issued should be disbursed to the concerned sector within 3 years from the date of issuance of the bonds. As per the provision, the bank has to invest at least 30 percent of the amount collected in the first year, 60 percent of the amount collected in the second year and the remaining amount by the third year.

Loans up to 1,000 KW to micro and small hydropower projects up to 1,000 KW owned by consumer committees, cooperatives, private and public private partnerships that invest 50 percent or more of the total cost of the project targeting poor households can be included in the loan for the poor class. This is a very important task for the energy sector.

Now domestic investors have started building big projects. It’s a positive dimension. At present, the capacity of the promoters who have built the capacity of three ÷four hundred megawatts is expanding. As the capacity to build the project increases, it is necessary to increase the consumption of hydropower and to make a commitment to support the project. Emphasis should also be laid on good governance in energy investment. The goal can be reached only through cooperation, cooperation and commitment of all sides.

Banks and Financial Institutions

Banks and financial institutions have set limits on the flow of loans. Banks and financial institutions are required to disburse loans subject to policies, rules and directives. Banks and financial institutions should always be vigilant for the utilization of loans. Otherwise, in some cases, the loan may go elsewhere without going to the place where it needs to go. Banks should hire experts, study about the project and disburse loans within the limits set by the Nepal Rastra Bank.

At present, there is enough loanable money in the banking system. There is no problem in giving loans to banks and financial institutions only on the basis of investable amount. After the banks and financial institutions invest, they should see what has been done at what time the project is being constructed. In this way, the promoters are trying to get the work done quickly. This will allow the project to be completed on time. It benefits everyone. The cost benefit is high.

After the completion of the project, the results will be generated. Loans start decreasing and banks start getting interest on time. The people will also benefit from a good project. Jobs will be created. The public will get the shares. It contributes to the overall development of the country.

There have also been complaints that the project promoters have not completed the project on time. Some developers have also been constructing projects on time at low cost. If the project is completed within the stipulated time, hydropower will be generated on time. The project will start generating income. As per the Securities Board, there is no problem of not reaching 90 in net worth. This allows them to issue ordinary shares (IPOs) on time. That money will make it easier to repay the loan.

Promoters of hydropower projects should be very responsible. Banks and financial institutions provide loans more than the amount invested by the promoters in the project. The promoter’s job is not only linked to hydropower production but also to the health of the country’s financial sector.

Nepal Hydropower Authority

It is heard that the promoter is facing various challenges to construct the project. Banks and financial institutions raise funds for the construction of the project. The project is licensed by the Department of Hydropower Development. The Hydropower Authority (NEA) does PPA and buys electricity. Then, he pays the money. If the NEA does not sell hydropower without constructing the transmission line after the generation of hydropower, it will be affected. The project will not be able to repay the bank loan if it does not purchase electricity during the rainy season as a contingency.

Nepal Rastra Bank (NRB) has directed banks and financial institutions (BFIs) to provide loans to invest in hydropower sector. The hydropower authority should purchase the production of the projects with the investment of banks and financial institutions. Otherwise, there will be no synergy between the policies of the Nepal Rastra Bank and the Nepal Hydropower Authority. The hydropower produced by the project had to be purchased by the NEA. Effective management of transmission lines should be done from paying for PPAs.

Hydropower generation and consumption

As the production of hydropower increases, attention should be paid to consumption. Along with hydropower production, our efforts are also necessary to increase its consumption. Now, with the increase in the import of hydroelectric vehicles in Nepal, it has become easier to manage the fuel import to some extent. There is a need to adopt a policy to increase the domestic and industrial consumption of hydropower. The use of induction stoves for domestic consumption should be widened. This will also reduce the cost of import of LP gas. We must move towards hydropower-based industries as soon as possible. From an environmental point of view, the hydropower industry is also good.

Currently, the total hydropower generation capacity is around 4,000 MW. Of this, the government has 600 MW and the private sector has 3300 MW. If foreign currency could be earned by exporting hydropower saved from internal consumption, it would also help in reducing the trade deficit.

The target is to generate 28,500 MW of electricity by 2035. According to this, industries that consume hydropower are also needed. We can also export more hydropower. Hydropower is being exported to India and Bangladesh. This benefits the state. For this, the state, private sector and banking sector need to come together. It is estimated that more than Rs 60 trillion will be required to build projects with a capacity of 28,500 MW in the next nine years.

By 2035, we have to be serious about investing about Rs 600 billion in projects with a capacity of 28,500. Can we make all these investments? There may be a bit of a problem with this. If there is a lack of resources and capacity, foreign investment can be brought in for the construction of big projects. Everyone needs to try their best.

There is a possibility of building good hydropower projects in Nepal. Now, we have to build reservoir-based hydropower projects. Rainwater needs to be stored to meet the needs of winter. It will take time to meet the target of 28,500 MW without constructing big reservoir projects. For this, all of us, including the hydropower investors, should think on time.

Now, domestic investors have started constructing big projects. It’s a positive dimension. At present, the capacity to build projects of three to four hundred megawatts is being expanded. As the capacity to build the project increases, it is necessary to increase the consumption of hydropower and to make a commitment to support the project. Emphasis should also be laid on good governance in energy investment. The goal can be reached only through cooperation, cooperation and commitment of all sides.

(Article by Deputy Governor of Nepal Rastra Bank, Mishra, from Energy Prosperity Souvenir 2082)