September 13, 2011, Ministry of Energy

IPPAN Delegation Team led by IPPAN President, Dr. Subarna Das Shrestha met with Hon'ble Mr. Posta Bahadur Bogati, Minister for Energy. Also present in the meeting were Mr. Balananda Paudel, Energy Secretary and more than thirty five (35) Independent Power Producers, representing different power companies, and energy journalists.

Dr. Subarna Das Shrestha, IPPAN President, congratulated Hon'ble Mr. Posta Bahadur Bogati, on his appointment as minister for energy. MR. Khadga Bahadur Bisht presented Hon'ble minister Hydropower Book, published by IPPAN. Then Mr Shrestha put forward following issues before the minister.

•  Rescue Package for projects under construction and enabling environment for PPA-ed projects  for financial closure;

•  PPA Tariff adjustment

•  Postponement (unofficial) of PPAs by NEA

•  Delays in project development agreement  and its fall –out in  international field

•  Expiry of Survey licenses, resulting from government's procedural delays and compensatory mechanism to renew

•  Discrimination by the newly established Hydropower Investment and Development Company in making available loans to small power projects

•  Moves by NEA for cancellation of PPAs of 22 power projects

•  VAT Exemption of Civil Construction Materials

•  Re-financing facility for two years @ 10-12 % interest

•  Survey License based on Competitive bidding (for projects above 10 MW)

•  Expeditious construction of domestic and Cross Border Transmission Lines

•  Revision of NEA's consumer Trariff

•  Sovereign Guarantee by the  government for international loan

Dr. Shrestha, on the occasion, underlined the importance of revision of both consumer and PPA Tariff and added that IPPAN has been lobbying for the new PPA rate of NRs. 5.99/kWh, with escalation rate of 5 % for nine consecutive years. He also informed that 22 projects are on the verge of being black listed, for their failure to complete financial closure. He said that IPPs cannot do much, when banks are reluctant to finance the projects under construction, because PPA rates have not been revised in the case of projects under construction. This problem will worsen further, because banks will tend to finance PPAed projects only with new revised PPA rates.

He also remarked that the recent announcement of VAT exemption of 10 lacs rs per MW was though welcome step, was far from being adequate.

Mr. Gyanendra Lal Pradhan said that a rescue package for "sick" hydropower projects is the need of the hour. If rescue package is announced, taking into account the due concerns of IPPs, at least 50 projects will start generating power within 1.5 years to 2 years.

Mr. L.B.Thapa requested for "Grace Period of one year" for 22 projects, who have received notice from NEA for cancellation of PPAs for failing to complete financial failures.

Mr. BijayaKrishna Shrestha drew attention of the Hon'ble Minister and secretary towards the local disturbances in Khudi hydropower project.

Mr. Balananda Paudel , Secretary

Improving Investment Climate:

Ministry is well aware of the fact that private sector will come in, where there is profit and minimum risks. So, we are trying to reduce construction costs by various means like VAT Exemption, Income tax holidays, expeditious processing of files etc. Our whole efforts are directed towards reducing the construction costs so as to make the projects bankable.

We are trying to improve the investment climate, because if there is no profit, investors will not come to invest in power sector, even if we intend to welcome them with "Red Carpet".

VAT Exemption:

Regarding VAT Exemption, Ministry is lobbying for VAT Exemption, based on norms like XXX bags of cement per MW, XXXX tons of Reinforcing bars /MW. Alternatively, MoEn is also working on VAT amount to be deducted from the Royalty Amount to be paid to the Government.

About energy deficits:

Our power demand is estimated to grow at the rate of 80-90 MW of power. However, recent study suggests that the yearly increment in power demand is estimated to be 124 MW (suppressed demand). Therefore, there will be load shedding hours in the years to come.

Additional Cross border Transmission Line to export surplus energy:

It is true that NEA now-a-days, is reluctant to enter into PPA with IPPs. It is because, even if 50 % of the projects under construction or projects with PPAs signed, come into operation, NEA will have surplus energy after 2017 AD during wet seasons(although there will be energy shortage during dry years). Therefore, we have to explore power markets across the border. Regarding power market for surplus energy after 2017 AD, ministry was planning to open another point for cross border Transmission Line, besides the 400 kV Dhalkebar-Mujjaffarpur Transmission line.

Since the 400 kV Cross border Transmission Line between Dhalkebar and Mujjafarpur is already booked to evacuate 1500 MW ( to the point of saturation) of power, we have to explore cross border transmission line at different point, Butwal – Gorakhpur, or somewhere else.

Project Development Agreements:

We know that PDAs are not moving fast. However, we will soon enter into PDAs with IPPs. IPPs should not be worried about the cancellation of Survey Licenses due to delays in procedural processing. The government will certainly take into account the delays it has made, while processing the 'files".

Transmission Line Network:

The past government record regarding Transmission line is not good. We are in contact with the officials of the ministry of finance to allocate more fund for transmission line network projects.

Hon'ble Mr. Posta Bahadur Bogati, minister for energy

Being a new minister, I am still in the process of familiarizing with the issues of power sector. Regarding budget for updating and construction of Transmission Lines and other issues related to Finance Ministry, soon we will have interaction with Finance ministry at secretary level and ministerial level. We are ready to support independent power producers in every possible ways.

Regarding local disturbances, the aspirations of local people have become high, and it has been a challenging task to manage them. Therefore, we should try to develop a sense of ownership of the local people towards the project.

We need small hydropower projects to meet our immediate energy needs. Hover, we will need mega projects from long term planning point of view.