BUDGET BUZZ: Hydropower is THE sector

Hydropower is the sector government should seriously think of developing for the overall development of Nepal. Indeed, the development of other sectors like industry, services, agriculture, tourism etc is not possible without power. Sustainable and accelerated hydropower development in Nepal largely depends on the creation of an investment friendly climate. The budget therefore should address the following concerns of the Independent Power Producers' Association Nepal (IPPAN):
· Income tax holiday should be for 15 years. The Electricity Act 2049 had made provision for tax holiday for 15 years, which was scrapped later by a budget speech. Hence, commitment is needed from all political parties that policies related to hydropower industry remain unchanged for at least 15 years.
· VAT exemption on hydropower industry should include both construction materials and electro-mechanical equipments.
· There should be VAT exemption in the import of construction materials and electromechanical equipments. Also, there should be one per cent custom duties on the import of construction materials and equipments related to hydropower.
· Hydropower developers have to pay mortgage tax at the rate of 0.2 per cent of the bank loan. The amount to be paid as tax is colossal for small and medium sized hydropower projects. For example, the construction cost of a 25 MW hydropower project at the rate of Rs 15o million per MW is Rs 3,750 million. The loan investment at the rate of 70:30 ration is Rs 2630 million. Now, the mortgage tax to be paid at the rate of 0.2 per cent is Rs 5.3 million, which is a sizeable amount of money. We therefore request the government, to either cancel it or minimize it.
· The government should allow to open Letter of Credit (LC) in US dollars or in other foreign currency while importing equipments or materials related to hydropower industry. In such a case, importers will be exempt from 16 per cent excise duty of the Indian government. It will prove a big relief to hydropower developers.
· Also, the government should allocate budget for the construction of new transmission lines and strengthening of existing transmission lines.
· The government should make access roads for hydropower projects, which are being built in a cluster in a river basin. Also, the government should construct inter-connecting transmission lines for such hydropower projects.
· The government should speed up construction of the east-west mid-hill highway. It will pave the way for generating inexpensive power. Also, it should build high capacity 400 KV east to west transmission line running through the mid-hills and along the east to west mid-hills highway.
· The proposed international Infrastructure Development Bank should be instituted at the earliest possible, since capital available in the local banks is sufficient for small hydropower projects only.
· Loans to hydropower developers should be provided on project financing instead of personal guarantees.

Dr Sandip Shah
President
Independent Power Producers' Association Nepal (IPPAN)