Government, developments partners agree on harmonisation of disbursement practices

The government and six Multilateral Developments Banks (MDBs) and International Financial Institutions (IFIs)—Agence Française de Développement, Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), International Fund for Agricultural Development (IFAD), OPEC Fund for International Development, and the World Bank (WB)—agreed to work together to harmonise disbursement procedures and practices to help enhance operational efficiency and achieve Nepal’s development goals.

The agreement was reached at a two-day ‘MDBs Disbursement Harmonisation Workshop’ organised in Kathmandu on March 25-26 by the MDBs and IFIs, in close partnership with the Finance Ministry.

“Fostering a unified disbursement system among all MDBs will help facilitate allocation of funds, enhance operational efficiency, and ensure timely disbursement of funds to the government to achieve development results,” said finance secretary Dr Krishna Hari Pushkar, on the occasion.

According to a press note issued by the organisers, the government and MDB-IFIs agreed to focus on various future collaborations including harmonisation of flow of funds, reporting, legal and disbursement arrangements for the three-tier structure of government; standardisation of reporting templates across MDB-IFIs’ operations in Nepal to reduce the administrative burden on the government; and strengthening and aligning country system with MDBs-IFIs to the extent possible.

“Unprecedented challenges demand urgent action and the need for harmonisation among the MDB-IFIs," the World Bank vice president and controller Pamela O’Connell said, adding that the World Bank, in its continued efforts to improve operational efficiency and support better development results for its mutual clients, is committed to work with co-financing partners in the area of disbursement harmonisation.

On the occasion, government representatives and MDB-IFIs agreed to carry froward the momentum by way of a Memorandum of Understanding (MoU) between the government and MDB-IFIs, which will be prepared and implemented in a phased manner.

The Kathmandu Declaration would be a model to be emulated in other countries, according to the press note.

“To achieve sustainable economic growth and poverty reduction it is imperative that budget allocation is fully utilised," Financial Comptroller General Hari Prasad Mainali said, adding that the government is committed to strengthening reforms to build transparency and accountability of public financial management systems and strengthen service delivery.

The workshop was attended by high-level representatives from the government and MDB-IFIs.

Participants discussed disbursement and implementation-related opportunities and challenges, and the way forward to supporting MDB-IFIs operations in Nepal. In view of the federalism transition, legal and disbursement options available for project implementation at provincial and local levels were also discussed, and international experiences were shared.

World Bank likely to exempt loan

The World Bank (WB) is likely to give a surprise gift – most probably by exempting loan – for the low income country including Nepal.
The World Bank and International Monetary Fund (IMF) is going to give a ‘surprise’ at the end of the ongoing spring meeting, according to World Bank country manager Faris Hadad-Zervos.
The government has requested the development partners – including World Bank, Asian Development Bank (ADB), International Monetary Fund (IMF), Asian Infrastructure Investment Bank (AIIB) – to either waive or differ the interest and loan payment schedule. The development partners have neither denied nor accepted Nepal’s proposal. However, the IMF-WB spring meeting is expected to take some decision on the matter.
Speaking to the journalists today, through a video conference, organised by the Society of Economic Journalists Nepal (Sejon), Faris said that the impact of coronavirus pandemic in the global economy is going to be unfortunate for the next few years.
“The World, South Asia and Nepal are going to see significant drop in GDP growth in the ongoing and upcoming few years as per him,” he said, adding that the GDP in South Asia – before the pandemic – was expected to grow at 6.3 per cent. “But as the result of the Covid-19, the region is likely to see GDP growth between 1.8 per cent and 2.8 percent in the current fiscal year, which the worst growth rate in last 40 years.”
The GDP growth in South Asia is expected to remain moderate in 2021 fiscal year at 3.7 per cent to 4.2 per cent, according to the World Bank. Though Nepal is located between two big neighbours and neighbours themselves have witnessed reduction in growth, this will also leave an impact on Nepal and its growth, he said, adding that the recession that we are going through this coronavirus pandemic is different than other. “It is not just recession but a different type of recession.”
Usually recessions impact investment and demand for goods. Normally, recessions are demand-driven while the current recession due to coronavirus is supply-driven. “We are currently facing supply-short rather than demand short, Faris said, adding that understanding this recession differently will help economies use different new and unique tools to revive economy and growth. “Understanding this panic differently will also help countries to bring out necessary stimulus package in unlocking supply side constraints.”
According to the World Bank's projection, the GDP in Nepal is expected to grow between 1.5 per cent and 2.8 per cent in the current fiscal year, while the growth would be roughly 3 per cent in the next fiscal year 2021-22.
Remittance hit will directly affect foreign exchange, Faris said, adding that employment and migration, trade and tourism sector will be directly hit in Nepal. “We expect that Nepal's inflation will go above six per cent in the current fiscal year due to the supply shock while both fiscal deficit and the current account deficit are expected to be widened.”
He also informed that the World Bank is working with the government to support Nepal tackle the pandemic and recover the economy. “World Bank believes that a lot has to be done next year on priority basis,” he said, adding that the first priority should be the immediate health response and the government is already doing it. “The second is immediate social assistance and jobs as many overseas Nepalis will be returning home which demands huge number of jobs. The Prime Minister Employment Programme (PMEP) and other such programmes should be focused.”
As it is a supply shock, thirdly we need to focus on the real sector by making sure that production of goods are continued, boosted and small and medium scale industries are focused, he added. “Similarly, supply chain should be made intact, and the fourth priority should be macroeconomic stability as the spending is going to be huge, there needs to be prioritisation of spending.”
To help Nepal prioritise the on the focus sectors, the Work Bank is moving 18 per cent of its portfolio from our existing portfolio projects towards Covid-19 response, he added.

Nepal to get IMF debt relief

Nepal is going to receive debt relief from the International Monetary Fund (IMF) for six months as part of its response to help address the impact of the Covid-19 pandemic.
The global monetary advisor announced the debt service relief for the 25 countries – including Nepal, Afghanistan, Benin, Burkina Faso, Central African Republic, Chad, Comoros, Congo, DR, The Gambia, Guinea, Guinea-Bissau, Haiti, Liberia, Madagascar, Malawi, Mali, Mozambique, Niger, Rwanda, São Tomé and Príncipe, Sierra Leone, Solomon Islands, Tajikistan, Togo, and Yemen – today under its revamped Catastrophe Containment and Relief Trust. “As of December 2019, Nepal’s outstanding loans to be paid to the international institutions stands at SDR 38.5 million ($52.36 million),” according to the fund's website.
The SDR (Special Drawing Rights) are the units of account, which is like currency and pegged with a basket of important foreign currencies like the US dollar, euro, Chinese yuan and Japanese yen. One SDR is equivalent to $1.36.
Nepal had received loans from the fund after the devastating earthquake in April 2015. “Debt relief for six months means Nepal need not pay installment – including principal and interest – for six months.
The government had however requested IMF to provide debt relief for two years.
During a video conference with senior officials of multilateral development partners including IMF, the World Bank (WB), Asian Development Bank (ADB) and Asian Infrastructure Investment Bank (AIIB), finance minister Dr Yuba Raj Khatiwada had asked for a deferral of the loan repayment schedule and debt relief from development partners, though Nepal has forex reserve that can pay for the import of goods and services for 8 months.
The IMF provides grants to its poorest and most vulnerable members to cover their debt obligations for an initial phase over the next six months, under the scheme.
“This will help them channel more of their scarce financial resources towards vital emergency medical and other relief efforts,” managing director of the IMF Kristalina Georgieva said, adding that the Catastrophe Containment and Relief Trust can currently provide about $500 million in grant-based debt service relief, including the recent $185 million pledge by the UK and $100 million provided by Japan as immediately available resources.
“Others, including China and the Netherlands, are also stepping forward with important contributions,” the press note issued by the IMF reads.
Georgieva has also urged the development partners to help it replenish the Trust’s resources and boost further its ability to provide additional debt service relief for a full two years to its poorest member countries.

Government forms external resources mobilisation committee

The government has formed an external source mobilisation committee to effectively mobilise the external resources received from multilateral development partners to combat the spread of the coronavirus and the unfavourable situation arising out of it.
“As the coronavirus will have more lasting impact on countries like Nepal which has limited resources, external support and resources are crucial to such countries,” finance minister Dr Yuba Raj Khatiwada said, proposing to form the committee led by finance secretary in a meeting with multilateral development partners that was held today through a video conference.
“The committee will also comprise members of government agencies, private sector and development partners,” the finance minister said, adding that the coronavirus pandemic is the biggest human and economic crisis of the 21st century.
The finance minister also sought further support from development partners to fight the situation caused by the coronavirus citing that traditional support policies and programmes of development partners will not be enough to combat the coronavirus and its impact.
Stressing on the need for collaborative efforts to fight against it, he also promised that Nepal will leave no stone unturned to fight against the pandemic and revive businesses and economy.
Though, the country has foreign exchange reserve that can sustain the imports of 8 months’ of merchandise and service imports, the finance minister, on the occasion, also asked the multilateral development partners to differ the loan and interest payment schedule as a precaution that the impact of pandemic could be longer.
Highlighting the crucial role of development partners in the process, the finance minister has sought an extra time just to ensure that forex reserve may not deplete due to dwindling exports receipt and decreasing remittance that is going to drop further in the months to come as most of the labour destination countries have been hit by the pandemic. Nepal has also closed the international traffic to contain the coronavirus, which has left some 30,000 foreign employment aspirants in dilemma.
The participating representatives of multilateral development partners accepted Nepal’s proposal to form a committee that will be formed under the finance secretary Shishir Dhungana.
Representatives of the World Bank, Asian Development Bank, International Monetary Fund, International Finance Corporation, Asian Infrastructure Investment Bank and the United Nations took part in the video conference.
The representatives of malitaral development partner agencies – in the meeting – stressed on the need to ensure availability of health resources to cope with the pandemic and effective policies and programmes to revive the economy.

AIIB approves $112.3 million loan for rural electrification project

The Asian Infrastructure Investment Bank (AIIB)’s board of directors has approved a $112.3 million loan to Nepal to increase access and improve the quality and efficiency of electricity supply across Province 5 and Karnali Province.
The AIIB has – issuing a press note today – mentioned that the loan will help the population in the aforementioned provinces to access grid electricity. AIIB has indicated that there is a large regional disparity on electricity access in rural areas, the press note reads, adding that the rural and hilly areas of western Nepal are the least connected, requiring substantial investments in distribution networks.
The ‘Distribution System Upgrade and Expansion Project’ is AIIB’s first sovereign-backed financing project in Nepal. This is also the first project approved, of which AIIB’s technical assistance under the special fund has supported compressive project preparation from the very early stage.
In 2018, Nepal received a $1 million grant under AIIB’s special fund to assist the government to prepare the electrification programme in western Nepal, in terms of feasibility study, technical design, and environmental and social management.
The project covers 13 districts in Province 5 and Karnali Province and will include the construction of 21 primary substations and over 2,000 km of distribution lines. A key component focuses on strengthening the capacity of Nepal Electricity Authority (NEA) to plan, analyse and modernise the network performance of the project.
“AIIB’s investment gives much-needed financing to provide affordable, reliable and modern energy, especially in rural areas where people lack basic infrastructure,” said AIIB vice president and chief investment officer DJ Pandian. “This project will help provide more than half a million people with new or improved access to electricity,” he said, adding that by investing in Nepal’s energy sector, the bank hopes to encourage further infrastructure investment in the country, which will support Nepal’s efforts to achieve the Sustainable Development Goals (SDGs) and drive economic growth, employment opportunities and poverty alleviation.

Nine international lenders to invest $453 million in Upper Trishuli-1

After a long homework of around decade, Nepal Water and Energy Development Company Private Ltd (NWEDC) today signed a foreign direct investment (FDI) agreement with a consortium of nine international lenders agreeing to inject $453 in debt financing for the construction of 216-MW Upper Trishuli-1 (UT-1) Hydropower Project.
Representatives from IFC, Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), Export-Import Bank of Korea (K-EXIM), Korea Development Bank (KDB), CDC Group PLC (CDC), Netherlands Development Finance Company (FMO), PROPARCO Development Financial Institution, and the OPEC Fund for International Development (OFID) signed the financial agreement of $453.2 million – approximately Rs 51.30 billion – for the loan financing of Upper Trishuli-1 Hydropower Project.
Arranged by IFC, the loan agreements were signed to provide a total amount of $453.2 million for the project. “Loans amounting to $161.3 million from IFC, $60 million from ADB, $39.6 million from AIIB, $100 million from K-EXIM, $30.8 million from KDB, $21.9 million from CDC, $15.4 million from FMO, $11 million from PROPARCO, and $13.2 million from OFID have been provided for the project,” according to a press note issued by the Investment Board Nepal (IBN).
Speaking at the agreement signing ceremony, minister for Energy, Water Resources and Irrigation Barshaman Pun said that the project is a game changer as it serves as an example of how the private companies could help Nepal expand its hydropower sector and attract the much needed FDI.
Assuring of the support, assistance, and coordination needed to expedite the process to meet the timeline set by project development agreement (PDA) for the financial closure, he claimed that the project will be an example for foreign investors.
Located in Rasuwa district, the project will generate annual energy of 1,533 gigawatt per hour (GWh) from three power generating units of total installed capacity 216 MW. “Total 38.75 per cent of the annual capacity will be generated in dry season and the remaining 61.25 per cent will be generated in wet season,” according to the press note, which reads that the delivery point of such energy generated is the under-construction Trishuli-3B Hub substation in Nuwakot. The project site is located near the Kathmandu load center and can provide a firm power of 104 MW all round the year.
During the signing ceremony, Prime Minister KP Sharma Oli – in a video message – said that it is one of the largest FDI projects of the country. “The project is important as additional 9 million people will benefit as the project comes into operation,” he said, adding that it will also prove crucial to support the government’s plan to end poverty and foster the economy. “The government urges foreigners to invest in such mega projects wholeheartedly.”
The project includes 29.5-metre high dam in Trishuli River, 9.7 kilometer-long headrace tunnel, 292- metre high vertical pressure tunnel and an underground powerhouse.
Addressing the signing ceremony, finance minister Dr Yuba Raj Khatiwada said that the project is a pilot project for bigger projects. “We are working on creating investment friendly regulations and have been very clear about the PPA policy including PPA in US dollar terms,” he said, adding that land and forest acquisitions have been made very simple to attract the investment.
Upper Trishuli-1 is the first project in South Asia to successfully complete the process of Free Prior Informed Consent (FPIC) from the local people in the project area.
The construction of the project will be done based on a fully wrapped engineering, procurement and construction (EPC) contract. A joint venture of Korean firms — Daelim Industrial Co and Kyeryong Construction Industrial Co — will carry out main construction works of the project that is scheduled to be completed is 5 years.
According to NWEDC, the construction of the project will start after the approval of the
Financing Agreements by the central bank and after the fulfillment of other conditions in the signed Financing Agreement documents. Earlier, the company had seen a funding oversubscription with nine multinational lenders offering a loan of $631 million against the $453 million required in debt finance.
“There is no question that Nepal has the potential to be an energy powerhouse,” chief executive officer of NWEDC Bo-seuk Yi, said, on the occasion. “To realise that promise, Nepal can enlist the help of private companies, which have the capital and expertise to make major projects a reality,” he added.
Likewise, director of infrastructure finance, South Asia, Central Asia, and West Asia at ADB’s Private Sector Operations Department Shantanu Chakraborty said that the agreement is a landmark transaction that will provide strong incentives for further private sector investment in Nepal’s energy sector.
To ensure it provides sustainable benefits, Chakraborty said that this project will adopt international best practices in safeguards management and will also introduce measures to promote gender equality, including job opportunities for women and better access to education, health care, amenities, and infrastructure.
On the occasion, IFC director for South Asia Mengistu Alemayehu said that the project represents a significant milestone in the development of Nepal’s hydropower potential as it has been able to attract meaningful private sector participation, particularly from international investors.
In July, the cabinet decided to extend the tax holiday to the company a few weeks after the anti-dollar alliance – Asian Infrastructure Investment Bank (AIIB) – approved its first $90 million loan to the project, raising eyebrows over the government’s decision to give tax holiday for the company, which has a dollar PPA with the power utility.
The project development agreement of the project was signed on December 29, 2016 while the power purchase agreement between NWEDC and Nepal Electricity Authority (NEA) was signed in January 2018.
When the NEA signed a power purchase agreement with Nepal Water and Energy Development Company a year ago to purchase the electricity generated by the project, the state-owned power utility agreed to pay in US dollars for a period of 10 years or until the portion of the investment made with foreign loans is recovered by the developer, whichever comes first.
After the row over hedge fund, the developer agreed to provide 17 per cent of the energy to the power utility free after 14 years and the government and electricity authority agreed to contribute two-thirds of the amount to the hedge fund.
According to the provisions, the company will be exempted from 100 per cent of income tax for the first 10 years of commercial operation and 50 per cent exemption for an additional five years.

ADB signs $60 million private sector deal to build hydropower plant

The Asian Development Bank (ADB) has signed a $60 million financing package with Nepal Water and Energy Development Company (NWEDC) to help build and operate a 216-megawatt (MW) run-of-the-river hydropower plant on the Trishuli River near the capital. The project will enhance Nepal’s energy security by helping to utilise its renewable hydro resources and reduce imports of electricity, according to ADB press note.
The agreement for the Upper Trishuli-1 Hydropower Project was signed by the Director of Infrastructure Finance, South Asia, Central Asia, and West Asia at ADB’s Private Sector Operations Department Shantanu Chakraborty and NWEDC’s chief executive officer Yi Bo Seuk at a ceremony in Kathmandu today. The project is one of the largest private sector investments in Nepal to date.
The financing comprises a loan from ADB and a loan from the ADB-administered Canadian Climate Fund for the Private Sector in Asia II (CFPS II). CFPS II was established by the Government of Canada to encourage private investment in climate change mitigation and adaptation projects in Asia and the Pacific. CFPS II funding was integral to the project’s financial viability as it helped attract private capital currently unavailable in the market.
“This is a landmark transaction that will provide strong incentives for further private sector investment in Nepal’s energy sector,” Chakraborty said, adding that the project will adopt international best practices in safeguards management and will also introduce measures to promote gender equality including job opportunities for women and better access to education, health care, amenities, and infrastructure to ensure it provides sustainable benefits.
The project has been prepared in compliance with international environmental and social standards. Detailed studies by international experts have assessed alternatives, impacts, and proposed mitigation measures representing global best practice in hydropower development.
ADB is cofinancing the project with other multilateral development banks and development finance institutions including the International Finance Corporation (IFC); Export–Import Bank of Korea; Korea Development Bank (KDB); Asian Infrastructure Investment Bank (AIIB); Commonwealth Development Corporation (CDC); Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden NV (FMO); OPEC Fund for International Development; and Société de Promotion et de Participation pour la Coopération Economique S.A.
Once operational, the plant is expected to provide over 1,200 gigawatt-hours of clean electricity annually to the national grid. The project is aligned with ADB’s operational priorities outlined in Strategy 2030, notably to eradicate remaining poverty; reduce inequalities; tackle climate change; build climate and disaster resilience; and enhance environmental sustainability.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members, 49 from the region.

Austria to invest in two hydropower projects

Austria has expressed interest in assisting Nepal technically and financially to construct two projects – 635-megawatt (MW) Dudh Koshi Storage Hydroelectric Project and 100-MW Tamakoshi V project – with a total installed capacity of 735-MW.
During the first Energy Mechanism meeting between Nepal and Austria today, joint secretary at the Ministry of Energy, Water Resources and Irrigation Prabin Aryal and adviser of the deputy minister for transport, innovation and technology of Austria Sonja Steeler signed the agreement, on behalf of their respective governments.
Austrian officials are also keen on working together to build the Dudh Koshi and Tamakoshi V projects and help enhance the technical capacity of the Nepal Electricity Authority (NEA), according to the Ministry.
The Energy Mechanism meeting is held in Kathmandu today, five months after the energy ministers of the two countries signed an accord on technological assistance in hydroelectric infrastructure in Vienna in May. Earlier, Nepal and Austria had signed a cooperation agreement on infrastructure and technology in Austria on May 22. At that time, both the governments had agreed to invest in Nepal’s transportation and hydropower sectors.
Currently, detailed project report (DPR) preparation of Dudhkoshi reservoir project’s is underway while the DPR of Tamakoshi V has already been completed and its construction work is expected to begin soon, according to the Ministry that expects an exchange of technology and experience through the joint mechanism. Austria is the first European country to sign a deal with Nepal on assisting the energy sector.
The social impact of the Dudh Koshi project is expected to be less as only 162 households will be severely impacted, while 1,150 households – located along the border of Okhaldhunga and Khotang districts – will be partially affected, according to the Environmental Impact Assessment (EIA) report that also added that Nepal Electricity Authority (NEA) is collecting necessary suggestions from local levels, affected municipalities/rural municipalities, forest users groups, various organisations, political parties and locals for the EIA report.
The Dudhkoshi project will be spread over an area of 19.8-sq-km in Khotang and Okhaldhunga districts. Likewise, the reservoir dam will be spread across 17-km in Dudhkoshi, 8-km in Rawa Khola and 5.5-km in Thotne Khola.
A joint venture between Italy and Japan – ELC Electro Consult of Italy and NEWJWC Inc of Japan – has been carrying out the DPR of the reservoir project.
The NEA, which plans to build the plant through a subsidiary company, expects the design and preparatory studies to be concluded by December.
Estimated to cost Rs 220 billion ($1.523 billion excluding taxes and other financial costs), the project plans to use tunnel boring machine to dig the tunnel of the project. The feasibility study for the Dudh Koshi Storage Hydroelectric Project recommends building a main underground powerhouse near the Sunkoshi River with four units generating 150-MW each and a small 35-MW hydro unit, near the toe of the dam. The reservoir type project will produce 3,443 gigawatt hours per year, higher than the expected annual output of 3,383 gigawatt hours of the proposed Budhi Gandaki scheme.
Likewise, the Asian Infrastructure Investment Bank (AIIB) has agreed to provide finance worth Rs 15 billion for Tamakoshi V project that will be developed at an estimated cost of $150 million. The project is being developed as a cascade project of 456-MW Upper Tamakoshi Hydropower Project.

China to assist Nepal in transforming it from landlocked to land-linked

Visiting Chinese President Xi Jinping today said that China will assist Nepal in transforming it from a landlocked country to land-linked country.
“China is also ready to open as many as trade transit routes with Nepal,” he said, adding that Chinese support will increase in post-quake reconstruction as well. Pledging to increase investment in the education sector of Nepal, encourage as many as Chinese nationals to promote Visit Nepal Year 2020 and address Nepal's concerns about climate change aside from promising to safeguarding common planet earth and maintaining ecology around the Sagarmatha region, he also expressed the determination to realise the projects and framework designed for development construction.
President Xi also said he was looking forward to discussing and exchanging views on matters of mutual interest and common concern with Prime Minister KP Sharma Oli tomorrow.
Delivering a statement in a state banquet organised today evening in honour of visiting Chinese President Xi, President Bidya Devi Bhandari said that Nepal-China relation is deep as ocean and high as the Mt Everest. “There are immense possibilities of taking warm and friendly relations between Nepal and China based on Panchasheel to a new height,” she said, adding that our relations based on mutual understanding, respect and well-being is close, strong and free of any problems.
Recalling that relations between Nepal and China have been connected through rivers and mountains, while there is social and cultural connection between the two countries since centuries, she also highlighted the significant contribution of Chinese monks— Fa Xian (Fa Hsien) and Xuan Zang (Hsuan Tsang) – and Nepali monk Buddha Bhadra, princess Bhrikuti and artist Araniko to further strengthen people's level cultural relations between the two countries.
The high profile visit from northern neighbour after 23 year since then president Jiang Zemin visited in 1996, also witnessed assistance to Nepal.
The visiting Chinese President, on the occasion, announced a support of 3.5 billion RMB to be provided between 2020 to 2022 for uplifting the living standard of the Nepali people. He also announced that work on trans-himalaya railways would move ahead despite its difficulties. The Chinese President – who is the most powerful president after chairman Mao in China – also said that the trade imbalance between the two countries could be addressed, if Nepal exports competitive goods. Stating that he was encouraging big and quality investments from China, President Xi said support could be sought from the Asian Infrastructure Investment Bank (AIIB) as well.
President Xi – on the occasion – also signed the visitors' book.
President Xi arrived in Kathmandu this afternoon on a two-day state visit, at the friendly invitation of President Bidya Devi Bhandari.
President Bhandari, on the occasion, said that the agreements and treaties signed with China have built a foundation for Nepal's easy access to the third world countries. During the high-level bilateral talks held at the Office of the President, Sheetal Niwas after welcoming her Chinese counterpart Xi Jinping, President Bhandari said Nepal is now striving to realise the national goal of prosperous Nepal and Happy Nepalis following the establishment of a stable government.
Stating that the government is working to transform Nepal into a middle-income country by 2030, she said the government was ever ready to facilitate and safeguard Chinese investments in Nepal.
Extending gratitude for the post-quake support in Nepal, President Bhandari said Nepal was looking forward to receiving Chinese tourists during the Visit Nepal Year 2020 and support for human resource development in the country.

Asian Infrastructure Investment Bank approves first loan to Nepal

The Asian Infrastructure Investment Bank (AIIB)'s Board of Directors has approved a loan of up to $90 million for a hydropower project in Nepal.
Approving its first loan to Nepal since it was established in 2014, the China-backed institution said Nepal will receive $90 million for the construction of the 216 MW Upper Trishuli 1 hydropower plant in Rasuwa. The 216-megawatt run-of-river hydropower plant will be developed on the Trishuli river under a 35-year build-own-operate-transfer (BOOT) model.
“The AIIB’s investment will provide much-needed, long-term financing for a vital infrastructure project,” said the bank’s director general Dong-ik Lee. “We are confident that our investment will demonstrate the viability of Nepal’s sustainable energy sector to other potential private-sector investors.”
The Upper Trishuli-1 Hydropower Project will increase the country's power generation by almost 20 per cent, helping to reduce acute power shortages in Nepal, according to a statement from the multilateral development bank.
The Asian Infrastructure Investment Bank plans to disburse the pledged amount for the $647.4 million hydel plant from October 2019. The project – to be constructed by a joint venture of Daelim and Kyeryong, and operation and maintenance by Korea South-East Power – is financed with a mix of debt and equity funding. The total debt stands at $453.2 million and is entirely financed by foreign capital with funds from sponsors including International Finance Corporation (IFC), Asian Development Bank (ADB) and others.
According to IFC – a stakeholder and lender to the developer – the plant has a capacity to provide 40 per cent of Nepal’s expected annual output during the dry seasons including the peak winter demand months.
“We recognise that power supply shortages in Nepal have caused significant delays in the restoration of infrastructure and services impacted by the 2015 earthquake,” AIIB vice-president and chief investment officer DJ Pandian said, adding, “By investing in hydropower and encouraging further private sector investment in the country, we will help drive economic growth and poverty alleviation efforts.”
The hydel plant with three units – each churning out 72 MW of electricity – is expected to be commissioned in October 2024, though hydel projects have never been completed in time in Nepal.
The developer and the Energy Ministry signed a project development agreement (PDA) in December 2016. According to the agreement, the sponsors – a Korean consortium, local promoter and IFC – will be responsible for the design, engineering, financing, construction, completion, commissioning, ownership, operation and maintenance and transfer of the project.
The energy generated from the project – being developed by Nepal Water and Energy Development Company (NWEDC) – will be supplied to the Nepal Electricity Authority (NEA). The two parties signed a 30-year power purchase agreement (PPA) in January 2018. The state power utility has agreed to buy the energy under a take-or-pay arrangement.
The NEA – while signing a power purchase agreement (PPA) – also agreed to pay in US dollars for a period of 10 years or until the portion of the investment made with foreign loans is recovered by the developer, whichever comes first. “It will be exposed to a foreign exchange risk of around $300 million, if the exchange rate of the US dollar rises at the rate of 3 per cent annually,” according to the NEA estimation. “And in line with the estimate, the government had asked the developer to contribute $150 million to the fund which it refused to do.”
After the row over the hedge fund, the developer agreed to provide 17 per cent of the energy to the NEA for free after 14 years of commercial operation, if it agrees to absorb the risks for the stipulated time,” the NEA said, adding that unlike dollar billing for power purchased from other projects under the build-own-operate-transfer model, billing for electricity produced by the plant will be done in Nepali currency after 10 years of commercial operation which will result in financial benefit to the NEA whenever the dollar depreciates. “Also, the developer will absorb risks in equity which amounts to $194.2 million,” it said, adding that the NEA and the government will not be exposed to heavy risks, if the company does its financial closing and manage funds in time.
The Cabinet had accepted – just before the Investment Summit in March – the developer’s offer to provide free energy after 14 years of operation and asked the electricity authority to implement the agreement with the amended terms.
“As per the hedge fund agreement, the developer will contribute one-third of the amount and the electricity authority and the government will put up two-thirds of the required fund maintained by Nepal Rastra Bank,” said Prabin Raj Aryal, spokesperson for the Energy Ministry without disclosing the size of the hedge fund.
The electricity generated by the plant will be evacuated to the Upper Trishuli 3B hub over a 10-km 220 kV transmission line connected to the national grid.
Apart from the $90 million loan, the Beijing-based bank has also provided Nepal with $900,000 for the proposed Tamakoshi 5 hydroelectric project and $1 million for a power distribution system upgrade and expansion project from its project preparation special fund. The special fund helps eligible AIIB members to mobilise grants for preparation of various projects.
Nepal is one of the 22 signatory countries that signed a memorandum of understanding to establish the bank in 2014. In January 2016, Nepal was elected to the bank’s board of directors.

Energy Minister urges Chinese entrepreneurs to invest in Nepal

Energy minister Barshaman Pun urged the Chinese entrepreneurs to invest in Nepal's hydropower sector.
Addressing an interaction on 'Nepal-China Economic Co-operation Forum: Prospects of Investment in Nepal’s Energy Sector’ – organised by Beijing-based Nepal Embassy in collaboration with China Association for International Economic Co-operation – in Beijing today, he also outlined the government's plan to develop 15000 MW of electricity in 10 years.
Shedding light on the significance of energy as a priority sector with a direct bearing on socio-economic transformation of Nepal, Pun – who is on a visit to China – underscored the key role of foreign investments in achieving the target. He also invited the Chinese enterprieneurs to utilize the opportunities for investment in Nepal’s hydropower for win-win outcomes for both countries.
On the occasion, Nepali ambassador to China Leela Mani Paudyal, said that the forum was organised with a view to facilitating dialogue between Nepali policymakers and Chinese energy companies, and for exchanging ideas and experience on further accelerating Chinese investment in the generation of hydropower in Nepal, according to a press statement issued by Nepal Embassy in China.
He also assured the full support and co-operation of the Embassy of Nepal in facilitating such investments, the statement reads. "Briefing on the investment opportunities for Chinese investors in Nepal’s hydropower sector, joint secretary at the Energy Ministry Dinesh Kumar Ghimire outlined the policies, tools, processes and facilities relating to the investment regime in the hydropower sector."
Nepal Electricity Authority (NEA) managing director Kulman Ghising, on the occasion, also highlighted the potentials of investing in Nepal’s hydropower from a regional market perspective.
"It is a most appropriate time to invest in Nepal due to the huge volume of regional and domestic demand in electricity, the robust nature of energy connectivity infrastructures in the region, seasonal complementarities for demand and supply, and the credibility of NEA as an off-taker," the statement reads quoting him.
Welcoming the Nepali delegates, vice-president of China Association for International Economic Co-operation Guo Yongle said that the interactions would promote business co-operation between the two countries and create new opportunities in further advancing Nepal-China economic co-operation.
More than hundred participants including representatives of public and private sector companies of Nepal and China, senior office-bearers of Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Non-Resident Nepali Association (NRNA), Independent Power Producers Association of Nepal (IPPAN), representatives of Asian Infrastructure Investment Bank (AIIB), and media persons also took part in the programme, according to the Nepali Embassy in Beijing.
The event also witnessed presentations on Nepal’s investment climate and the prospects of hydro-electricity development in the country. 

Government told to start work for granting transit rights to India, China

Experts have proposed to the government start homework for granting transit rights to both the neighbors.
Presenting a paper entitled 'Toward a New Framework for Nepal's Trade and Industrial diversification' at the International Conference on Key Trends in China-Nepal-India Relations and New Development Strategy for Nepal,' jointly organised by South Asian Institute of Management (SAIM), Institute for Integrated Development Studies (IIDS) and Nanyang Technological University of Singapore, in Kathmandu today, former finance secretary Rameshwor Khanal said that the two neighbours – India and China – will, sooner or later, ask for transit rights. "Nepal should start homework right now to make sure that transit agreements would be in its favour,” he added.
He also proposed implementing connectivity infrastructure projects that support transit and trade diversification in the changed context of recent trade and transit blockade.
As the need of the hour is to diversify trade for a self-reliant economy, Khanal also proposed promoting energy-intensive industries, developing cross-border energy market and economic corridors along north-south transit routes, and promoting high value niche products and specialized services for trade diversification.
“Nepal has failed to diversify trade and transit even though each periodic plan – after the second periodic plan – has been emphasising on trade diversification, export promotion, foreign investment promotion,” Khanal said, adding that the country is still harping on trade diversification after six decades of the planned development practice.
Nepal started planned development practice from 1956 when over 95 per cent of its trade was with India. Trade with Tibetan Autonomous Region of China was confined to border region and most of it was bartering. Nepal had little to export to outside world then.
With foreign assistance, particularly from the then Soviet Union and China, critical manufacturing factories that aimed at import substitution were established in the decade following 1956. But following the calibrated reforms of 1985-86, policy reforms spanning all sectors of the economy were implemented between 1990 and 1992, he added. "The reforms led to trade diversification, growth of manufacturing sector, export growth, and some of the positive changes could also be seen lasting until 1998."
However, overall development policy did not support the trade and industrial policies started during the economic reforms of post-1990. Lack of continuity of reforms, weak institutions, and above all no infrastructure support held back the growth, Khanal said.
Commenting on his paper, chief executive of Investment Board Nepal (IBN) Radhesh Pant said that finance is not the problem for infrastructure development in Nepal. "Finance is the least of the problems," he said, giving examples of how foreign investors have been eager on putting money on Nepal's infrastructure development ranging from hydropower projects to cement factories.
Nepal needs huge investment in infrastructure development to meet the gap that can fuel economic growth, according to former member of the National Planning Commission (NPC) Swarnim Wagle. Hailing Chinese approach to development, Wagle said that quick delivery of aid without strings attached will help infrastructure development in Nepal.
In his paper on 'Asian Infrastructure Investment Bank (AIIB) and Infrastructure Construction in South Asian Countries', Prof Dai Yonghong, Director of Center for Myanmar Studies in Sichuan University and Deputy Director and Center for Nepal Studies in Sichuan University, highlighted benefits of Nepal as a transit economy. "It will help strengthening sub-regional cooperation between Sichuan-Tibet and SAARC, adjusting the area of cooperation, establishing Sino-Nepal FTA, and build Nepal overland trade route," he said, adding that it will also strengthen infrastructure development in border areas, apart from expansion of trade preferences and encourage investment, and expanding tourism cooperation, innovation and tourism business one-stop service mode.

China announces fresh $146 million aid for Nepal

China has announced a fresh aid package of RMB 900 million (around $145 million) for Nepal.
The decision was taken during a 30-minute meeting between Chinese President Xi Jinping and President Ram Baran Yadav today on sidelines of the Boao Forum for Asia in South China's Hainan Province. President Yadav is currently at Hainan and met Chinese President for the first time since Nepal replaced monarchy and became a republic in 2008.
The northern neighbour had last week announced to increase its annual grant to Nepal by over five-fold from RMB 150 million to RMB 800 million (nearly $128 million) to give further boost to its economic agenda in Nepal.
"The package is in addition to the annual grant and will be used to improve the 115-km long Araniko highway that connects both the nations," according to deputy spokesperson at the Foreign Ministry Lekha Nath Bhattarai. "Likewise, China will also be training some 1,500 Nepalis in technical and non-technical sectors over the next five years."
Not long ago, India has – during the prime minister Narendra Modi's visit – also increased a line of credit worth $1 billion to Nepal.
Nepal's increased economic engagement with both northern and southern neighbours is expected to propel development activities in the land-locked country and bridge the infrastructure gap.
Nepal has already expressed its willingness to be part of major Chinese initiatives like the $40 billion Silk Road Economic Belt – that is expected to improve China's connectivity to Europe through a maze of road, rail and port network – and Asian Infrastructure Investment Bank (AIIB). In fact, Nepal is also going to be a founding member of the Bank.
Chinese President on the occasion also welcomed Nepal to participate in the Belt and Road cooperation. "China-Nepal relationship is a model of peaceful coexistence and mutually beneficial cooperation between big and small countries," Xi said, welcoming President Yadav to the annual conference. "China is willing to be Nepal's good friend of mutual respect and mutual support, good partner of common development and common prosperity and good neighbour of mutual assistance in security," he said, suggesting that the two countries should strengthen cooperation in traffic interconnectivity, infrastructure, hydropower development, modernisation of agriculture, science and technology. "China is also willing to negotiate Free Trade Agreement (FTA) with Nepal at an early date."
Calling on both the countries to enhance law-enforcement and security cooperation, Xi asked to be well prepared for a series of commemorative activities as this year marks the 60th anniversary of the establishment of China-Nepal diplomatic ties.
He also called on to beef up cooperation in the areas of youth exchanges and tourism and enhance coordination on multilateral occasions to safeguard their common interests.
China appreciates Nepal's firm support on issues concerning China's core interests, including issues related to Tibet and Taiwan, the Chinese President said, also supporting Nepal's effort in safeguarding independence, sovereignty and territorial integrity. Likewise, President Xi also voiced the hope that Nepal would not allow any forces to use its territory to engage in anti-China separatist activities.
Replying President Xi, President Yadav said Nepal would never allow its territory to be used by any anti-China activities. Nepal also supports China's initiatives of jointly building the Silk Road Economic Belt and 21st-Century Maritime Silk Road, apart from Asian Infrastructure Investment Bank, he said, adding that strengthening cooperation between South Asian Association of Regional Cooperation (SAARC) and China will help promote regional interconnectivity and economic development.
However, China wish to join SAARC at the last year's SAARC grouping's conference at Kathmandu was foiled by India.
Likewise, President Yadav, on the occasion, also said that poverty, hunger and deprivation still exist in many countries. Urging for concerted efforts to resolve the problems he stressed to create a more stable, secure and prosperous future for Asia by ending poverty, hunger and disparities. “Peace and poverty cannot go together," he said, adding that development of the continent as a whole has to, therefore, be a common goal and all countries must find space and resources to grow and prosper.
Saying that lack of adequate infrastructure, low level of industrial base, inadequate capital, lack of technological know-how and shortage of skilled human resources and low level of productive capacity were the problems of Nepal's economy, the President stated such things have resulted in lack of qualitative change in the living standard of people despite the abundance of natural and human resources with enormous potentials of tourism, hydropower and agriculture development options.
The President also appealed the international business community to invest in Nepal as the country offers a liberal and attractive regime for investment.