1. Hydropower Development Policy & Regulatory Framework
Keshab Dhoj Adhikari
Senior Divisional Engineer
Ministry of Water Resource
23 September 2008

2. What Constitute HP Policy
Hydropower Development Policy-2001
Water Resources Strategy-2002
Electricity Act 1992 & Rules 1993
Periodic plans, annual budget speech, EPA & EPR, custom & tax provisions, etc.

3. What Constitute HP Policy contd…
Other relevant Acts & Regulations
Foreign Investment and Technology Transfer Act
Company Act
Electricity Tariff Fixation Regulation, etc.

4. Other important Acts on anvil
Electricity Act and Rules (proposed)
Nepal Electricity Regulatory Commission Act (proposed)

5. Institutions currently involved
MoWR and DoED
Electricity Tariff Fixation Committee
Ministry of Environment, Science and Technology
Ministry of Forest and Soil Conservation

6. Objectives of HP-2001 Generate electricity at low cost;
Provide reliable and quality electricity at a reasonable price;
Combine electrification with the economic activities;
Extend rural electrification; and
Develop hydropower as an export commodity

7. Key Policy Provisions (HP-2001)
‘Competition’ emphasized
BOOT model; first sector to adopt one (not under the BOOT ACT)
In case of multipurpose projects, GoN may participate
Environment- 10% d/s release (min)
Facilitate property acquisition

8. Key Policy Provisions (HP-2001) contd…
Water rights guaranteed
Various provisions for RE
No expropriation
Foreign exchange facility for dividend and loan
Additional 5 year term (max) for projects at risk

9. Other Important Aspects of Policies
Terms of License
Survey License for 5 years
Generation License
Internal consumption 35 years
Export Oriented 30 years
In case of reservoir 5 years extension on the basis of construction period
Captive Plant as it remains in operation
Transmission and Distribution 25 years with ten years renewable

10. Some Important Aspects of Policies (contd..)
Transfer of Projects
Every hydropower project has to be transferred to the government, free of costs, after the completion of license period
Licensee has to involve the government in the operation of the project two years prior to the completion of license period

11. Some Important Aspects of Policies (contd..)
Utilization of Local Resources
Developers are encouraged to-
utilize Nepalese labour, skill, means and resources to the maximum extent possible and have to give priority to utilize local labour
carry out works in such a way so as to transfer technology to the Nepalese citizens

12. Private Sector Participation
Ever since Hydropower Development Policy 1992 was formulated, Government hasn’t turned back and made adequate policy commitments for the enhanced participation of private sector.

13. Emerging Institutions
Independent Electricity Regulatory Commission (NERC) to replace ETFC with enhanced regulatory role
Existing vertically integrated utility(ies) to be unbundled
One agency will be allowed to do business either generation or transmission or distribution
Separate Rural Electrification Fund

14. Establishment of Grid Authority
Operation and control of the National Grid shall be in accordance with the Grid Code
A Licensee may transmit the electric powers inside or outside the country by obtaining access to the National Grid
No discrimination in accessing grid

15. Special provisions in new EA
>100 kW developer-registered firm; <100 kW individual and firm
After completion of submission, award of license
Survey within 21 days
Cap. <10 MW within 60 days
10 MW<Cap.<50 MW within 90 days
Cap.> 50 MW within 120 days
T & D within 90 days; Trade within 45 days 15

16. Special provisions in new EA
A developer to get license either for generation or for transmission or for distribution except in special cases
Security deposit for construction license
Duration
Survey license initially for 2 years and extension up to a total maximum of 5 years
Generation 35 years for domestic consumption; 30 years for export 16

17. Special provisions in new EA
Duration contd..
15 years for thermal
35 years for captive hydro and in case of captive thermal till the industry is operated
May be extended by 5 years, at the most, for storage projects
May be extended by 5 years, at the most, if the project suffers from serious geological and hydrological uncertainties
25 years for transmission, distribution and trading 17

18. Provisions in new EA National Grid Power purchase & import/export
GoN, in consultation with NERC, to declare national grid and its codes
Indiscriminate access to grid
Power purchase & import/export
Price to be set on the basis of fixed percentage of avoided cost or average tariff or ROE
Also by bidding following a NERC declared procedure
NERC may declare other methods once power whole sale market is established 18

19. Provisions in new EA Import/Export Royalty (as per HP-2001)
Trade license for power import and export
No separate export license needed for export oriented generation licensee
GoN may ask for selling 10%(max) of energy for domestic consumption
Royalty (as per HP-2001)
Applicable only for > 2 MW projects
Currency of royalty payment same as the currency of power purchase 19

20. Water rights & environment
Water rights ensured for generation period
Downstream release of 10% of mean monthly flow or as stipulated in approved EIA report whichever is greater 20

21. Land acquisition, resettlement
Govt. land and forest area to be provided on lease
Govt. to facilitate acquiring private land and property
Developers to compensate for land and properties thus acquired
Developers to prepare and implement R&R plan 21

22. Tax Exemption
custom duty 1% of cost of imported material and equipment and NO VAT
Above exemption only for the construction period and applicable for spare parts also
No income tax for > 2MW
Income tax holiday for first 10 years after commissioning and first 7 years incase of transmission and distributio 22

23. Other incentives 15% tax on the annual income for generation companies
Expatriates to get other incentives like foreign exchange, duty free and visa facilities
Protection from change in law regarding tax exemption for the entire license period 23

24. Some other important provisions
No expropriation
All power projects to be considered as Priority Projects and incentives to be provided accordingly
A bonus of 2% of net income (not exceeding annual salary) for the employees; the surplus in welfare fund
Annual Reports to be submitted to NERC and DOED 24

25. Draft NERC Act
NERC- 5 man strong commission (including at least a woman)
GON appoints Chairperson and members of NERC
Recommendation Committee
VC (NPC), Coordinator
Power sector expert from private sector (GON nominee), Member
MOWR Secretary, Member 25

26. Draft NERC Act
Eligibility criterion- Master degree in Economics or Commerce or Management or Accounts or Law or Engineering and a minimum of 10 years experience in relevant field
5 year term and can be reappointed for one more term 26

27. Roles and responsibilities
Technical aspect
Regulate for maintaining safety and quality
Formulate policy and action plan for the reliability and effectiveness of power system
Prepare O&M procedure code
Prepare and enforce Grid code and distribution code
Review LCGE and see whether a project fits it (not applicable for <10 MW) 27

28. Roles and responsibilities
Tariff fixation
Declare bases of tariff
Determine wholesale price
Determine PPA process and buy back rate for 1 to 10 MW plants
Fix wheeling charge and retail tariff
Review and provide consent to PPAs, etc. 28

29. Roles and responsibilities
Maintain competition and protect consumers’ interest
Avoid monopoly or find out ways and means to avoid monopoly
Regulate merging, sale of plant, acquisition or takeover, etc.
Capacity building and enhancing good governance in companies
Advise GoN in related matters 29

30. Roles and responsibilities
Monitoring and inspection
Dispute resolution
Impose fines- up to Rs. 500,000.00
Public hearing in the process of tariff fixation
Employ a NGO to advocate on behalf of consumers
NERC may review its own doing 30

31. Some other provisions in NERC Act
NERC will get 1% of revenue from companies (except generation)
Appeal in Appellate Courts 31

32. THANK YOU