Hydropower Development Policy

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Hydropower Development PolicyRegulatory
Framework

• Keshab Dhoj Adhikari
• Senior Divisional Engineer
• Ministry of Water Resource
• 23 September 2008

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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.

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What Constitute HP Policy contd

• Other relevant Acts Regulations
• Foreign Investment and Technology Transfer Act
• Company Act
• Electricity Tariff Fixation Regulation, etc.

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Other important Acts on anvil

• Electricity Act and Rules (proposed)
• Nepal Electricity Regulatory Commission Act
  (proposed)

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Institutions currently involved

• MoWR and DoED
• Electricity Tariff Fixation Committee
• Ministry of Environment, Science and Technology
• Ministry of Forest and Soil Conservation

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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

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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

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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

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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

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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

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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

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Private Sector Participation

• Ever since Hydropower Development Policy 1992
  was formulated, Government hasnt turned back and
  made adequate policy commitments for the
  enhanced participation of private sector.

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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

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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

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Special provisions in new EA

• gt100 kW developer-registered firm lt100 kW
  individual and firm
• After completion of submission, award of license
• Survey within 21 days
• Cap. lt10 MW within 60 days
• 10 MWltCap.lt50 MW within 90 days
• Cap.gt 50 MW within 120 days
• T D within 90 days Trade within 45 days

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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

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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

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Provisions in new EA

• National Grid
• 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

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Provisions in new EA

• Import/Export
• 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 gt 2 MW projects
• Currency of royalty payment same as the currency
  of power purchase

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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

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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 RR plan

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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 gt 2MW
• Income tax holiday for first 10 years after
  commissioning and first 7 years incase of
  transmission and distributio

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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

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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

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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

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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

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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 OM procedure code
• Prepare and enforce Grid code and distribution
  code
• Review LCGE and see whether a project fits it
  (not applicable for lt10 MW)

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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.

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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

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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

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Some other provisions in NERC Act

• NERC will get 1 of revenue from companies
  (except generation)
• Appeal in Appellate Courts

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THANK YOU