Kathmandu, April 3

Independent power producers (IPPs) have criticised the government for unpredictable policies, which have been discouraging domestic investors to invest in hydropower projects.

Citing the decision of the Ministry of Forest and Soil Conservation to slap one per cent charge of the total profit generated by the hydel projects as Payment for Eco-System (PES) while providing approval to use forest land, the Independent Power Producers’ Association-Nepal (IPPAN) today said that the ministry backtracked from the Cabinet-level decision. The forest ministry had announced the removal of PES in July last year after the Cabinet approved the Ministry of Energy’s 10-years vision document, ‘National Energy Crisis Reduction and Electricity Development Decade’, which includes a provision to eliminate the PES.

However, the recent amendment of Forest Act has included the provision of PES and all the hydropower projects seeking approval from the forest ministry are now asked to agree to pay the aforesaid additional fee. “We have found lack of coordination in formulation of law, and the ministry itself seems to lack institutional memory as it had removed the PES following the Cabinet’s decision in July last year,” said Shailendra Guragain, president of IPPAN. “All the stakeholder agencies of the government and private sector need to properly follow the provisions included in the 10-year vision document that has envisioned harnessing 10,000-megawatt electricity within the next decade.”

Tuk Prasad Paudel, secretary general of IPPAN, stressed on the need for good governance. “We feel that the government holds conservative views about the private sector and is not serious in implementing its vision to develop 10,000 megawatts of hydroelectricity within 10 years.” He also alleged that the ministry has framed the law against the Cabinet’s decision.

IPPAN has urged the government to resolve the issue at the earliest. IPPAN President Guragain said that the IPPs are compelled to pay around 35 per cent of their income as tax and royalty under various headings. “The low rate of return due to various taxes and royalties has been discouraging investors to invest in this sector,” he claimed.

IPPAN has said that ministries and agencies lack seriousness in facilitating the investors. “Apart from issues at the local level, a hydropower developer needs to deal with seven different ministries and various other government agencies, which is full of hassles,” said Guragain, adding, “The government agencies must drop the mentality of supremacy and facilitate investors to translate the 10-year vision.”

IPPAN has urged the government to provide land to the hydropower developers at minimal charge based on government’s valuation. Currently, the developer has to purchase the equal size of land for the forest ministry against the use of land to develop hydro projects. IPPAN has also sought the facilitation in right-of-way clearance for the transmission lines and hydropower projects. It has asked the forest ministry to delegate authority to the district level to provide approval to cut trees as per the environmental impact assessment and initial environmental examination, and also facilitate in carrying out environmental impact study in protected areas, like wildlife reserves.

Taxes levied on hydel projects

• Capacity tax: Rs 100 (per kilowatt) for first 10 years and Rs 1,000 (per kilowatt) after 10 years
• Energy tax: 2 per cent of the total generation
• EIA compensation: 7 per cent (up to 50 MW) and 0.5 per cent (above 50 MW)
• Income tax: 15 per cent of the total income (free for first 10 years, 50 per cent of the taxable amount for next five years and 100 per cent of the taxable amount for the rest of the lease period)
• VAT and excise in construction materials