IPPs to finally receive incentive of five million rupees per megawatt

Kathmandu, February 27

The independent power producers (IPPs) now have something to cheer about as the government is going to implement its incentive scheme for the hydropower developers.

The then government through the fiscal budget of 2014-15 had announced to extend incentive worth Rs five million per megawatt to the developers of generation projects that start commercial operation by 2022-23. However, due to the delay by the Ministry of Finance (MoF) in providing its consent to the Ministry of Energy to implement this decision, the announcement had been stalled for long.

The IPPs had long been lobbying with the government for the prompt execution of the facility following the announcement made by the budget.

The Ministry of Finance had delayed in bringing this provision into force for quite some time as the country’s economy was shattered by the earthquake and the months-long border blockade, which had affected revenue generation.

As the Ministry of Energy again corresponded with the MoF this year, the finance ministry finally agreed to implement the incentive scheme that was announced for the private sector developers. “Looking at the momentum in power generation in the last one year, the MoF agreed to implement this provision,” a high level source at the Ministry of Energy told The Himalayan Times. The private sector developers contributed 105 megawatts of electricity to the national grid in 2016.

The MoE has also included provision of incentive in the ‘Energy Crisis Prevention and Electricity Development Decade’ — a vision document of the government to harness 10,000 megawatts of electricity in 10 years — and sought consent from MoF to execute incentive package announced by the fiscal act.

“However, it took quite a long time to obtain the consent of the finance ministry,” said Gokarna Raj Pantha, joint spokesperson for MoE, adding, “We will soon execute this package through a guideline that needs to be approved by the Cabinet.”

After the guideline is endorsed from Parliament developers can submit their applications with the evidence of project completion within the aforementioned period to avail this facility, according to Pantha. He further said that the ‘Energy Crisis Prevention and Electricity Development Decade’ launched last year has mentioned about extending the incentive for 10 years, which means it would have been in effect till fiscal 2024-25, but the MoF has clearly said that the facility will be extended to projects that are completed in between 2014-15 and 2022-23.

The Independent Power Producers’ Association — umbrella association of the private sector hydropower developers in the country — has said that if the government had not delayed in implementing this announcement it would have been a lot better. However, even though it took a long time for government to implement this provision it will act as a motivational factor for private sector developers.

“As a large quantum of electricity from the independent power producers is going to be added within a few years, the project developers will benefit from this facility,” said Shailendra Guragain, president of IPPAN. “Actually, we had sought exemption on value added tax (VAT) for the hydroelectricity projects to encourage developers so that the energy crisis could be addressed, but the fiscal budget 2014-15 addressed our demand in a different way.”

It is said that hydropower developers submit around Rs five million per megawatt as VAT to the government. As the government has announced the incentive this will more or less be equivalent to exemption of the VAT amount.