Hydropower Development Policy&

Regulatory Framework

Keshab Dhoj AdhikariSenior Divisional Engineer

Ministry of Water Resource23 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

Conservation5

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 hasn’t 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

• >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

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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 > 2 MW projects– Currency of royalty payment same as the currency

of power purchase19

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 R&R

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 > 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 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)

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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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