Twenty-eight hydel projects ask govt to declare them sick

At a time when the government is going all out to woo international investors, domestic hydropower developers say they are battling for survival. As many as 28 hydropower projects promoted by the private sector have knocked on the government doors seeking relief measures, saying that they turned sick due to high bank interest rates. They have formally asked the Ministry of Energy formally to declare them sick and provide necessary relief. Independent Power Producers (IPPs) have been saying that they cannot move ahead with their projects until the interest rate comes down or some other relief measures are taken by the government. “As many as 28 hydropower companies have requested us for relief, saying that they turned sick due to increased interest rate,” said Energy Secretary Balananda Poudel, adding that projects including Tamakoshi, Modi and Maikhola, have demanded relief such as relaxation in interest rate. The ministry has formed a committee under the coordination of its Joint Secretary Sriranjan Lakaul to look into issue. IPPs say increasing cost of construction materials and increased interest rate are the major factors making hydropower projects costlier. Over the last two years, the interest rate has increased by 5-7 percent points. Gyanendra Lal Pradhan, chairman of the Hydropower Development Committee at Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said other projects except Khimti, Bhotekoshi, Chilime and Butwal Power Company are in trouble. “The projects that started construction at an interest rate of 8 percent now have to pay as high as 16 percent interest,” said Pradhan. The liquidty crunch in the banking sector over the last two years triggered rise of interest rates on both deposits and lending. Alarmed by the scenario, the government has adopted a policy of offering value added tax (VAT) exemption on construction materials instead of subsidising the interest rate. “We are in the process of exempting VAT even on cement and steel that hydropower projects use,” said Poudel. However, the exempted VAT amount is payable after the completion of the project. IPPs say they have to pay VAT worth Rs 9 million per megawatt of electricity. Pradhan said the projects are in such a situation that they can no longer pay bank instalments. “We are also discussing at FNCCI on what types of relief measures they need,” he said. The IPPs have demanded relief in interest, facility of refinancing or purchase of the project by the Nepal Electricity Authority. They have also demanded hike in power purchase agreement (PPA) rate. The government had hiked PPA rate by 20 percent for new projects three months ago, but the rate has not been increased for projects that are under construction and completed.