Hydropower Development Policy 2001 (2058 BS)

The Hydropower Development Policy 2001 (2058 BS) was issued by the Government of Nepal to develop hydropower as the main driver of the economy, with private sector participation, under the Electricity Act 2049 BS.

Objectives

• Generate electricity at low cost from the country's water resources.
• Supply reliable, good-quality electricity at affordable prices throughout the country, including rural areas.
• Link electricity development with economic activities (industry, agriculture, tourism) for national growth.
• Develop hydropower as an export commodity and promote regional power trade.
• Develop the power sector with a minimum of environmental damage.

Strategies

• Encourage private (domestic and foreign) investment through a clear, stable and liberal legal framework.
• Reduce the role of government to policy making, regulation and facilitation; NEA remains the main buyer and system operator.
• Develop projects for domestic need first, and for export under a long-term plan; encourage joint ventures.
• Promote rural electrification and small/micro hydro through local bodies and communities.
• Give priority to environmental protection, resettlement and benefit sharing with local people.
• Make licensing simple (single window) and the electricity tariff cost-reflective.

Key features

• Licence: Survey licence (up to 5 years) and generation licence (up to 35 years for projects supplying the domestic market, and up to 30 years for export-oriented projects) are issued by the government; projects up to 1 MW need no licence.
• Ownership: Private owners may build, own and operate; the BOOT model is used for large projects, and the project reverts to the government after the licence period.
• Royalty: Capacity royalty and energy royalty, kept low in the early years and higher later (for domestic projects: Rs 100/kW per year plus 2% of the average energy tariff for the first 15 years, then Rs 1,000/kW plus 10%); part of the royalty goes to the affected districts.
• Tax and duties: Income tax holiday and reduced customs duty on equipment for a set period.
• Power purchase: NEA buys power under a PPA at an agreed tariff; the tariff may be indexed to inflation.
• Export: Power developers may export, provided national demand is met first.
• Environment: IEE/EIA is compulsory; an environmental flow and local benefits are required.
• Local benefit: Local people can hold shares in the project and receive free power or a share of the royalty.