HDP 2001 features and private sector

Major features of HDP 2001

• Main aim: develop hydropower at low cost to serve domestic needs and for export.
• The private sector (domestic and foreign) can build, own, operate and transfer (BOOT) projects.
• Projects up to 1 MW are free of licence; the survey licence is for up to 5 years; the generation licence is for up to 35 years (domestic supply) or 30 years (export-oriented).
• Simple licensing procedure through DoED; NEA buys power under a PPA.
• Royalty set at a low rate in the early years; tax holiday and customs duty relief.
• Foreign investors may repatriate capital and profit; the right of ownership is protected.
• Encourages power export, rural electrification and micro-hydro with local participation.
• IEE/EIA, environmental flow and local benefit sharing are compulsory.
• The government's role is limited to policy, regulation and facilitation.

Comments: can it attract the private sector?

Yes, to a good extent. Private investment had already begun under the 1992 policy (Khimti and Bhote Koshi), and after 2001 a large number of private projects were licensed and built (Chilime and many IPP projects). Clear legal rights, BOOT permission, PPAs with NEA and tax relief made investment possible.

But some weaknesses remain:

• The PPA tariff and escalation were not always attractive, and NEA was the only buyer.
• Approval of the licence, forest land and IEE took too long.
• There was no clear provision for transmission lines and no guarantee of export.
• Political instability, security issues and delays in local clearances.
• Financing from local banks is limited, and currency risk exists for foreign investors.

Hence the policy did attract the private sector, but it should be improved with a one-window system, a bankable PPA, secure transmission and clear export rules.