Policy Framework and Initiatives for Hydropower Development

Hydropower Summit 2012

Electricity for Economic Growth

March 14-15,2012

Arjun Kumar Karki Joint Secretary

Ministry of Energy
Government of Nepal www.moen.gov.np akkarki77@yahoo.com

Presentation Outline

1. Policy Guiding Documents 2. Licensing Policy and Procedure 3. Highlights of Hydropower Development Policy 2001 Environmental Provisions 5. Policy Initiatives

1. Policy Guiding Documents

NATIONAL WATER PLAN

INTERIM PLAN

ELECTRICITY ACT, 2049/REGULATION, 2050

HYDROPOWER DEVELOPMENT POLICY

1. Policy Guiding Documents

NATIONAL WATER PLAN by 2027 Domestic demand to be met Per capita consumption Export

4000 MW 400 kWh Extensive

Interim Plan By year 2016 to add

2500 MW

Electricity Act / Regulation Major Hydropower Development Instrument Holds good for private/public/PPP development Hydropower Development Policy 2001 Incentives Risk Sharing

2. Licensing Policies and Procedures

License required for Survey, Generation, Transmission and Distribution for projects larger than 1 MW Survey License Generation Transmission Distribution

Construction/Operation Licenses Generation Transmission Distribution

Proponent submits application to DOED

Survey License Application

DOED asks the proponent to complete all required documents and resubmit within specific time (normally 35 days)

Does the proposed project overlap with other projects in the area?

YES

NO

NO

Are documents adequate & complete?

DOED rejects application and informs the proponent in writing

DOED requests revisions from the proponent

YES MoEn reviews and examines documents

MoEn sends the application back to DOED for comments

NO

Are documents acceptable?

YES

MoEn issues the Survey License to the proponent through DOED

Proponent submits application to DOED DOED approves application and forwards to MoEn with a draft license

DOED reviews documents

Generation License Application

NO

Are documents adequate & complete?

MoEn reviews and examines documents

YES DOED asks the proponent to complete all required documents and resubmit within 30 days YES A Public Notice is published inviting comments from concerned parties within 35 days

Are documents acceptable?

NO

MoEn sends the application back to DOED for comments

YES

Comments received within 35 days?

NO

DOED addresses concerns of MoEn and requests revisions from the proponent

Upon consideration of comments, the terms and conditions that should be followed by the proponent shall be mentioned in the license

MoEn issues the Gen. License to the proponent through DOED

Proponent submits revised application to DOED revisions from the proponent

2. Licensing Policies and ..

Generation license within 120 days Period of generation license up to 50 years at max ( 35 yrs for domestic and 30 years for export) Valid Survey license is required Public hearing before issuance of generation license PPA required before generation license

1 year given for financial closure

2. Licensing Policies and ..

Information on licenses are available at; www.moen.gov.np (Ministry of Energy) www.doed.gov.np (Dept. of Electricity Development)

Information on the sector (regulations) available at; www.nea.org.np (Nepal Electricity Authority)

Information on all GoN Policies, Act, Regulations available at; www.nepallawcommission.org.np (Nepal Law Commission)

3. Highlights Hydropower Development Policy, 2001

Objectives of HDP 2001

Generate electricity at low cost Reliable and quality electricity at reasonable price Combine electrification with the economic activities. Rural electrification Hydro-electricity as an export commodity

3. Highlights-HPD 2001.
Features of HPD 2001 Special provisions for captive plants BOOT model for private investment GoN may participate in multipurpose projects Provisions for environment protection GoN will facilitate land acquisition New structure of royalty (separate for export oriented project)

3. Highlights-HPD 2001.
Features of HPD 2001 - Royalty Structure (Internal Consumption)
Capacity Up to 15 years Annual capacity Royalty, per kW 1 2 Up to 1 MW From 1 MW to 10 MW Rs. 100/Energy Royalty, per kWh 1.75% After 15 years * Annual capacity Royalty, per kW Rs. 1000/Energy Royalty, per kWh 10%

3 4
5

From 10 MW to 100 MW Above 100 MW

For captive use

Rs. 150/Rs 200/Rs. 1500/-

1.85% 2.00%
-

Rs. 1200/Rs. 1500/Rs. 3000/-

10% 10%
-

3. Highlights-HPD 2001.
Features of HPD 2001 - Royalty Structure (Export Oriented Projects) Type Up to 15 years Annual capacity Royalty, per kW 1 ROR Projects 2 Storage Projects Rs. 400/Rs. 500/After 15 years*

Energy Annual Energy Royalty, capacity Royalty, per per kWh Royalty, per kWh kW 7.5% 10% Rs. 1800/Rs. 2000/12% 15%

* After 15 years from the date of commercial operation

3. Highlights-HPD 2001.
Features of HPD 2001 Maximum duration of generation license is 35 years for domestic supply and 30 years for export oriented projects Additional five years for projects risks At the end of the license period, the project is to be handed to the state in good operating condition; free of cost Water rights guaranteed Government land provided on lease No nationalization Foreign currency exchange facility and repatriation

3. Highlights-HPD 2001.
Features of HPD 2001 - Institutional arrangement

Electricity Tariff Fixation Commission to be replaced with Nepal Electricity Commission (NERC) as a regulatory body DOED to act as a study and promotional body WECS to conduct load forecast and policy research works Electric Energy Management Research Institute to be established to carry out study and research on financial, legal, environmental and technical aspects of electricity

Unbundling of NEA

3. Highlights - Environment Provisions Environment Provisions

Environmental Impact Assessment needed for 1. More than 50 MW capacity 2. Conservation, reserved, national park area and its buffer zone and heritage area 3. More than 5 hectares of forest land 4. Inter-basin transfer 5. More than 100 people displaced Public consultation required 1. During scoping document 2. During completion of draft report 3. Public consultation by MoEnv (Environmental issues) 4. Before issuance of Generation license (General issues)

4. Policy Initiatives

1. Electricity Bill 2. Nepal Electricity Regulatory Commission Bill 3. Project Development Agreement 4. NEA reform 5. Power Trade Agreement 6. Development of Storage Project

4. Policy Initiatives

1. Features of Electricity Bill

Time bound and transparent license procedure Clear financial incentives Exemption of corporate tax for 10 years from generation and 10 % exemption for next 5 years [Current incentive: Exemption of corporate tax for 7 years and 50 % exemption for next 3 years] Exemption of VAT on machines, equipment + 1% import tax High level "one window" service committee (and task force)

4. Policy Initiatives- Features of Electricity Bill .. Rights and privileges of the local people up to 10 % equity share for local people electrification in the area of km radius of head-works and powerhouse free 20 units of electricity 52 % of the royalty goes to the local government

Additional 1 % to VDC from free energy

4. Policy Initiatives

2. Features of Nepal Electricity Regulatory Commission Bill Will be an independent commission Will create level playing field for all players will create Investment friendly environment Will protect the consumers (and other stakeholders) interest Will monitor, regulate the sector

Will fix the tariff at various stages of transaction

4. Policy Initiatives 3. Project Development Agreement (PDA)

Preparation of Model PDA is at final stage

Comments will be sought from Ministry of Finance and

Ministry of Law and Justice

Get approval from Cabinet

Initiate PDA Negotiation

4. Policy Initiatives

4. Gradual reform Of NEA Establishment of government owned National Transmission Grid Company

5. Power Trade Draft Memorandum of Understanding on Cross Border Interconnection for Electric Power Trade Agreement has been communicated to Government of India and expected to receive feedback soon.

4. Policy Initiatives

6. Development of Storage Projects for internal consumption

West Seti Hydropower Project - Memorandum of Understanding signed with China Three Gorges International Corporation. Budhi Gandaki Project Initiation of process for selecting consulting firms to carry out Detailed Engineering Report. RFP issued to 6 Qualified Firms.

THANK YOU !