Developers keeping PPA signing on hold

Developers keeping PPA signing on hold
Republica, 1-Apr-2010
Dinesh Karki

Rapid rise in interest rates of commercial banks has distracted potential investors as they are delaying the signing of Power Purchase Agreement (PPA) with Nepal Electricity Authority (NEA).

According to NEA, the sole authority for power distribution, 26 hydro projects are ready to sign PPA but the developers are hesitating to come for negotiations. Commercial banks have jacked up interest rates for hydropower projects to 13-14 percent. The interest rate was about 11 percent about a few months ago.

Hari Bairagi, chairman of Small Hydropower Developers´ Association Nepal (SHDAN), said developers are keeping PPA negotiations on hold due to skyrocketing prices of construction materials and political hooliganism, besides high bank rates. “The rate proposed by NEA is very low. Private sector can´t generate electricity at the present rate,” he added.

NEA has been offering an average rate of Rs 4.50 per unit for private developers. However, the developers are demanding that the NEA purchase electricity as Rs 6 per unit. NEA is importing electricity from India at the price (Rs 9.80 per unit) double than the rate offered by it to the private sectors due to massive power deficit.

Private developers, who have already met necessary criteria for PPA, are also not encouraged to sign PPA. Shashisagar Raj Rajbhandari, director of Power Trade Department at NEA, said earlier they used to sign at least three PPAs every month. “But we signed PPA with only three projects in the past four months,” Rajbhandari told myrepublica.com.

NEA has signed PPA with 63 hydropower projects so far. It has received application for additional 110 projects.

According to developers, the rate of return in hydropower projects has dropped down to 12 from 15 percent due to different constraints in hydropower development.

Pradip Gangol, executive manager of Independent Power Producers´ Association of Nepal (IPPAN), said commercial banks do not invest on projects where the rate of return is lower than 15 percent. “The developers are in dilemma. They are not interested to commission new projects due to high construction cost. But if they don´t develop projects on time, they might lose their license,” Gangol added.

Investment climate in the country has deteriorated in recent days. “Developers complain about extortion by different groups and skyrocketing prices of construction materials,” Rajbhandari shared.

The cost of power generation hovers around Rs 150 million to Rs 170 million per megawatt, according to experts.

Suggestions to govt

Hydro power developers have forwarded various suggestions to the government to incorporate them in the budget for fiscal year 2010/2011.

Issuing a joint press statement, Independent Power Producers´ Association (IPPAN) and Small Hydropower Developers´ Association Nepal (SHDAN), on Wednesday demanded the government to endorse Electricity Act and Nepal Electricity Regulatory Commission Act at the earliest.

They have also sought exemption of VAT on construction materials, plants and machineries and impose customs duty of one percent, as included in the proposed Electricity Act.

“The exemption of VAT on construction materials and machineries can significantly reduce production cost and ultimately attract more investment,” the statement added.

At present the government is imposing 28 percent tax on the service of foreign consultants in hydropower projects. Developers have asked the government to reduce the tax to 15 percent.

They have demanded to change the criteria for dry and wet season for Power Purchase Agreement (PPA) rate. They have also demanded the government to fix PPA rate at Rs 5.99 per unit. They have also demanded exemption of income tax for ten years.