For decades, we have cited geographical barriers — being land-locked between two giant economies — as an excuse for our lack of vision and ambition. Overlooking Nepal’s geo-strategic location as an opportunity rather than a geo-political handicap has pushed us decades behind. Though plagued with poor infrastructure and largely unskilled and semi-skilled manpower, it is not entirely impossible to find some niche products which provide a competitive advantage.Hydro havenNepal’s tremendous water resources offer a clear advantage. The rapid altitudinal variations with swift flowing rivers have made Nepal a natural haven for hydropower production. However, hydropower generation is based on capital intensive technology and even the cost of a small and medium scale hydro projects run into millions. Nepal government alone is unable to finance such mega projects and directing the state investment only toward hydropower would compromise development budget on sectors like education, health and irrigation.Presently, Nepali banks do not have the capacity to invest in more than 100 megawatt of electricity due to capital shortage. The capital market is in an infant stage and not in a position to invest a sizable amount in this sector which has a relatively high gestation period. In addition, empirical study reveals that a country needs to have at least 30 to 40 per cent savings of its national income to achieve higher rates of economic growth, but Nepal’s gross domestic savings was as low as 10 per cent in recent years.FDI in NepalForeign Direct Investment (FDI) is not just viable, but the only option for power generation in Nepal. In developing countries, FDIs have a dual role — to bring in international savings and the best international technological practices to that country. Nepal needs both for achieving higher rates of economic growth. FDI has the potential to improve the quality of growth by reducing volatility of capital flows, improving asset and income distribution and helping improve social safety nets and basic services for the poor.
Hydropower projects like Khimti, Bhotekoshi and Himal Power already have foreign investments and their ventures have been operating successfully. Similarly, there are about 20 small hydro plants with foreign investments in the form of shares and equity. Arun III and West Seti Hydroelectric Projects are the mega projects being constructed under Indian and Chinese investments respectively. If these projects are completed on time, it will solve perennial problem of load shedding and bring economic prosperity. The locals of these areas will benefit from the project’s spin-off effects like the road access, grid electricity, schools, hospitals and other income generating activities.
Policy issuesThe industrial and investment policies formulated in the past have loopholes. Foreign Investment and Technology Transfer Act 1992 and Industrial Enterprises Act 1992 need to be updated to meet the requirement of our badly nourished economy. The much harped about one-window policy announced by the present government to attract FDI has yet to transpire into action.
The Industrial Enterprise Act has made the provision of one-window committee (OWC), which is coordinated by director general (DG) of Department of Industries (DoI). It has DGs of Customs, Internal Revenue, Value Added Tax (VAT), Commerce and members from Central Bank, Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and the government as experts. DoI also acts
as its secretariat. Since all the DGs are of the same rank as DG of DoI, most of the time other DGs send their representatives to attend OWC meetings. Thus, the decision made in OWC is not the final one. This has made one-window service one window with several doors.
ConclusionLike any other sector, attracting FDI in the hydro sector requires a long-term commitment from the host country and if investors find it difficult to recoup their initial investment, they will be put off about future investments. FDI also requires consistence in policy making and planning along with a transparent, simple and dependable legal framework. The government should reformulate the FDI and technology transfer policy based on past experience and changing global context. Despite multiple challenges, with proper policy and better coordination among government agencies and other stakeholders, Nepal’s hydro sector can be a hot spot for FDI inflow.
This article was published in The Himalayan Times on May 6, 2012 and the link is http://www.thehimalayantimes.com/perspectives/fullnews.php?headline=Reimagining++Nepal's+FDI+policy+in+hydropower&newsid=MTE1OA==
