The government should give more incentive to the private sector which has proven its efficiency in producing energy in two decades

The Finance Ministry has finally agreed to provide Rs. five million for per megawatt of electricity as an incentive to the private sector or Independent Power Producers (IPPs) who had been demanding that some sort of incentive be given to them for some years so that they can invest on hydro power projects.

Currently, the private sector is required to pay about Rs. five million for one megawatt of energy as VAT. This incentive to be given to the private developers is equivalent to the VAT amount charged for the purchase of hydro project related equipment.

The then Finance Minister Ram Sharan Mahat had announced that Rs. five million would be given to the IPPs as an incentive through the fiscal budget of 2014/15. But the Finance Ministry has yet to give its consent to the incentive despite the fact that it was announced through the budget speech.

The Finance Ministry had not given its consent citing dwindling revenue collection due to the devastating earthquake in 2015 and the months long border blockade. It took two years for the Finance Ministry to give its consent to provide incentive to the power developers who will be encouraged to engage more in the energy sector.

This incentive will remain effective till 2022/23. By that time the country will have enough energy to meet its domestic demand, as the private sector will immensely contribute to the national grid.

Currently, the private sector has contributed to 105 MW of electricity and it will have 630 MW by 2017-end, 100 MW more than the total installed capacity of the state-owned Nepal Electricity Authority which currently has 530 MW.

NEA is currently developing only two projects – 30-MW Chameliya and 14-MW Kulekhani III – whereas the private sector has more than half-a-dozen projects poised to provide energy by 2017-end.

Compared to the NEA’s snail’s pace of implementing hydropower projects, the private sector works harder to finish its projects on time with minimum overrun of cost. If more incentive is given to the private sector it will contribute more to meet domestic demand of energy, and ultimately the nation will benefit from the speedy development of power projects.

All governments formed after the Jana Andolan II have given special emphasis to development of hydropower projects to boost the economy. The Ministry of Energy has announced an “Energy Crisis Prevention and Electricity Development Decade” aimed at generating 10,000 MW of energy within a decade.

The incentive package will come into force once the Cabinet approves a guideline in this regard. All hydropower projects developed by IPPs by the end of 2022/23 will be entitled to receive Rs. five million as incentives for each megawatt of energy.

IPPs have welcomed the Finance Ministry’s consent, saying it would motivate them to make more investments in the energy sector helping transform the country from a least developed one to a developing economy by 2030.

The government alone cannot generate enough energy required for the nation to drive the economy forward. It should give more incentive to the private sector which has proven its efficiency in producing energy in two decades.