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Investment opportunity in energy sector of Nepal

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Investment opportunity in energy sector of Nepal

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Nepal Development conference 4
Trade and Investment
Embassy of Nepal
&
Britain Nepal Chamber of Commerce (BNCC) on 13th November 2018
At Nepal Embassy London, W8 4QU

Nepal Development conference 4
Trade and Investment
Embassy of Nepal
&
Britain Nepal Chamber of Commerce (BNCC) on 13th November 2018
At Nepal Embassy London, W8 4QU

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Investment opportunity in energy sector of Nepal

  1. 1. Investment opportunity in Nepal’s Energy Sector Ramhari Poudyal PhD candidate Swansea University Electrical and Electronic Engineering Department Nepal Development conference 4 Trade and Investment Embassy of Nepal & Britain Nepal Chamber of Commerce (BNCC) on 13th November 2018 At Nepal Embassy London, W8 4QU
  2. 2. Energy Scenario • Nepal’s Hydropower is around 80,000 MW, out of which 43,000 MW is estimated to be economically feasible. • Demand for electricity is increasing at 7–9% per year • World’s demand is just 2.2% in 2018 • Nepal is targeting graduating from least developed country (LDC) status to developing country status by 2022 and aims to become a middle income country by 2030. To meet its growth aspirations, Nepal will need to add 6,000+ MW • It requires investment of approximately USD 13 - 18 billion by 2020. Consequently, a lot of industries and infrastructure projects are in the pipe- line opening up huge opportunities. • Landlocked country on the southern slope of the Himalayas. The geographical position of the country plays a significant role for its development as a business hub as it lies in between the world’s two giant economy - India and China. • The half of the global energy demand takes place by India and China • India’s current installed capacity is 281 GW. India requires an annual addition of 50–60 GW per year from their current addition of 15–20 GW per year to meet this soaring demand. • Similarly, the electricity demand in nearby Bangladesh (population 156.6 millions) is increasing at a rate of 9% per annum. GDP growth rate of 7%, peak demand of Bangladesh is expected to reach 12.6 GW by 2017. • The new opportunities of power trade in the South Asian Association for Regional Cooperation (SAARC) region, especially with India and Bangladesh, Nepal has the potential to export a significant amount of power once it reaches power surplus.
  3. 3. Energy Resource Potential in South Asia Source: Background Paper on Cross-Border Electricity Trade in South Asia: Key Policy, Regulatory Issues/Challenges and the Way Forward, Jan 2016 - IRADe
  4. 4. Nepal has maximum prospects for investment in water resources, tourism, mineral resources, agriculture among other sectors as presented in this diagram. As Nepal has entered the phase of the economic build-up of the nation after consolidating political changes, country need for infrastructures and modern amenities is huge. The growing middle class is creating a healthy demand on the economy. Potential areas of Investment in Nepal Energy Hydro 43,000 MW Solar 2,100 MW Wind 3,000MW $ 300 million in 2013/2014 6% of total expenditure Tourism 8 out of 10 highest peak in the world Mountaineers, Trekkers and adventures seekers Religious tourism Lumbini & Pashupati Infrastructure Only 19% road in Nepal is all weathers and 2 out of 75 districts are still not connected by roads Invested $ 11.8 billion in 2010 - 14 Agriculture accounts 32% of GDP 2/3 of the labour market Processing, packaging and branding Tea, Coffee and Honey Organic crops Mines and Minerals 5 billion metric tons of dolomite 180 million metric tons of high grade magnetite Probability of Petroleum and natural gas to be explored Health and Education Thousands of students go abroad for higher studies spending large sums of money Health infrastructure, modernisation of health facilities and manufacturers of Pharmaceutical goods Information and Communication Technology NTC/Ncell Internet penetration Potential areas of Investment in Nepal
  5. 5. Some Major Hydropower Projects in Pipelines The GoN’s plan of 26 GW by 2035 will require approximately US$50 billion over 20 years. Assuming $ 2 million/MW Hydropower Projects Capacity (MW) Domestic Energy Share Cost Estimate ($ M) Status Upper Karnali 900 12% free to GoN(option to buy additional power) 1,050 PDA signed Arun III 900 21.9% free to GON (option to buy additional power) 1,009 PDA signed Upper Marsyangdi 600 To be decided 723 Generation license applied Upper Trishuli 1 216 100% domestic 580 PDA Signed Tamakoshi 3 650 To be decided 925 To be bid out West Seti 750 100% domestic 1,000 JVA initiated Upper Arun 335 100% domestic 445 - - Upper Tamakoshi 456 100% domestic 441 Under construction Budigandaki 1,200 100% domestic 2,593 Under construction
  6. 6. Tax and VAT Exemption Incentive Category Ordinary Provisions Incentive Provisions Income Tax Normal Tax Rate: 25% Tax Rates: Build, Own, Operate and Transfer Model (BOOT) projects; construction of powerhouse , hydropower generation and transmission: 20% Income generated by entity from export: 20% For hydro generation and transmission entities listed n the stock exchange: 10% exemption in normal tax rate Tax Holiday Licensed person or entity producing electricity through hydropower, solar, wind and bio fuel, starting its commercial production, transmission or distribution within April 12, 2024: 100% exemption for 1st 10 years and 50% exemption for next 5 years 10% exemption in normal tax rate for industries engaged in hydro generation and transmission and listed in the stock exchange. Disclosure Norms  Income source discourser not required for investment made in
  7. 7. Incentive Category Ordinary Provisions Incentive Provisions Depreciation Provisions Applicable Pool Pool A: 5% Pool B: 25% Pool C: 20% Pool D: 15% 33% accelerated depreciation for BOOT projects, construction of power house, hydropower generation and transmission. Investment made during a year on replacement of old machineries after deduction of the accumulated depreciation till that year allowed to be booked as expense. 50% depreciation shall be allowed to in the year of purchase of equipment to produce energy for the business Value Added Tax (VAT) 0% VAT facility based on a recommendation from AEPC for batteries produced and supplied by Nepalese industries for use in solar energy producing industries. VAT exemption on the import of machinery, equipment tools, and their spare parts, penstock pipes or iron sheets used in hydropower projects and produced in Nepal (based on the recommendation of the Alternative Energy Promotion Centre or the Department of Electricity Development). VAT exemption for equipment and machines, tubular batteries, solar lead batteries, required by bio-gas, solar, wind energy industries (based on the recommendation of the Alternative Energy Promotion Centre) Custom Duty Various Duty on generation plant having a capacity e
  8. 8. Purposed Connectivity between India & Nepal Source: Support for Sustainable Energy Management and Reforms Workshop on Power Import / Export Option, PWC
  9. 9. World Risk Index Rankings, measuring exposure to severe weather (where 1 is greatest exposure) Source: United Nations University, Institute for Environment and Human Security COUNTRY RANK Nepal 19 Canada 91 China 26 India 17
  10. 10. Imported cement / clinker in NRs 10,00000 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 2013 2014 2015 2016 2017 6,143 8,883 9,835 24,961 30,159 Imported cement / clinker in NRs 10,00000
  11. 11. Reasons to invest in Nepal •Large pool of capable workers •Ease of doing Business •Strategic Location & Geographic advantage •Low competitive Environment with potential for high profitability Energy Transport Agriculture Tourism Infrastructure ICT Mines & Minerals Financial Institutions Health & Education Located between two large and rapidly emerging economies India and China Duty free and open boarder access to India Duty free access to China for over 4000 products Incredibly rich bio- diversity and abundant water resources 61% working age population Highly cost effective Labour Minimum monthly wage being approx. $ 76 Ranked 2nd after Sri Lanka among South Asian Countries in the “Ease of Doing Business Report” by World Bank 100% FDI allowed in various sectors Easy repatriation of capital and pursuit to the investors home country Various bilateral investment protection and double tax avoidance arrangements in place
  12. 12. Nepal’s International Memberships Nepal’s Internationa l Membershi ps United Nations SAARC World Trade Organisatio n (WTO) Multilateral Investment Guarantee Investment Monetary Fund (IMF) Asian Developme nt Bank (ADB) Belt and Road Initiative (BRI) World Bank Asian Infrastructu re Investment Bank (AIIB)
  13. 13. An agreement between India & Nepal for power trading the cross border flow of power An agreement between India and Nepal for power trading the cross boarder flow of power Power Trade Agreement Oct 2014 Project Development Agreement SAARC Framework Agreement on Energy Cooperation Electricity (Nov 2014) Agreement with Bangladesh
  14. 14. Foreign direct investment (FDI) in Nepal by sector Source: Nepal-India Chamber of Commerce and Industry, 2013-14 12% 4% 0% 35% 23% 2% 24% Tourism Agro Based Construction Energy Based Manufacturing Mineral Service
  15. 15. Conclusion • Nepal is a virgin land for investor • The GoN has taken bold steps in benefit of both the promoters and the nation. • Huge incentive on tax and VAT on the benefit of the promoters. • The GoN should adopt the policies which will allow the investors to develop projects hassle free and reap maximum benefit . • The GoN should build new transmission lines ASAP to prevent dissipation of energy from the grid and Transmission lines.
  16. 16. Thank you for listening! • Any Question? • Contact • rhpoudyal@gmail.com 847043@swansea.ac.uk

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