Procedure to Hydro power Licensing in Nepal

Procedures for Hydro Power Licensing in Nepal

Nepal is the second richest country in water resources, the water source is the most important natural resource for economic development in Nepal, and hence the various water resources provide many opportunities for the process of hydropower production in Nepal.

The legislation that governs the hydropower Sector in Nepal is as follows:-

• Electricity Act, 2049 (1992)

• This act is useful, to develop electric power by regulating the survey, generation, transmission and distribute the survey, generation, transmission and distribution of electricity and to standardize and safeguard the electricity services.

• Electricity Rules, 2050( 1993)

• These are the main acts that regulate the survey, generation, transmission, and distribute the survey, generation, transmission, and distribution of electricity in Nepal and mainly deal with licensing of electricity projects in Nepal.

• Nepal Electricity Authority Act, 2041(1984)

• This act is established for the management of the power supply which governs the Nepal Electricity Authority.

• Electricity Regulatory Commission Act, 2074(2017)

• This act establishes the Electricity Regulatory Commission for the effective management of the production, distribution, transmission, and trade of electricity in Nepal.

• Public Private Partnership and Investment Act (PPPI), 2075(2019)

• The 'PPPI' governs all affairs related to investment and it governs the project having a capacity of more than two hundred (200) MW or hydropower projects having an investment cost of more than six (6) Billion.

 

5. There are 3 modes of development of Hydropower projects in Nepal which are listed below:

1. By obtaining a license pursuant to Section 3 and Section 4 of the Electricity Act,2049
2. Through directly entering an agreement with the Government of Nepal. and;
3. Through the competitive bidding process.

Explanation:

1. By obtaining a license pursuant to Section 3 and Section 4 of the Electricity Act,2049

• No person shall be entitled to conduct a survey, generation, transmission, or distribution of electricity without obtaining a license.
• No license is required from a national or a corporate body for the generation, transmission, or distribution of electricity up to 1000 KW and for conducting necessary surveys thereof.
• Information has to be followed by the prescribed officer before generating, transmitting, or distributing hydroelectricity of capacity ranging from 100KW to 1000KW.

Section 4

• A person or a corporate body shall be required to submit an application to the prescribed officer along with an economic, technical, and environmental study report and with other prescribed particulars on the relevant subject and the officer shall have to issue a license to the applicant according to the format as prescribed within 30 days of receipt of such application in case of license for conducting survey relating to electricity and within 120 days in as of license for generation, transmission or distribution of electricity.

• Note: - Such study report shall not be required while applying for the license to conduct the survey relating to electricity.

• The prescribed officer after examining necessary inquiries shall issue the license according to the format as prescribed within 60 days of receipt of such application.
• In case of license desires to sell or otherwise transfer its license, it shall be required to obtain approval from the prescribed officer.
• According to Section 5 of the Act, the survey license tenure is 5(five) years in maximum.
• The license tenure for (a) Generation, (b) Transmission, and (c) Distribution of Electricity are 50 (fifty) years at maximum.

• Note: - In general practice, the government grants for 35 years and can be extended up to 15 years which is subject to the discretion of the government.

• In case of a license is issued for a term less than 5 years and 50 years as prescribed above, it shall be required to be renewed before one(1) year of the expiry of the term stipulated in the license.
• If the license is not renewed then such license shall be void.

 

2. Through directly entering an agreement with the Government of Nepal

• As per Section 35 of the Electricity Act 2049, the Government of Nepal, by entering into a contract with any person or corporate body, may do or cause to do the generation, transmission, or distribution of electricity subject to the terms and conditions as mentioned in such contract. Hence, the provision grants the government to develop hydropower projects by concluding the agreement.

 

3. Through the competitive bidding process

• The government of Nepal calls for a competitive bidding project and then approves the company which operates the project as mentioned by the terms and conditions of that agreement. Hence, the competitive bidding process shall be applicable to those projects which have been studied by the government of Nepal or institutions owned by an entity of the government of Nepal, and to those projects whose licenses are canceled due to non-fulfillment of terms and conditions as prescribed by the license, non-completion of financial closure, etc.

** During the licensing period, the government of Nepal cannot nationalize the land, equipment, and structure related to the hydropower project. In order to develop hydroelectricity and encourage private sector entrepreneurs, the works relating to hydroelectricity development, a Hydroelectricity Development Unit shall be constituted in the Ministry of Water Resources.

 

In order to carry out inspection and supervision Government of Nepal, may appoint the Chief Electricity Inspector and the prescribed officer may impose a fine of up to 5 (five) thousand rupees to any person who contravention to the electricity acts. If the damage is caused by anybody due to such an act, compensation for such damage shall be realized from such person by the prescribed officer.

 

* If some person generates, transmits, or distributes electricity, without obtaining the license, the prescribed officer may impose a fine up to 5 (five) thousand rupees and cause to close such activity. If any person harms or destroys any electricity projects or hydro powers, the fine as per the damages is charged to the person.

Electricity Rules, 2050

• Now, according to Section 3 and Section 4 of the Electricity Rules, 2050, Any person or corporate body who desires to conduct a survey, production, transmission, or distribution of hydroelectricity of capacity ranging from 100KW to 1,000 KW, shall have to provide a piece of information to Secretary through Department of Electricity Development.
• The details of the information are listed below:-

(a) Detail description of the project,

(b) Map of the project site (main structures must be shown in which preliminary sketch of the proposed power-house, dam, reservoir, canal, tunnel, sub-station, transmission line, and village, town, historical places, way .etc. inside the project site),

(c) Source of water and quantity of water to be utilized,

(d) Area where the electricity is to be distributed and estimated number of consumers to be benefitted from it,

(e) Whether the water resources to be utilized have already been utilized by others or not, if done so give the particulars of the same,

(f) Other necessary matters

 

• Later on, here is the list below which describes the necessary fees for the license permit and the renewal fee for the license;

1. Survey License for  Electricity generation

• 1 MW to 5 MW; permit fee = 10 lakh rupee per year

                           Renewable fee= fee equal to permit fee as per year

• 5 MW to 10 MW; permit fee= 20 lakh rupee per year

                             Renewable fee= fee equal to permit fee as per year

• 10 MW to 25 MW; permit fee= 30 lakh rupee per year

                              Renewable fee=fee equal to permit fee as per year

• 25 MW to 100 MW; permit fee=40 lakh rupee per year

                                Renewable fee= fee equal to permit fee as per year

• 100 MW to 500 MW; permit fee= 50 lakh rupee per year

                                  Renewable fee= fee equal to permit fee as per year

• Above than 500 MW; permit fee= 60 lakh rupee per year

 

Addition:- Following, in the case of taking a Survey permit application for generating electricity from solar energy and wind energy; the fee is 10,000 rupees per every megawatt. Likewise, the fee for a survey of the generation of electricity from mineral crude oil, coal, gas, nuclear, garbage, etc., is 15000 per megawatts.

2. Survey License for Electricity transmission and distribution

• 1 MW to 5 MW; permit fee= 10,000 rupees per year

                           Renewable fee= fee equal to permit fee as per year

• 5 MW to 10 MW; permit fee= 20,000 rupees per year

                            Renewable fee= fee equal to permit fee as per year

• 10 MW to 25 MW; permit fee= 30,000 rupees per year

                              Renewable fee= fee equal to permit fee as per year

• 25 MW to 100 MW; permit fee= 40,000 rupees per year

                                Renewable fee= fee equal to permit fee as per year

• 100 MW to 500 MW; permit fee= 50,000 rupees per year

                                  Renewable fee= fee equal to permit fee as per year

• Above than 500 MW ; permit fee= 1,00,000 rupees per year

                                  Renewable fee= fee equal to permit fee as per year

3. Permit letter for electricity generation, transmission, and distribution

• 1 MW to 5 MW; permit fee for electricity generation is 5(five) lakh rupees at once.
• 5 MW to 10 MW; permit fee for electricity generation is 7(seven) lakh rupees at once.
• 10 MW to 25 MW; permit fee for electricity generation is 10(ten) lakh rupees at once.
• 25 MW to 100 MW; permit fee for electricity generation is 30(thirty) lakh rupees at once.
• 100 MW to 500 MW; permit fee for electricity generation is 40(fourty) lakh rupees at once.
• Above 500 MW; the permit fee for electricity generation is 50(fifty) lakh rupees at once.

*Note: - There should be necessary to have a separate license for the generation, transmission, and distribution of electricity. By connecting to the national grid or independently without using the national grid the power generated from the hydropower project can be sold locally or exported to a foreign country too. Electricity can be exported to a foreign country only after entering into an export agreement with the government of Nepal. Though, Nepal Electricity Authority is only the sole buyer of electricity since its inception in case of Nepal. Either 100 percent foreign investments are allowed in the hydropower sector in Nepal, though in practice, there should be the issuance of shares to the local community and other general public from it.

* Note: - In the case of the tax system for hydropower projects in Nepal, as per the Income Tax Act 2058, the income tax on hydropower projects' production, transmission, and distribution system and its operation is 20 %. There is also a tax holiday based on the government's incentive scheme, the project is assumed to have an income tax holiday for the first ten years of commercial operations and fifty percent of income tax exemption in 11 to 15 years from the start of its commercial operation.

Hence, to promote the hydropower business, develop hydropower projects with clear, simple, and transparent procedures, make friendly investments, and suggest and consult our clients in a cheerful manner, we the Mijar Law Associates always there with highly qualified lawyers to represent our clients at a competitive rate to solve their legal problems.