Govt does volte-face on policy

KATHMANDU, June 6: Officials at Ministry of Finance (MoF) on Sunday admitted that the government´s decision to set up Hydropower Development Bank (HDB) was a clear case of reversal of its long-adopted policy of not operating any banks.



They, however, argued that the policy was revised mainly because the government now perceives that the country will not be able to harness its hydropower resources by just relying on existing banks and financial institutions (BFIs).[break]



"We know their financial inability and regulatory limitations (like single-borrower´s limit). Hence, we decided to establish a development bank specializing on hydropower," said Keshav Acharya, chief economic advisor at the Ministry of Finance.



The hydropower development bank will be different from other BFIs when it comes to deposit mobilization. While public deposit is the primary source of BFIs´ fund, primary source of fund for HDB will be its equity, capital borrowing, international grants and loans, and money received in loans servicing.



Fundamentally, it will be an institution in which the government will put some money, ask a few donors to make equity participation and pool all loans and grants coming in power sector for fund generation.



"We will tap credit line of Exim banks of India, China, Korea and Singapore, along with OPEC Fund," said Acharya.



If required, the government will issue power bond through the HDB.



From the sources thus mobilized, the government hopes the HDB will be able to issue long term loans to power developers with relative ease.



"It will have no trouble in issuing loans worth billions of rupee, and we anticipate its lending rate to be lower than the BFIs as well," said Acharya.



Officials also disclosed that the ministry´s plan was to invite Asian Development Bank (ADB) and International Financial Corporation (IFC) of the World Bank Group as equity partners in HDB. Going by this plan, MoF has already instructed Finance Secretary and Energy Secretary to expedite talks with the two potential equity partners of the bank.



Apart from these multi-national donors, the government envisages to welcome equity from non-resident Nepalis (NRNs) as well as local and foreign power developers.



"Who can own how much stake will be clear once we work out capital and share structure of the proposed bank," said Acharya.



As for the regulatory framework, Acharya said Bank and Financial Institution Act (BAFIA) new amendment will be the governing law of HDB. "The fresh amendment does have provisions on establishment of large-scale infrastructure development banks like HDB," he said.



However, none of the officials guarantee that the government will not fail this time, as it did in Nepal Industrial Development Corporation, Agricultural Development Bank, Rastriya Banijya Bank and Nepal Bank Limited.



"However, given the pressing need of the country to end the present power crisis and also involvement of private and development partners, we feel the case of HDB will be different," Acharya exuded confidence.

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