Exim Bank, to which the government requested for credit line of US$ 1.7 billion (about Rs 134 billion), has not disclosed how much it is willing to lend as soft loans though. “So, we have no idea of the volume it wishes to pledge under commercial loans,” said a Ministry of Finance (MoF) source.[break]
The Chinese financier has also floated other options to the government, particularly if the government is not eager to take commercial loans. Under this, it has suggested to the government to consider options like inviting private equity, including foreign private investments, and mobilizing the shortfall fund under credit line facility.
“It has floated a number of options, seeking our clear vision on how we plan to carry the project forward,” said the senior MoF official. Following such response, MoF has requested the Ministry of Energy (MoE) to forward to it a clear view on how it envisages to develop the project.
Mainly, MoF has sought clarity on matters like whether the government would like to develop the project itself or under public-private (PP) investment. It has asked if the project is to be developed under PP model, who would lead the project and what options it has explored for bringing in foreign investors.
All these facts are considered crucial as a clear vision on the project can only help MoF assess the extent of fund available at home and from other sources, and determine the extent of fund deficit, among others, and finally decide on the most cost-effective option.
“Such details are critical for it will help us set the tone for further dialogue with Exim Bank,” said the source.
Irrespective of what MoE will forward, MoF says it is not eager to discuss the proposal of commercial loans because the existing foreign aid policy and other related regulations are silent on the country taking commercial loans. “We need a cabinet decision to take the talks ahead in this regard,” said the source.
So far, Nepal has been accepting loans under credit line facility only, as interest on such loans is low -- ranging from less than a percent to 1.75 percent per annum -- and grace period is longer.
If the government took commercial loans, it would need to pay interest in a range of 4 to 5 percent. This will render the project costly. “An even bigger question is: can we rest assured that loans taken against higher interest rate will be spent efficiently and effectively? If not, taking such loans can cost the country dearly,” said another MoF official.
Given the situation, MoF has continued to request Exim Bank for the soft loans. The government had approached Exim Bank a few months ago, requesting it to pledge credit line of US$ 1.70 billion for developing the reservoir-type project. The bank has already expressed its interest in the project.
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