Hydropower Project Development in Nepal
Comprehensive legal guide by FinLex Associates
Legal Framework for Hydropower Projects
The main legislation governing hydropower in Nepal includes:
| Legislation | Scope |
|---|---|
| Electricity Act, 1992 (2049) & Electricity Rules, 1993 (2050) | Primarily focuses on the licensing of electricity projects. |
| Electricity Regulatory Commission Act, 2017 (2074) | Establishes the Electricity Regulatory Commission for effective management of electricity production, transmission, distribution, and trade. |
| Nepal Electricity Authority Act, 1984 (2041) | Governs the Nepal Electricity Authority, which manages power supply. |
| Public Private Partnership and Investment Act, 2019 (2075) | Regulates projects over 200 MW capacity or those with an investment exceeding 6 billion Nepalese Rupees. |
Governing Authorities for Hydropower Development
Below are the key authorities responsible for hydropower project development and their functions:
| Authority | Functions / Responsibilities |
|---|---|
| Department of Electricity Development (DOED) | Main regulatory authority for electricity projects; grants, renews, amends, and revokes licenses. |
| Investment Board of Nepal (IBN) | Requires investment approval for projects over 200 MW and exceeding 6 billion Nepalese Rupees. |
| Electricity Regulatory Commission (ERC) | Manages the production, transmission, distribution, and trade of electricity. |
Modes of Hydropower Development
Hydropower projects in Nepal are typically developed under a Build Own Operate and Transfer (BOOT) model, with three primary modes:
Mode 1: License Application
The licensing process involves two stages:
- Survey License: This initial license allows for feasibility and environmental studies.
- Generation/Transmission/Distribution License: If the project is deemed feasible, separate licenses are issued for generation, transmission, and distribution.
License Duration
| License Type | Duration |
|---|---|
| Survey License | 5 Years |
| Generation/Transmission/Distribution License | Typically 35 years, extendable up to 15 years (max 50 years) |
Mode 2: Agreement with the Government
Under this mode, a party can generate, transmit, or distribute electricity by entering into an agreement with the Government of Nepal. However, the exact rights and scope under Section 35 are not clearly defined.
Mode 3: Competitive Bidding
A company can acquire a project through the competitive bidding process. This process applies to:
- Projects studied by the Government of Nepal or its institutions.
- Projects with canceled licenses due to issues like non-fulfillment of conditions or financial closure.
Steps for Hydropower Development in Nepal
- Issuance of Survey License by DOED.
- Conducting feasibility and environmental studies, along with executing a Power Purchase Agreement (PPA).
- Application for Generation License to DOED.
- Financial closure within one year of the Generation License issuance.
- Securing all necessary approvals.
- Construction of the project.
- Project operation (up to 50 years).
- Handover of the project after license expiration.
Frequently Asked Questions
Find answers to common questions about hydropower project development in Nepal
1. What are the main laws governing hydropower projects in Nepal?
The primary laws include the Electricity Act, Electricity Regulatory Commission Act, Nepal Electricity Authority Act, and Public Private Partnership and Investment Act.
2. How is the licensing process structured?
It involves two stages: obtaining a survey license first, followed by separate licenses for generation, transmission, and distribution.
3. Can foreign investors participate in hydropower projects?
Yes, 100% foreign investment is allowed in the hydropower sector.
4. What are the tax incentives for hydropower projects?
Incentives include a corporate tax rate of 20%, significant income tax holidays, VAT exemptions, and favorable customs duties.
5. What happens after the license period expires?
Ownership of the project must be transferred to the Government of Nepal, although developers may continue operating under a new agreement.
6. What is the BOOT model in hydropower development?
BOOT stands for Build Own Operate and Transfer. It's the primary model used in Nepal where developers build, own, and operate the project for the license period, then transfer ownership to the government.
7. How long does the survey license last?
The survey license is valid for 5 years, during which time feasibility and environmental studies must be completed.
8. What is the maximum license duration for generation?
The generation license typically lasts 35 years and can be extended up to 15 years, with a maximum total of 50 years.
9. What authorities regulate hydropower development?
The main authorities are the Department of Electricity Development (DOED), Investment Board of Nepal (IBN), and Electricity Regulatory Commission (ERC).
10. What is required for financial closure?
Financial closure must be achieved within one year of the Generation License issuance, which involves securing all necessary funding for the project.
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