Foreign Direct Investment in Hydropower

Foreign Direct Investment (FDI) is described as a cross-border investment made in a host country by a foreign firm. Nepal’s hydropower investment opportunities are strong. Nepal launched on a liberalization strategy in the early 1990s. The government enacted these policies in order to attract foreign investment into the country. On March 27, 2019, the Foreign Investment and Technology Transfer Act (FITTA) of 2019 went into effect.

There are over 6000 rivers in Nepal. Nepal has an 83,000 MW potential, 43,000 MW of which is economically viable. The government has a well-accepted hydro-development strategy in place and is eager to do business. Power exports are also high on the priority list. In Nepal, hydropower development is the most important economic indicator. Nepal has encouraged FDI inflows in recent years by creating an investment-friendly environment and prioritizing foreign investment-related reforms. Nepal is close to India and Bangladesh, both of which have large markets. In India and Bangladesh, electricity is currently in high demand. Investing in hydropower in Nepal is profitable because the generated electricity can be sold to India and Bangladesh.

1. Nepalese legislation governing foreign investment.

The Foreign Investment and Technology Transfer Act of 2019 (FITTA 2019).

The aforementioned Act expressly addresses these concerns. The act categorizes foreign investors into two types. An international investor. The first is Non-resident Nepali,” which refers to someone who has a non-resident Nepali identity card. The second category is the foreigner, which includes both foreign countries and foreign organizations. These entities are eligible to invest in Nepali hydropower.

2. How to Invest in Hydropower in Nepal.

The provisions of the (FITTA 2019) have determined the mode of hydropower investment.

Furthermore, FITTA, 2019 broadened the scope of foreign investment, identifying the following hydropower investments as foreign investment in hydropower:

• Foreign currency investment in hydropower shares
• Reinvestment of prior investment dividends
• Purchase of shares or assets in a hydropower company incorporated in Nepal
• Purchase of loans in the hydropower sector
• Investment in hydropower through technology transfer
• Investment received as a result of a company’s issuance of securities in the foreign capital market.
• Investment received as a result of the establishment of a venture capital fund for the hydropower sector.

 3. A Nepalese firm in the hydropower sector

Section 32 of the (FITTA 2019) ensures equal treatment of domestic and foreign investors. Ensure that both domestic and foreign investors have a level playing field Profits from the investment can also be safely repatriated to the investors’ home country.

4. All-in-one service facility

Section 23 of the FITTA 2019) specifies that foreign investments, including hydropower services, must be channeled through a single office.Foreign investors will be able to use the Single Stop Service Centre for services such as hydropower registration and administration, foreign investment and loan approval, company registration and administration, labor permit and visa facility, and so on. This provision is explicitly stated in current legislation. This has improved the investment climate for hydropower. Nepal’s government intends to take appropriate action.

5. Nepal Investment Board

Hydropower projects with a capacity of more than 200 MW or an investment of more than $6 billion in Nepal require approval from the Nepal Investment Board. Foreign investors can invest entirely in Nepal’s hydropower sector. However, approval from the Department of Electricity Development and the DOI is required for capacities less than 200 MW.

6. Procedure for obtaining a license from the Nepal Investment Board

1. Application to the Nepal Investment Board: Any foreign investor interested in investing in hydropower should file an application with the Investment Board and include a project report.
2. Approval by the Investment Board of Nepal’s executive:When a foreigner submits an application to the Investment Board of Nepal, the executive head evaluates it, and if the proposed project is found to be appropriate, the project investment study process, which includes financial, environmental, technological, and social aspects, begins within seven days. After the evaluation is completed, the executive of the Investment Board of Nepal will make a recommendation on whether or not to approve the proposed project within thirty days. If the board is unable to provide a recommendation within the specified timeframe, the board may, on the recommendation of the office, extend the time period for appropriate reasons.
3. Advisory Committee: Report on the proposed project. The report will be presented by the export committee, which will evaluate the technological aspects of the and conduct its examination and assessment.
4. Meeting Request: Following the completion of all technical aspects examination and, if necessary, discussion, the applicant will be invited for discussion within seven days of the minutes passed by the board meeting, stating the dates and venue.
5. Grant permission with no conditions: Following the discussion with the board, the foreign investor will be notified whether the project investment is approved with or without conditions. If the project investments are approved, the board will provide permission in the designated format after collecting the fees from the investor in accordance with the law.
6. Environment Impact Assessment (EIA): After approving a hydropower project, the Nepal Investment Board must grant permission to present an EIA report within three months.

In the event that the project is required to conduct an environmental assessment or evaluation, the board will provide a time period of three months based on the nature of the project, provided that whatever is contained in current law. And the investor will be required to complete the project study and submit the report to the relevant authority in the specified format and timeframe.

If the board receives a written request for an extension of the time period due to non-completion of the study within the time frame, the board may extend the submission time period for a maximum of three months.

If the investor fails to follow the legal procedures and begins developing project activities, the board may take the following actions in whole or in part.

• Cancel the permission letter;
• Confiscate project property; and
• Take control of the project.

Conclusion

As of mid-July 2019, Nepal had received foreign investment from 53 different economies. In terms of total FDI stock, India ranks first with Rs.56.05 billion, followed by China, Saint Kitts and Nevis, Ireland, and Singapore, which each have Rs.27.56 billion, Rs.24.94 billion, Rs.11.59 billion, and Rs.8.73 billion. Prime Legal has been assisting in a number of foreign investment projects in Nepal.

f you need such legal assistance, please contact us at +977-9849517735 or info@corporatelawyernepal.com.np