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September 26, 2017

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Nepal to form panel to study PPA in dollar terms

The Nepal government is planning to set up a committee to study whether to sign power purchase agreements (PPA) in foreign currency terms.

PPA in foreign currency terms and its impact on the Nepal Electricity Authority (NEA) have long been a hotly debated topic in the nation.

Keshav Dhwoj Adhikari, joint secretary at the energy ministry, said on Sunday the study committee would be formed within a couple of days. He said the "question is not whether or not to sign PPA in U.S. dollar terms, but how to minimize the foreign exchange risks" for the NEA. "As there is a certain mechanism to hedge foreign exchange risks, signing PPA in dollar terms may not be too risky."

With bitter experiences with Khimti and Bhotekoshi projects, the NEA has been reluctant to sign PPA in dollar terms. The NEA says it spends around 40 percent of its revenue to pay for these two projects. The utility is of the view if it has to sign dollar PPA, it has to be allowed to adjust electricity tariffs on its own.

The NEA has so far signed dollar PPA with five projects.

The debate over dollar PPA heated up once again after Energy Minister Radha Gyawali's statement at a recent Parliamentary Public Account Committee (PAC) that there would be no dollar PPA during her tenure. She had cited NEA's huge losses due to the dollar PPA with Khimti and Bhotekoshi.

However, at an interaction with Independent Power Producers Association of Nepal (IPPAN) here on Sunday, Gyawali softened her stance. "There is a need for a thorough study about the pros and cons of signing PPA in U.S. dollar terms," she said.

Saying foreign investment would not come in the hydropower sector without PPA in foreign currency terms, she stressed on the need for forming a mechanism that would facilitate foreign investors as well as reduce possible risks to the country.

Independent power developers say signing dollar PPA is essential for attracting foreign investment in the power sector. According to them, foreign investors want PPA in foreign currency terms to hedge foreign exchange risks as they have to raise resources abroad and repay the borrowings in foreign currency terms. "Dollar PPA should be looked as an economic issue rather than a political issue," said IPPAN President Khadga Bisht.

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