Foreign currency loan for hydro

KATHMANDU, NOV 13: 

The banks can now lend any amount in foreign currency to the hydro-projects. 

Issuing a directive, Nepal Rastra Bank (NRB)’s Foreign Exchange Department has allowed commercial banks and development banks to provide large loans to licensed electricity generating or distributing companies in foreign currency.

“The loan can be short term, medium term or long term, earlier banks were allowed to lend only small amount of foreign currency loans,” said Bhaskar Mani Gyanwali, spokesperson for the central bank.

The hydropower projects that need to make payment for imported machineries, equipments and for the expert’s technical assistance and consultants in foreign currencies will be eligible for this type of loans. However, this loan will not cover the payments that can be made in Nepali currency.

“Loans in foreign currency will ease the proceedings of hydro companies to a great extent as the hassle for exchanging currency will not be there,” pointed out Gyanwali, adding “this will also reduce the cost of financial operation of the projects.” 

Only the projects that have already undergone Power Purchase Agreement (PPA) with Nepal Electricity Authority (NEA) will be qualified for foreign currency denominated loans.The commercial banks and development banks can form a consortium to lend the hydro projects foreign currency loans on their own discretion. The banks can borrow from licensed remittance companies if they fall short of foreign reserve. However, foreign currency, thus borrowed can not be used for other purposes. 

Hydro power development is one of the priority sectors in Nepal so that both fiscal and monetary policy had tried to facilitate hydropower companies’ financing. The monetary policy had stated that a policy provision will be introduced so that banks and financial institutions can extend credit denominated in foreign currency to hydroelectricity projects and can also invest in different foreign currency denominated instruments with the consent of NRB.

In this line, NRB had also opened up the issuance of debentures in foreign currency in order to facilitate the hydro projects. The hydro projects that earn foreign currency can issue foreign currency denominated debentures in Nepal. Himal Power Ltd is already undertaking necessary procedures to issue first dollar denominated debentures.