Infrastructure financing institution sought
KATHMANDU:
Experts have said that the government has to establish a separate ‘infrastructure financing institution’ to lend resources to large-scale infrastructure projects. This has been urged amid growing need to increase investment and resource crunch for big physical infrastructure development plans.
A clear example of lack of financing from domestic level is the Kathmandu-Kulekhani Tunnel Highway, which after failing to gather resources had to approach foreign project financers. Radesh Pant, CEO of Investment Board Nepal, speaking at the Nepal Infrastructure Summit 2014’s ‘infrastructure financing mechanism’ session as a key speaker, said that this type of financing institution can also create a re-financing facility intended to mitigate the asset liability mismatches of commercial banks.
“The other thing that an agency like this can do is purchase and repackage infrastructure loans originated by banks for sale to domestic insurance companies and pension funds,” said Pant. Currently, even though there is the Hydropower Investment and Development Company, of this kind, targeted for the energy sector, its capital base and scope is low.
Sashin Joshi, CEO of NIC Asia Bank, said that balance mismatch and liquidity crunch are risks, if commercial banks invest in long-term projects. Nepali banks and financial institutions (BFIs) have around Rs 1.1 trillion ($11.3 billion) deposits. However, they do not have the ability to invest in long-term projects and are focusing on short-term business on retail and trade financing.
Stating that the draft of the Bank and Financial Institutions Act is in the final stage, Maha Prasad Adhikari, deputy governor of Nepal Rastra Bank, said the new rules will incorporate a provision of infrastructure financing institution. “Commercial banks too will be able to invest a portion of its capital in infrastructure projects.” The central bank is preparing to send the draft Act to the parliament soon.
So far, investments in infrastructure sector have remained low, at around three per cent of GDP. It is estimated that the country requires investment of up to 12 per cent of GDP to graduate from least developed country to a developing nation. Other participants in the event said that the government should attract more foreign investment in infrastructure by taking their confidence and assurance of provision like viability gap funding in projects that are not fully viable.
Wu Chuntai, ambassador of China to Nepal, said that the Asian Infrastructure Investment Bank (AIIB) has been established to finance the gap in infrastructure projects in the region. He said that he would help Nepal get a bigger share from the bank for infrastructure project financing. The bank has an initial capital of $50 billion.
Similarly, Ananda Kumar, managing director of National Highway Infrastructure Corporation of India, said the private sector should be in the forefront in infrastructure development. “The government’s endeavour should be to facilitate in fast completion of project by easing legal frameworks,” he said, adding processes like land acquisition, utility lines relocation should be completed on time as these issues normally delay project works.
Infra summit concludes
The Nepal Infrastructure Summit 2014 concluded today emphasising on the need to boost investment in the infrastructure sector. The two-day event witnessed discussions among speakers and participants in diverse issues related to infrastructure development.
The Confederation of Nepalese Industries (CNI), the organiser of the summit, said that the event was successful in highlighting the need of infrastructure for socio-economic development. “Sessions were very fruitful and the conclusions derived from these discussions will be instrumental for the policy reforms in the sectors concerned,” said Narendra Basnyat, president of CNI.
Basnyat said that the first ever Nepal Infrastructure Summit has become a milestone in setting a platform for constructive discussion in the sector. Delegates from diversified sectors — government agencies, donor agencies, and private sector representatives from Nepal and abroad — had taken part in the event.
Speakers in the event underlined the need to focus on private public partnership, foreign direct investment, establishment of Infrastructure Financial Institute and introduction of a policy to assure viability gap funding to make projects doable. Similarly, amid lack of investment in the sector, they had also suggested that the government update laws, policies and do needful regulatory and institutional reforms.
Jayaram Lamichhane, president of Federation of Contractors’ Associations of Nepal, said that this type of event should have been organised about two decades ago. “This has helped in revealing where we are in infrastructure and what we need for economic prosperity,” he added.
CNI will also institutionalise its Infrastructure Cell and make a doable follow up and working mechanism to incorporate suggestions. It also plans to organise the infrastructure summit either annually or bi-annually.
Source: THT
