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Tue, March 5, 2024

SUSTAINABILITY & OUTCOME OF INVESTMENT BOARD NEPAL REQUIRES A LEVEL OF AUTONOMY

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Though there had been efforts since early 1990s to create a favourable investment regime to attract private investments including Foreign Direct Investment (FDI), Nepal started to make significant strides in this area after the establishment of Investment Board Nepal in 2011 to attract large scale investments as direct private investment and public-private partnership (PPP). 

The Investment Board Nepal is the first reference point for large-scale investments of Rs six billion and above and for energy projects with capacity of 200MW and more. In its 12-year-long journey of promoting private investment and PPP, the board has approved investments worth Rs 1,249.80 billion for 42 projects; 28 energy and 14 non-energy projects. 

Investment trend of last five years 

Fiscal Year  Approved investment (in Rs crores)
2019/20  34,219.18
2020/21    13,581.31
2021/22    12,268.71
2022/23     16,759
2023/24*     19,876

(Source: *Till October of 2023/24) 

The investments approved by IBN must be realised during the gestation period of the projects. “We are confident that the approved investment will be realised in due course of time during the implementation of the projects,” said Sushil Bhatta, CEO of IBN, adding, “The reinvestment and additional project investment that are going to be mobilised in the country by Dabur Nepal and SJVN Ltd are a few illustrative examples of improved investment climate.” 
According to him, Dabur Nepal, the first generation FDI venture in Nepal, has obtained approval to invest Rs 9.68 billion for capacity enhancement and product diversification. Similarly, SJVN Ltd has decided to develop another hydroelectric project - 669 MW Lower Arun Hydroelectric Project - after investing in the 900 MW Arun-3 Hydroelectric Project in the Arun Basin. The Project Development Agreement (PDA) of Lower Arun with the developer company, SLPDC (SJVN Lower Arun Power Development Company), was signed during Prime Minister Pushpa Kamal Dahal’s visit to India on June 1 this year. 

Bhatta shares that IBN has streamlined projects with installed capacity of around 4,000MW including the 750MW West Seti Hydroelectric Project which is a national pride project and is in the study phase. Two hydel projects in the same river basin, the West Seti Hydroelectric Project and the 450MW Seti River (SR)-6 are currently preparing the Detailed Project Report (DPR). The study rights of these two projects were granted to NHPC Ltd, a government of India enterprise, and the DPRs are expected to be submitted by next year. 

Currently, with the execution and completion of different projects, IBN has brought investment worth Rs 525.42 billion towards realisation. Two large-scale cement manufacturers – Hongshi Shivam Cement and Huaxin Cement – have already commenced operations with capacity to produce 6,000 and 3,000 metric tonnes per day, respectively. Along with these two cement projects, Venture Waste to Energy project in Dharan has also come into operation. 
Similarly, four energy projects namely: 900 MW Arun-3, 216 MW Upper Trishuli-1, 900 MW Upper Karnali and 669 MW Lower Arun Hydroelectric Projects are in the implementation phase. Among them, Arun-3 has achieved significant progress with 65% physical work and 15% transmission line component work being completed. The developer of Arun-3 has also been installing the 253-km-long cross-border transmission line of 400 kV from Arun-3 powerhouse Pukhuwa (Sankhuwasabha) to Sitamarhi of India via Bathnaha. 

IBN projects in operation and under construction

S.N. 
Project Name  Stages of development Project Cost (Rs in Crores)
1
Arun III HEP,  900 MW  Construction – more than 65% physical progress  14,476
2 Upper Trishuli-1 Hydropower, 216 MW  Construction 7,315.62
Hongshi-Shivam Cement Pvt Ltd  Operation  3,735.47
Huaxin Cement Narayani Pvt Ltd  Operation  1,482.6
5
Venture Waste to Energy, Dharan  Operation  24.44
Upper Karnali HEP, 900 MW  PDA implementation, financial closure stage  16,240
Lower Arun HEP, 669 MW  PDA signed during the state visit of the Prime Minister to India  9,268
TOTAL      52,542.13

IBN - An institution of strategic importance 

Many countries across the world have formed such investment promotion agencies (IPA) as the first reference point for private investment including FDI. The government of Nepal has also strengthened the institution with Public Private Partnership and Investment Act (PPPIA) 2019 and Public Private Partnership and Investment Regulation (PPPIR) 2020 that have replaced the Investment Board Act 2011. The law has mandated IBN to function as an investment promotion agency and also as national PPP agency. 

Chaired by the Prime Minister and with other key ministers as well as private sector representatives, IBN is an institution of strategic importance for fast-tracking projects of private investments and FDI. IBN’s effective facilitation and handholding could lead us towards a prudent investment regime driven by robust institutions. IBN’s One Stop Service (OSS) integrates various government agencies concerned with the investment ecosystem. 
IBN was established as a vehicle for economic transformation by creating a single agency with a single-minded goal led by a powerful institution at the highest level of the government. Investment Board Nepal has been expanding its role in national development by executing infrastructure projects under PPP that are aligned with the national development goals. 

A total of 55 board meetings have been held till October 2023. Since its establishment, IBN has been led by six prime ministers: Dr Baburam Bhattarai, Khil Raj Regmi, Late Sushil Koirala, KP Sharma Oli, Sher Bahadur Deuba and Pushpa Kamal Dahal. Similarly, three chief executive officers have served in the institution, one term each so far, as the government appoints the CEO for four years through a competitive selection process. 

Radhesh Pant, the first CEO of Investment Board Nepal, has said IBN was formed as the commercial face of the government to attract private investment including FDI to develop critical infrastructure to unlock the bottleneck in the country’s economic development process considering the requirements of huge investments in view of inadequate domestic capital in this regard. 

As an investment promotion agency, Investment Board Nepal has been playing a pivotal role in promoting Nepal as an attractive investment destination, creating a conducive environment for investments (domestic and international), providing one window service, and coordination among various investors. On the other hand, given the complexity and diversity of PPP, the IBN deals with such complexities on behalf of the government and over the years has specialised and acquired the specific skills required to handle this job. 

Major achievements 

Date     Major achievements 
2011 Establishment of IBN
2014 Project Development Agreement (PDA) of two critical hydel projects – Arun-3 and Upper Karnali Hydroelectric Project signed
2017  Project investment agreement with Hongshi Shivam Cement
Nepal Investment Summit organised
 
2018    

Project investment agreement with Huaxin Cement Narayani signed
Commercial operation of the first phase (6,000 metric tonnes per day) of Hongshi Shivam Cement Project
Foundation stone of Arun-3 Hydroelectric Project laid by Prime Ministers of Nepal and India
2019    

Nepal Investment Summit, 2019 organised
2020    

MoU signed for the study of 756 MW Tamor Storage Hydroelectric Project 
Common facility agreement of 900 MW Arun-3 Hydroelectric Project signed
2021     IBN Strategic Plan including Business Plan and IBN Project Bank Guideline unveiled
System development and process improvement (standard operating procedures, web-based one stop service, knowledge management platform, project infrastructure mapping GIS system)
Study report of China Nepal Friendship Industrial Park approved.
MoU for development of 669 MW Lower Arun Project signed.
MoU signed with Risen Energy Singapore JV Pvt Ltd to prepare Detailed Feasibility Study Report (DFSR) of 250 MW grid connected solar energy project with 40 MW battery storage plant in Nepal
2022 Commercial operation of Huaxin Cement Narayani (3,000 metric tonnes per day) begins. 
MoU with NHPC Ltd, a government of India enterprise, for study of 750 MW West Seti and 450 MW SR-6 Hydroelectric Project and issuance of survey licence 
Hosted Sustainable Infrastructure Investment Summit
2023  Project Development Agreement of 669 MW Lower Arun Hydroelectric Project signed.
MoU signed with Dabur Nepal to reinvest Rs 9.68 billion for capacity enhancement and product diversification
MoU with German-based DIAG Industries GmbH and Malaysia-based reNIKOLA Sdn Bhd to prepare Detailed Feasibility Study Report (DFSR) of chemical fertiliser plants in Nepal

Challenges 

The Office of the Investment Board Nepal has been facing challenges related to sustainability as it lacks permanent staff. The human resources working here are civil servants and embedded consultants (supported by development partners). Due to the frequent transfer of government staff and temporarily hired professionals the board has not been able to fully fulfil its potential. “Having permanent staff is key to strengthen the institution as per its motive of being a PPP centre of excellence,” said CEO Bhatta, adding, “IBN should be delegated authority to recruit permanent staff based on the O&M (organisation and management) survey that will be endorsed by the board and subsequently by the Cabinet.”

He said that it is obvious that developing bankable PPP projects is resource intensive – time, capital and expertise – and we lack all of that. In its 12-year journey, the Office of the Investment Board Nepal has developed its expertise, experience and the human resources who have served in the institution have developed their capacity with a vast experience of concession agreements drafting; project development and management; facilitation; effective coordination and prompt communication; and the promotion of projects, institution and the country as an integral part of investment promotion, among others.  Considering the specialised and strategic nature of Investment Board Nepal, the institution must be accorded human resources (HR) and financial autonomy, according to experts. In this respect, the governing laws – PPPIA, 2019 and PPPIR, 2020 – must be amended. 

Meanwhile, the Office of the Investment Board Nepal has already started efforts to amend the law and operationalise the IBN Fund. IBN has already set up a separate fund called IBN Fund, however, it has not been provided the autonomous right to operate the fund. Once HR and financial autonomy are granted, IBN will be able to recruit staff itself and operate the fund as well which are critical components to enable the Office of the Investment Board Nepal to create an environment to attract the best talent and strengthen the institution as the PPP centre of excellence by establishing a pool of experts, archiving the resources, garnering knowledge, enhancing capacity as well as creating networks of professionals in the country and beyond, and most importantly to develop a pipeline of well-studied/conceived, credible, sustainable and bankable PPP projects along with needful promotional activities in the country and beyond with proper showcasing, roadshows and investment marts, among others, to attract FDI in the country. 

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JANUARY 2024

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