ANNEX-III
Hydro Power: Some Legal Provisions and Policies Highlights
A. Royalty Arrangements:
For Small Hydropower Project 3000KW (Three MW) or Less
- No License Required
- No Royalty
- No Corporate Income Tax
B. Hydropower Projects for domestic consumption:
Up to 15 years * After 15 years
S. Electricity
Capacity Energy Capacity Royalty Energy
N. Capacity
Royalty/kW (Rs.) Royalty/kWh /kW (Rs.) Royalty/kWh
1. Up to 3 MW -- -- -- --
2. 3-10 MW 100.0 1.75 % 1000.0 10 %
3. 10-100 MW 150.0 1.85 % 1200.0 10 %
4. Above 100 MW 200.0 2.00 % 1500.0 10 %
5. For Captive use 1500.0 3000.0
• The energy royalty is charged at a rate fixed for hydropower projects producing electricity
more than 100 MW, when the surplus energy produced by captive plant is sold and
connected to electrical transmission system.
C. Hydropower Projects for export purposes:
Up to 15 years * After 15 years
S.
Type Capacity Royalty Energy Capacity Energy
N.
/ kW (Rs.) Royalty/KWh (%) Royalty/kW (Rs.) Royalty/KWh (%)
1. Exportable, run of 400.0 7.5 1800.0 12
river projects
2. Exportable, water 500.0 10 2000.0 15
storage projects
Note: * After the date of commercial production.
• The above royalty rates are charged up to 1000 MW capacity hydropower projects
built for commercial purposes.
• The energy/capacity royalty of 15% annually is charged from the date of production
from the Hydropower projects up to 1000 MW capacity built for non-commercial
purposes.
• If the energy sold for domestic use and the remaining energy produced is exported
to a foreign country, in such case the energy royalty is charged as per the projects
for export purposes on the exported quantity.
For export projects, the royalty has to be paid in the same currency in which the
power is sold.
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Note: To calculate the energy royalty and capacity royalty, the formula is as follow:
Energy Royalty = (generated energy-self consumption) x Average selling price x Energy royalty rate
Capacity Royalty = Capacity royalty rate x (1+5/100) year♦ x Installed capacity (kW).
♦ Base Year is 2058 B.S.
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D. Terms of License Arrangement:
1 Study / Survey license A maximum of 5 years
2 License for Hydro power generation
a. Projects to supply the domestic demand 35 years
b. Projects for export purposes 30 years
c. Captive plant (with a minimum of 60 % self So long the industry remains in operation
consumption)
d. Water storage projects Extended up to 5 years on the basis of
construction period
3 Electricity Transmission and Distribution License:
License for Electricity Transmission and 25 years ( renewable for one time for the
Distribution period of 10 years at a time)
Note: The license period for transmission and distribution of up to 1 MW Capacity shall be
valid so long the power station is in operation.
Fees for License Approval and Renewal for Electricity Generation, Transmission
and Distribution:
Category For Survey License of For Survey License of For License of electricity
electricity generation electricity transmission generation, transmission &
and distribution distribution
Installed Capacity Approval Fee Renewal Approval Fee Renewal Approval Fee Renewal Fee
(Rs.) Fee (Rs.) Fee (Rs.)
3- 5MW A lump sum 10,000 100,000
amounts of
50,000/year
Same as Same as
Above 5-100 MW 10000 / year / MW 50, 000 500,000
Approval Half of Approval
Above 100-500 MW A lump sum 500,000 1,000,000
Amounts Approval Amounts (For
amounts of
/ year Amounts electricity
1,000,000
transmission
Above 500-1000 MW A lump sum 1,000,000 2500,000
& distribution)
amounts of
2,000,000
Above 1000 MW -- -- -- -- 50,000,000
E. Tax and Custom Facilities Arrangements:
Government has provided following legal flexibility among public & private sectors in
promoting Micro Hydro projects:
• No license is required for conducting surveys or for building and operating plants.
• No royalty is imposed on the electricity power generated.
• Exemption from income tax.
• The private producers may fix the selling price of electricity
• 15 Years tax holiday. The income tax on hydropower projects production, transmission and
distribution systems and its operation shall be imposed as per prevailing income tax rate of
20 %.
• % custom duty is levied on import of industrial machinery, equipments and spare parts which
is not manufactured in Nepal. But the amount of machinery, equipments and spare parts
should not exceed 20 % of the Total Cost. Import license fee and sales tax is exempted
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• Power Development Fund (PDF) is a component of Nepal Power Development Project (PDP)
agreed between Government of Nepal and the World Bank to finance private development of
small and medium sized hydro schemes. The PDF is expected to provide long term financing
for private sector hydropower developments in Nepal.
• The Fund is owned by the PDF Board appointed by the Government pursuant to the PDF
Board (Formation) Order, 2003.
Current Status
• Two Windows - First Window (10 to 50 MW project by competitive bidding)
• Second Window (less than 10 MW, first come first served)
• PDF Administrator - NB Bank Ltd
• Initial amount - 35 Million US $
• Fund to act as catalyst to leverage private sector
• Maximum financing - 40% of the project cost for the First Window Project
• 60% of the project cost for the Second Window Project
• Developer to put in minimum 20% as equity
• Notice published in the Rising Nepal on June 22, 2006 inviting applications for the Second
Window
Source: Nepal Electricity Authority; Department of Electricity Development.
