Kathmandu, Feb. 24:The Ministry of Water Resources is to implement a new hydro power development policy in order to  produce electricity at a cheaper rate and establish it as an exportable item through exploitation of the hydro power potential of the country.

The objectives of the proposed policy are to integrate electrification with economic activities in the country and foster private sector participation in the development of hydro power in a bid to extend affordable and quality electricity services across the country.

The ministry has shown initiative and interest in the formulation of the new policy out of a felt need for private sector involvement. Past experience shows that hydro power projects based on totally government means and resources cannot meet the demand of the entire nation, secretary at the ministry Biswa Nath Sapkota says.

A total of 269 mw has been harnessed so far solely through the investment of the government sector.

The policy includes a string of provisions for exporting electricity produced by medium and large scale hydro power projects, developing multi-purpose projects with a big reservoirs in such a fashion that the nation could enjoy maximum benefits, encouraging rural electrification in remote areas through launching of small and micro project at local level, creating employment opportunities by utilising locally available labour and skill for projects, mitigating adverse environmental impact and rehabilitating displaced persons.

The total energy generated from the existing hydro power projects   constitutes under 1 per cent of total potential. Just 15 per cent of the total population has electricity.

It is estimated that upon completion of the on-going projects the electricity authority and private parties can meet growing demand in the country only till 2004.

The new policy will give additional incentives to private parties and bring in flexibility so as to widen the scope of the hydro power sector in view of indigenous as well as foreign investors being attracted to a number of projects such as Khimti, Upper Bhotikoshi, Upper Modi and West Seti following introduction of the hydro power Development Policy of 2049 for encouraging the private sector.

It has laid down provisions requiring permission from the concerned authorities for projects with capacity of above 1,000 kilowatts. For projects with a capacity of up to 5,000 kilowatt, license for feasibility study has to be issued within a period of 60 days from the date of submission of application, and license for production within a period of 120 days from date of application.

In case of a project with a capacity of above 5,000 kilowatts, feasibility study has to be carried out at government level as far as possible and practicable and the license will be valid for a maximum of five years.

Similarly, validity of production license for a project with a capacity of 1-5 mw for internal consumption will be 40 years from the date of issuance. It will be 35 years for projects of above 5 mw and 30 years in the case of export oriented   projects.

However, a period of 5 years can be added for a project using a reservoir depending on the construction period involved.

For a captive plant type project 60 per cent of whose electricity output is to be used by an indigenous industry,  the license will last for the lifetime of the industrial unit. In case the industrial unit closes down a 30 year license  can be given.

It is also made clear under the policy that the duration of permission for transmission and distribution will be 25 years with a grace period of 10 years. But for projects of up to 1,000 kilowatt, the time limit extends for the life of the project.

Under the new policy, income tax will be exempted for a project of up to 1,000 kw. Income tax exemption will be for 15 years from the date of electricity production for projects of up to 5,000 kw generated for  domestic consumption,   and for 10 years for  projects of above 5,000 kw and also 10 years from commencement of commercial production for export oriented projects.

Under the policy, arrangements have been made to exempt income tax  for captive plants, but this arrangement  will be limited to 10 years for such plants selling electricity to the general public.

This tax facility will be provided to private parties which construct   sub stations and transmission and distribution lines.

Referring to arrangements for single party or joint ventures in power generation, transmission and supply, executive director of the Water and Power Commission secretariat Kul Ratna Bhurtel says that a capital market will be opened to encourage indigenous power developers and a fund will be set up through Royalty collected for the development of micro hydel projects and rural electrification.