The budget for the new fiscal year that began on Friday states that the preliminary work for the establishment of the bank will be done with the participation of private parties with the capability of investing in the proposed institution.

“NIDC Development Bank and Hydropower Investment and Development Company Limited (HIDCL) will be restructured in a way to make them capable of increasing investment in infrastructure,” the budget said.

However, Baikuntha Aryal, chief of the budget division at the Finance Ministry, said that it was unsure whether the proposed bank would be created by merging HIDCL and NIDC or setting up a new entity. He said NIDC has submitted a proposal to merge with HIDCL to establish the infrastructure development bank.  

But HIDCL officials said that they had not discussed any plans for a merger and cooperation with NIDC. Deepak Rauniyar, chief executive officer of HIDCL, said that he was unaware about the restructuring plan between HIDCL and NIDC. “I have to ask about it,” he said.

HIDCL was formed three years ago to finance and develop hydropower projects in the country in view of the limitation of banks and financial institutions to fund large scale hydro projects.

According to Laxman Aryal, joint secretary at the Finance Ministry and chairman of NIDC, the basic idea is to merge HIDCL and NIDC to establish an infrastructure development bank and engage the private sector as a shareholding partner.

“As both NIDC and HIDCL have huge properties and cash, they can be amalgamated to form an infrastructure development bank,” he said, adding that the assets of the two companies would be evaluated following the policy announcement through the budget.

This is the second time in as many years that the government has announced plans to establish an infrastructure development bank. The previous administration had announced in the budget statement for 2013-14 that NIDC would be transformed into an infrastructure development bank as per its proposal.

However, the plan failed to make any headway due to poor preparations and objections by Nepal Rastra Bank that NIDC lacked the financial and managerial capacity to become an infrastructure development bank.

In September 2012, the High Level Financial Sector Reform Recommendation Committee had decided to merge NIDC with state-owned Rastriya Banijya Bank. However, it did not happen due to strong opposition by NIDC’s staff and management.