The government is preparing to introduce a rule to scrap the licences of the hydropower projects that have already signed power purchase agreements and secured construction licences but have not entered the construction phase.

Minister for Energy, Water Resources and Irrigation Pampha Bhusal on Sunday said that discussions are ongoing at the ministry to introduce a rule that will make it mandatory for the developer to start construction within a certain period after securing the power purchase agreement (PPA).

“Such provision will be made a condition for signing the PPA [by the Nepal Electricity Authority] with the developer,” Bhusal said, addressing an interaction in Kathmandu. “We are also discussing how to scrap the licences of those developers who have not started construction even after signing the PPA a long time ago.”

According to the minister, there are several projects with a combined generation capacity of 1,600MW which have not entered the construction phase even after the developers signed PPA a long time ago under the take or pay modality. Under this modality, the utility must pay for power generated by the project irrespective of whether the NEA uses that energy or not.

It is necessary to discourage the tendency of occupying projects with the intention of profiteering, Bhusal said.

Kul Man Ghising, managing director of the NEA, could not immediately confirm the exact number of projects that have remained idle despite signing the PPA.

“I have to ask for details from the department concerned. They may be in the range of 100,” he told the Post.

According to the NEA, it has signed PPAs with the developers of 357 projects whose combined installed capacity is 6,366MW. Minister Bhusal said projects with a combined capacity of 3,200MW are currently under construction. With a number of projects failing to start construction, Bhusal said that the ministry wants only genuine developers to be engaged in hydropower development.

As per the Directive on Licensing Electricity Projects-2075, a developer can get construction licence under the condition that it concludes financial closure and secures power purchase agreement within two years with the option of one year extension.

Based on attempts to conclude financial closure and progress regarding the matter, the Department of Electricity Development can also extend the deadline by an additional two years. For this, the developer has to pay Rs100 per kilowatt as capacity royalty to the government.

“Citing the Covid-19 pandemic, the government has already granted one year extension to all projects,” said Akash Shrestha, a senior divisional engineer at the department. “It means a developer can get a maximum of six years to start construction after getting the construction licence.”

The directive, however, doesn’t say anything about cancelling the construction licence of the developer for failing to build the project on time.

Sandeep Kumar Dev, director general at the department, said that instead of blanket cancellation of licences, it is necessary to find out if there is a genuine reason behind the delay.

“Some projects have failed to acquire land while others are struggling to get clearance from the forest authorities,” he said.

“Some developers have made huge investments but failed so far to start construction due to a number of unwanted factors. So we should be careful in weeding out non-performing projects.”