PDA study team divided over cash subsidy proposal, downstream impact
A study team formed to advice on Power Development Agreement (PDA) for Upper Karnali Hydropower Project is itself divided over cash subsidy proposal.
Members of the technical committee – led by vice chair of the National Planning Commission Dr Govinda Raj Pokharel – are divided over a proposal to provide subsidy of Rs 5 million for a megawatt of electricity generated instead of VAT subsidy to the developer.
The committee is divided over subsidy and probability of adverse impact on downstream irrigation projects in Tarai. Some members are strongly opposed to the idea of providing subsidy to the project for foreign developers, as the subsidy was conceptualised for local developers. "
Meanwhile, the committee is also waiting suggestions from the Finance Ministry, according to Pokharel.
The committee will submit its report to Prime Minister Sushil Koirala after receiving the recommendation of the Finance Ministry.
In the budget for the current fiscal year 2014-15, finance minister Dr Ram Sharan Mahat had announced bulk subsidy in lieu of subsidy on VAT to all hydropower projects, including the export-oriented ones, that will begin generation by 2021-22.
As Upper Karnali is an export-oriented project, it will get ssome Rs 4 billion in subsidy, if the government decides to provide subsidy in bulk for all the projects start generation before 2021-22.
Some of the members of the committee argued that GMR – the developer of the project – doesnot need subsidy. They said that they are against giving subsidy on VAT to foreign developers, saying that the policy was meant for encouraging domestic investors.
The developer will also receive 100 per cent income tax holiday for the first ten years and 50 per cent discount in income tax for next five years, if the project starts generation before 2021-22, according to the budget.
The government had planned to sign Power Trade Agreement (PTA) with India and Power Development Agreement (PDA) with GMR during the Indian Prime Minister Narendra Modi on August 3-4.
After the Ministry of Irrigation's reminder of the downstream impact on irrigation projects, the technical committee has suggested to institute a third-party independent body to study the impact. It will be asked to suggest measures within six months to overcome the impacts from the mega project that will only run in peak hours during dry months.
A week ago, irrigation minister Narendra Saud – speaking at the meeting of Agriculture and Water Resource Committee of legislature-parliament – said the project would affect downstream irrigation projects like Ranijamara-Kularia Irrigation Project, Rajapur Irrigation Project and Surya Patuwa Irrigation Project during dry months as the water flow will be far lower than required 322 cubic meter per second (cumec).