KATHMANDU: The government is going to provide hedging facilities to six different types of projects. Finance Secretary Krishnahari Puskar informed that according to the ‘Hedging Regulations, 2079’ published by the Ministry of Finance, hedging facilities will be provided to hydroelectric or semi-hydroelectric projects with a capacity of 100 megawatts or more.
Similarly, the construction project of electricity transmission line with a voltage level of 220 kilovolts or more and more than 30 km long will also get such a facility. Construction projects of metro or monorail longer than ten kilometers, toll roads, flyovers, underpasses, signature bridges or tunnels and expressway projects longer than 50 kilometers will get hedging facility.
Hedging facilities will also be available in the construction and capacity expansion of international and regional airports, physical infrastructure projects related to health, agriculture, education, tourism, information technology, industrial infrastructure and urban development, and other projects decided by the government.
According to the Ministry of Finance, the facility of hedging will be available for the principal and interest amount of the loan for a project. In case of hedging of foreign loan investment in a project, the hedging loan investment, project approval or permission must be disclosed when applying to the commercial organization.
In order to invest in green infrastructure, banks and financial institutions issue debt instruments in the international financial market or borrow from international banks and financial institutions, and hedging facilities will be available in foreign currency transactions of at least 20 million US dollars or more in foreign currency within the Special Drawing Rights maintained by the International Monetary Fund.
If such a facility is provided, the government can bear an amount equal to 10 percent of the hedging fee. The period of such hedging will be seven years.
The hedging organization determines the hedging fee based on foreign exchange rate risk, inflation risk, equity and loan portion of the project, loan repayment period, prevailing inter-currency interest rate, risk management and transfer, and the nature of the project.
When determining such fees, the hedging organization will coordinate with banks, commercial organizations, concerned agencies, projects and investors of such projects based on the needs of the ministry. According to the Public Private Partnership Investment Act, 2075, the hedging fee to be provided by the government for the projects of national priority or national pride to be implemented in public private partnership has also been determined.
According to the new arrangement, in the case of reservoir or semi-reservoir projects with a capacity of 100 megawatts or more, the government will bear a share equal to five percent and commercial organizations will bear a share equal to 40 percent. Similarly, for power projects with a capacity of 220 kilovolts longer than 30 km, the government will bear 20 percent and commercial organizations will bear a share equal to 35 percent.
For metro or monorail longer than ten kilometers, the government will have to pay 5 percent and commercial organizations will have to pay 30 percent. For toll roads, flyovers, underpasses, etc., the government will have to pay 10 percent and commercial organizations will have to pay 30 percent.
For international and regional international airport construction and expansion projects, the government will have to bear 20 percent and commercial organizations will have to bear 30 percent. Similarly, for health, agriculture, education, tourism, information technology, industrial infrastructure and urban development projects above two billion, the government will have to bear hedging equal to 10 percent and commercial organizations to 20 percent. For other projects decided and determined by the government, hedging of 20 percent at most will have to be done according to the decision.
In accordance with prevailing laws, infrastructure development banks or commercial banks with full or partial government investment licensed by Nepal Rastra Bank must submit a proposal to the Ministry along with their business plan. It has been arranged that the ministry will designate a bank as a hedging organization based on the evaluation of the business plan and the efficiency of the respective proposer. It has been arranged that the hedging organization can determine the maximum period of hedging facility based on the total amount of foreign loan to be invested in the project, the period for which such loan must be repaid according to the foreign loan agreement and its interest rate, and also the period in case of debt instruments.
The foreign currency accumulated in the account of the hedging organization shall be fixed by the hedging organization at the exchange rate at which it has been converted into Nepali currency according to the same rules so that there is no change or decrease in the exchange rate. Arrangements have been made to provide hedging facilities to the project or its investors by the hedging organization so that the amount according to the agreement will be paid back at the fixed exchange rate.
The hedging organization must collect all types of funds and income received while operating the service in accordance with this regulation in one fund. Payment will have to be made from the same fund. A hedging institution shall enter into an agreement with a banking or non-banking institution with the prior approval of the Ministry to accept loans for performing hedging activities, They can cooperate or collaborate.
The government claims that the regulation, published by the Ministry of Finance through the Gazette on Thursday, will bring in a significant amount of investment in the field of infrastructure investment.