IBM proposes waiving pre-negotiation charge

IBM proposes waiving pre-negotiation charge

- Post Report, Kathmandu Post

Every project developer has to pay pre-negotiation and agreement execution fee of Rs100,000 or 0.2 percent of the project cost, whichever is higher

Dec 15, 2016- Investment Board Nepal (IBN) has proposed waiving the pre-negotiation and agreement execution fee for project developers following complaints that they were being made to spend a lot of money even before project development talks were finalised. A proposal to cancel the charge will soon be presented to the Cabinet, the board said. IBN oversees infrastructure projects worth Rs10 billion or more and hydropower projects of 500 MW or greater. Every project developer applying to IBN has to pay a pre-negotiation and agreement execution fee of Rs100,000 or 0.2 percent of the project cost, whichever is higher, as per IBN Regulations. Potential investors have to pay 30 percent of the fee before starting negotiations with IBN on the project development agreement (PDA). They have to pay the rest of the money before signing the PDA.

“A majority of investors have expressed strong reservation about the fee. As a result, PDA negotiations of some projects have not happened,” said IBN Under-Secretary Khagendra Rijal. “Investors have been complaining that levying such a fee is irrational because signing the PDA doesn’t guarantee that the project will enter the development phase.” The concerns raised by investors are genuine as there are lots of other processes like land acquisition and financial closure, among others, that need to be completed before project development starts, he added.  “Also, when we reviewed the modus operandi of similar organisations in other countries, they too did not have a practice of charging such fees,” said Rijal. “Therefore, the IBN management has come to a conclusion that this provision is not investor-friendly as it raises the project cost considerably and affects project viability.” IBN’s next board meeting will send the proposal to the Cabinet for its go-ahead through the Prime Minister’s Office, Rijal added.  Also, other government agencies like the Department of Industries and Industrial Promotion Board, which are authorised to approve foreign investment, do not collect such fees from investors. The project that was most affected by this provision is the Kathmandu Valley Integrated Solid Waste Management Project, which will manage the solid waste of Kathmandu, Lalitpur and Bhaktapur and adjoining VDCs.

IBN is about to start PDA negotiations with the two companies that have been selected to implement the project. But both of them—Nepwaste Private Limited and Clean Valley Company Private Limited—have refused to deposit the fee. Hence, IBN has been unable to bring the project developers to the negotiation table. This project, according to IBN CEO Maha Prasad Adhikari, is a low hanging fruit. It has been more than two months since IBN prepared a draft of the project development agreement (PDA) planned to be signed with two companies. But it is yet to start talks as the developers have said they are not going to pay it. Similarly, the provision has disrupted PDA negotiations over the 600 MW Upper Marshyangdi Hydropower Project and a number of cement factories proposed to be built with foreign investment.