March 2: Foreign investment commitment in the energy sector, which is believed to be the backbone of economic development, has been steadily declining for some years now.

According to the Department of Industry, foreign investment commitment in energy sector has been declining since FY 2074/75. In FY 2074/75, the energy sector received foreign investment commitment of Rs 36.24 billion.

In the subsequent fiscal year (FY 2075/76), the sector didn't receive any foreign investment commitment. 

Director-General of the Energy Department Ram Chandra Tiwari said that the department is not certain about the reason for the decline in investment commitment.

"In the case of the energy sector, projects have to be surveyed and selected.  It is time consuming. Big projects should come under the Investment Board. These might be the probable reasons why there isn’t much foreign investment commitment in the energy sector since some years,” said Tiwari. 

Baburaja Adhikari, information officer at the Ministry of Energy, also said that they are yet to conduct any study to find out the reason behind the decline in investment commitment.

According to the data provided by the department, the foreign investment commitment in energy sector in FY 2076/77 was Rs 4.97 billion and Rs 1.54 billion in FY 2077/78. The sector has received a commitment of Rs 56.2 million as of February 30 of the current fiscal year.

Within the energy sector, there is even less commitment for hydropower projects. The statistics show that the hydropower projects have not received any foreign investment commitment in the current fiscal year. During this period, only one solar plant has received foreign investment commitment.

Similar is the case with projects under the Department of Industry.

Investments in big projects come through the Investment Board Nepal. The last time Nepal received foreign investment commitment was for the 900 MW Arun III Hydropower Project with the approval of the Investment Board. Similarly, the process has been initiated to bring foreign investment for Upper Karnali, Tamor Storage, Upper Marsyangdi-2 projects through the board.

Energy producers are worried about the lack of foreign investment commitment as per Nepal's expectations.

Krishna Prasad Acharya, chairman of the Independent Power Producers Association of Nepal (IPPAN), said that it was unfortunate that foreign investment commitments in energy sector have been declining. He said if this situation continues, there will be a challenge for the development of the energy sector.

Acharya claimed that such a situation has arisen due to the government's inability to create an investment-friendly environment.

"Foreign investors have two things to look at. One is the guarantee of return on investment, and the other is the investment-friendly environment,” he said, adding, “There is a guarantee of return on investment in Nepal. On top of that, there isn’t any investment-friendly environment. That is why foreign investment commitments are declining.”

He says that the Covid-19 pandemic has also had an effect on foreign investment commitments. "Recently, foreign investment commitments have declined due to the Covid-19 pandemic. But, it should not be seen as such,” he said.

Likewise, he added that an investment-friendly environment has not been created. Acharya further said that the investors were not enthusiastic about investment as there was still a cumbersome process to build the project with the help of many agencies. 

"On top of that, the work of PPA has been stopped for the last two years and the government has failed to bring policy reforms to encourage foreign investment. The government's policy is to control rather than facilitate," he added.