BY NewBiz Team
Investors, development partners, industry experts, and policymakers from various corners of the globe will convene in Kathmandu during the final week of April 2024 for the 3rd Nepal Investment Summit. Through this premier event, the Nepali government aims to reaffirm Nepal's appeal as a lucrative investment destination.
Preparations for the Emerging Nepal Investment Summit 2024 are in full swing, with invitations already dispatched to esteemed global figures, including prominent billionaires Mukesh Ambani and Gautam Adani from India, Jack Ma from China, and Elon Musk and Mark Zuckerberg from the US. Notable dignitaries, such as the Vice Presidents of the World Bank and the Asian Development Bank, have confirmed their attendance. Additionally, key officials, including the industry minister from South Korea, the commerce minister from China, and the CEO of Qatar Airways, are expected to participate, according to the finance ministry.
The summit is also expected to see high-profile participants from the United Kingdom. Finance ministry sources say that proposed speakers in the summit include Anne-Marie Trevelyan, the British Minister of State for the Indo-Pacific; Michael Mainelli, Lord Mayor of the City of London; Nick O'Donohoe, CEO of British International Investment; and Tim Reid, CEO of UK Export Finance.
The government aims to welcome more than 1,000 attendees, comprising investors, government officials, commerce and industry ministers, domestic investors, and development partners. Nepali missions worldwide have been entrusted with the responsibility of raising awareness about the summit among foreign investors.
However, with the change in government occurring just two months before the investment summit, doubts have been cast over its hosting. Since outgoing Finance Minister Prakash Sharan Mahat was directly overseeing the summit, it has raised concerns about whether the new government will take ownership of it.
Given that the government is already in the process of amending around a dozen pieces of legislation and has begun sending invitations to global investors, coupled with the investment summit being the flagship event of the government, sources suggest that the new government will assume responsibility for its organization and success.
Outgoing Finance Minister Dr Prakash Sharan Mahat personally invited Indian billionaires Ambani and Adani during his participation in the Vibrant Gujarat Summit a few months ago. Mahat held separate meetings with Adani and Ambani on the sidelines of the Gujarat Summit, personally inviting them to attend the summit. According to Dr Posh Raj Pandey, economic advisor to the outgoing finance minister, Adani has promised to attend the summit, while Ambani has expressed commitment to send his senior officials. The Adani Group has already expressed interest in investing in Nepal's hydropower, transmission lines, and airports.
Along with sending invitations to high-profile investors, the government is simultaneously working on legislative reforms and selecting investable projects to be showcased during the summit. The comprehensive proposal to amend the key laws, which is presently under review at the Office of the Prime Minister, will subsequently be presented to the parliament for approval. "The government is progressing with the amendment to several laws targeting the investment summit. Priority has been accorded to amending laws aimed at addressing challenges encountered in the execution of infrastructure projects and resolving issues concerning forest and land acquisition," Prime Minister Pushpa Kamal Dahal said while addressing a meeting organised to review the implementation of the policies and programmes and the budget over the first half of the current fiscal year.
In addition to legislative reforms and project selection for showcase during the summit, the government is also organising several events in collaboration with the private sector in the run-up to the investment summit. One such event, the Hydro Expo, which is being organised by the Independent Power Producers Association Nepal (IPPAN), is scheduled for March. Additionally, another event is being planned for New Delhi, India, in collaboration with the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).
Nepal is organising the investment summit against the backdrop of a significant youth exodus, coinciding with economic downturns and declining business confidence. As a nation currently ranked among the world’s least appealing destinations for Foreign Direct Investment (FDI), the Pushpa Kamal Dahal-led government faces a daunting challenge in positioning Nepal as an ideal investment hub before the summit to attract global investors. A succession of arrests targeting businesspersons and private sector leaders has diminished the enthusiasm of the country's private sector regarding the summit. The private sector argues that apprehending businesspersons without considering their perspective, particularly in cases such as the Lalita Niwas Land Scam, Bansbari land disputes, and electricity tariff disputes, will not create a conducive environment for business. This is especially concerning as the government strives for policy reform through legislative amendments. "The current business scenario lacks predictability," they lament.
The past two investment summits were organised by successive governments as an event to boost Nepal's standing as an ideal investment hub. The objective of the third investment summit is also the same. According to economist Dr Pandey, the government wants to convey the message to potential investors that Nepal is a competitive destination for foreign investment.
The government has formed three committees - a steering committee chaired by the finance minister, an implementing committee led by the chief secretary, and a technical committee headed by the industry secretary - to prepare for the summit. The secretariat has been set up at the Office of the Investment Board Nepal (OIBN) under its CEO’s leadership. In contrast to the previous summits where the OIBN played a prominent role, this time, the OIBN has been somehow marginalised. Although the secretariat has been housed at the OIBN, the larger work regarding the summit is being handled by the finance ministry itself. The task of selecting projects to be showcased during the summit has been undertaken by a committee led by the industry secretary. Outgoing Finance Minister Dr Mahat has been directly overseeing the summit preparation. The invitation letters forwarded to billionaires have been signed by Dr Mahat himself.
Unlike past summits, the summit this year will see increased participation from development finance institutions (DFIs). A memorandum of understanding (MoU) aimed at facilitating development finance institutions in Nepal was established between the government and six prominent DFIs: the British International Investment (UK), FMO (Netherlands), BIO (Belgium), Finnfund (Finland), Proparco (France), and Saipem (Switzerland) in November of last year. "We anticipate the signing of additional MoUs with more DFIs during the summit," said Dr. Pandey.
Past Summits
Although Nepal hosted two investment summits in the past, the pledges made during these events have failed to translate into actual investments. In 2017, the government under the leadership of Prime Minister Pushpa Kamal Dahal organised the first investment summit where commitments totaling around $13.52 billion were secured. Chinese investors alone pledged investment commitments of over $8 billion, while Bangladeshi entrepreneurs committed investments of more than $2.4 billion. However, despite these promising pledges, there was no significant increase in foreign direct investment corresponding to the commitments made during the summit.
Two years later, the Prime Minister KP Sharma Oli-led government organised another investment summit. The summit drew investment commitments totaling Rs 2,300 billion. A majority of the investment pledges were once again from China.
The anticipation and optimism generated by the two previous investment summits prompted the government to initiate essential legal and institutional reforms in the country's foreign direct investment (FDI) framework. Despite these elevated expectations, converting the intentions and commitments of foreign investors into tangible FDI has become challenging for Nepal.
Nepal still stands out among nations where official development assistance (ODA) and remittances significantly outweigh FDI. Within South Asia, Nepal's performance in FDI inflow is lacklustre, just ahead of Bhutan and Afghanistan. The World Investment Report 2023 indicates that Nepal received a modest FDI of $65 million in 2022. Nepal lags behind significantly in comparison to Least Developed Countries (LDCs) and Land-Locked Least Developed Countries (LLDCs).
These statistics show that Nepal is receiving limited attention from the global investor community and highlight areas where the government needs to focus to attract their interest ahead of this year’s investment summit. "We must exert more effort to attract FDI to Nepal. FDI is highly competitive, and there exists fierce competition among nations to attract it. To facilitate FDI inflow, we need to have a robust project pipeline in place," said Radhes Pant, former CEO of the OIBN.
Nepal's position in terms of net FDI inflow becomes further apparent when considering that over the past five and a half years, starting from the fiscal year 2018/19, foreign investments totalling Rs 1,219 billion have been approved by both the Investment Board Nepal (IBN) and the Department of Industry (DoI). Of this amount, Rs 1,013 billion was approved by the IBN, while the DoI approved the remainder. However, the actual FDI inflow has only amounted to 7.20% of the total approved sum. According to the Nepal Rastra Bank (NRB), Nepal received a net FDI totaling only Rs 87.76 billion during this period.
Recent data from the Nepal Rastra Bank (NRB) shows that Nepal’s net FDI inflow hit a nine-year low in the last fiscal year - a substantial decline of 67.88% to Rs 5.96 billion in 2022/23 compared to Rs 18.56 billion in 2021/22.
Advancing Long-Awaited Legal Reforms
For quite some time, experts and private sector stakeholders have been urging the government to make essential legislative reforms aimed at aligning Nepal with other countries in terms of its FDI regime and facilitating foreign investment. Their wish is finally being addressed as the government moves ahead with the amendment to around a dozen acts ahead of the summit.
The long-awaited legislative overhaul in Nepal's FDI regime, championed by the private sector for some time, has been expedited due to the investment summit. The government is simultaneously amending 11 laws through the Bill to Amend Some Nepal Acts to Facilitate Investment, 2024. Both government officials and the private sector say that the simultaneous amendment to 11 laws would not have been possible if it were not for the investment summit scheduled for May 28 and 29.
The task force formed to propose legal reforms has already recommended amendments to a dozen laws and regulations. The task force, Office of the Prime Minister Secretary Ek Narayan Aryal, has suggested amendments to the Industrial Enterprise Act-2020, Foreign Investment and Technology Transfer Act-2019, Special Economic Zone Act-2016, Forests Act-2019, and National Parks and Wildlife Protection Act-1973. Additionally, the task force has suggested amendments to the Lands Act 1964, Land Acquisition Act 1977, Environment Protection Act-2019, Electronic Transactions Act-2008, and Civil Aviation Act-1959. Similarly, amendments to the Foreign Investment and Technology Transfer Regulations-2021 and Forest Regulations-2023 have also been recommended. If these proposed legislative reforms are endorsed as they are, they will make sweeping changes in the legal framework related to foreign investment.
The proposed amendments to the Industrial Enterprise Act include reducing the timeframe for government agencies to inform investors about submitting insufficient details or documents from 90 days to seven days. Additionally, industries would be permitted to use land exceeding the prescribed limit as collateral for project financing loans, with the ability to mortgage up to 50% of such land for loans. Furthermore, industries with aligned objectives would have the opportunity to enter into contracts or subcontracts to collectively produce goods or services.
Proposed amendments to the Foreign Investment and Technology Transfer Act include allowing industries and companies established in Nepal to transfer technology to companies abroad and establish branch offices abroad. Additionally, recommendations have been made to enable FDI industries to engage in the production of goods or services through mutual agreement (contract) or subcontract. Furthermore, proposals include opening FDI in travel agencies business and allowing 70% FDI in ride-sharing business.
The mandatory 60% export requirement for industries established in SEZ has been relaxed. If the proposed amendment to the Special Economic Zone Act is approved, industries will be required to export a minimum of 15% of goods or services produced within three years of commencing production, and at least 30% within six years.
The government is simultaneously working on legislative reforms and selecting investable projects to be showcased during the summit. The comprehensive proposal to amend the key laws, which is presently under review at the Office of the Prime Minister, will subsequently be presented to the parliament for approval.
In the proposed amendment to the Forest Act 2019, it is suggested that promoters or investors of projects with national priority, projects approved by the IBN, or national pride projects will have the option to deposit a specified amount instead of opting for land swapping. This deposit could be made to the Forest Development Fund with the approval of the forest ministry.
In addition to these legal reforms, the government also aims to conclude Nepal's sovereign rating before the summit. "There is ongoing review of hedging regulations. Additionally, efforts are underway to enable Nepali companies to issue bonds in the international market," said Dr Pandey.
Empowering IBN
For the past decade, the Investment Board Nepal (IBN) has served as the nodal agency responsible for attracting foreign investments. While the IBN appears to have authority, with the Prime Minister serving as its chairman, experts suggest there is a pressing need to revamp and empower the IBN further.
Former OIBN CEO Pant believes that the Investment Board Act should be amended to make the OIBN institutionally strong and financially sustainable. "We must amend the Investment Board Act to ensure both institutional and financial sustainability. The investment board's primary focus should be on strategic projects, with a clear mandate to attract Foreign Direct Investment (FDI)," said Pant.
As the premier FDI agency, the OIBN, according to many, must have a robust project pipeline in place. To achieve this goal, it is essential to cultivate expertise within the OIBN. However, the current structure of the OIBN, where two types of staff are working - those deputed from the government and others hired by development partners, is becoming a hindrance. "Unfortunately, this setup often results in a lack of career security for staff members, which can undermine their commitment to their roles within the OIBN," Dr Pandey said.
Pant also emphasised the importance of establishing a sustainable framework within the OIBN. This framework should enable the board to recruit permanent staff and effectively manage and facilitate investments, he added.
Unlike past summits, the summit this year will see increased participation from development finance institutions (DFIs)
Considering the procedural delays that have hindered foreign investors, experts propose fostering a collaborative understanding between the OIBN and various ministries. They suggest that the IBN can concentrate on strategic projects and securing funding. Once projects reach financial closure, the OIBN's role would shift to overseeing contract matters, while the ministries would assume responsibility for project implementation.
Despite the government's urgency in expediting legislative reforms, experts analysing Foreign Direct Investment (FDI) express doubts about the interest of foreign investors in Nepal. They highlight a prevailing apprehension among government employees that wholeheartedly supporting foreign investors may potentially lead to repercussions for them in the future. According to them, government agencies like the OIBN have shown limited progress since the last investment summit, except for introducing the PPP Act. Although the PPP Act has been enacted, minimal groundwork has been undertaken to implement the PPP model in sectors beyond hydropower, such as roads and airports.
"While the PPP model has demonstrated success in the hydropower sector, government agencies have not actively pursued conceptualising PPP projects in other sectors. Discussions around the hybrid annuity model have also stalled," said a senior official working in one of the DFIs, "It wasn't until the announcement of the investment summit that the government established a committee to explore PPP opportunities in the airport sector."
The committee formed to explore Public-Private Partnership (PPP) opportunities in the airport sector has faced controversy, particularly due to its formation following expressed interest from the Indian business conglomerate, Adani Group. The Adani Group has shown interest in managing three existing international airports and constructing the fourth one – Nijgadh International Airport. The Adani Group has shown interest in potential investments in Nepal's hydropower, transmission lines, and airports.
The existing regulations, which dictate that investments up to Rs 5.99 billion are to be approved by the Department of Industry (DoI) and those exceeding Rs 6 billion by the OIBN, have proven to be ineffective, according to many stakeholders. While the Director General of the DoI has the authority to approve investments up to Rs 5.99 billion, investments above this threshold require endorsement from a board meeting chaired by the Prime Minister at the OIBN - a process that often leads to months of waiting for investors. This provision, they argue, has further slowed down the investment approval process for those opting for the OIBN route.
Experts suggest that the primary obstacle to Foreign Direct Investment (FDI) lies less in the laws and regulations themselves, but rather in their implementation. They emphasise the lack of urgency in facilitating deals and the recurring delays within government agencies as key issues. These challenges, they argue, have discouraged foreign investors from engaging with Nepal.
However, there has been some recent urgency on the part of the government. The budget for the current fiscal year has pledged to streamline the approval process, allowing for automatic approval when making investments in industries open to foreign investment, except those requiring permission as stipulated by existing laws. Furthermore, starting immediately, reinvesting income generated from foreign investments will no longer necessitate formal approval. The budget has also expressed commitment to simplifying the procedure for foreign investors to repatriate dividends. Additionally, it has outlined plans to advance negotiations of bilateral investment promotion and protection agreements and double taxation avoidance agreements, with a focus on identifying countries where foreign investments can flow freely.
Dr Pandey agrees that legislative reform alone is insufficient. "We must address broader areas such as infrastructure improvement, ensuring reliable electricity, efficient transportation, and high-quality business services including banking, insurance, and human resources. It is necessary to advance these aspects alongside legal reforms to create an environment conducive to sustainable investment and economic growth," he added.
Some of the amendment proposed by Ek Narayan Aryal-led task force
Industrial Enterprise Act, 2020
● Inclusion of provision defining "startup enterprises" and "startup businesses".
● Inclusion of provision to provide additional incentives, discounts, facilities, and concessions tailored to support the growth and development of startup enterprises and businesses.
● Reduce the period for submitting insufficient details or documents from 90 days to seven days at the time of industry registration.
● Registration of industries with a fixed investment of more than Rs 500 million at the Department of Industry and industries with less than that at the provincial level.
● Providing incentives and additional facilities to industries related to information technology established with an investment of more than Rs 1 billion.
● Enable industries to utilise land exceeding the prescribed limit as collateral for project financing loans, allowing them to mortgage up to 50% of such land for loans.
● Industries sharing similar objectives can enter into contracts or subcontracts with each other to jointly produce goods or services.
● Adding hotels, resorts, theme parks, and the automotive industry to the list of national priority industries.
Foreign Investment and Technology Transfer Act, 2019
● Allow industries and companies established and operated in Nepal to transfer technology to industries and companies located abroad and open branch offices abroad with the permission of the Industry Department.
● Permit industries with foreign investment to obtain loans from foreign financial institutions through project loans or project investment financing agreements with the approval of Nepal Rastra Bank.
● Allow FDI Industries to produce goods or services through mutual agreement (contract) or subcontract (subcontract).
● Open FDI in travel agencies.
● Allow 70% foreign investment in ride-sharing.
Special Economic Zone Act, 2016
● Rather than the current provision in the Act mandating industries established in special economic zones to export at least 60% from the outset, it is recommended that industries export a minimum of 15% of the goods or services produced within three years of commencing production, and at least 30% within six years.
● Instead of the requirement for industries established in special economic zones to sell their goods and services exclusively in the domestic market of Nepal within one year from the date of operation, it is suggested to implement a system enabling sales in the domestic market within three years from the industry's operational commencement.
Forests Act, 2019
● If promoters or investors of projects with national priority, projects approved by IBN, or national pride projects wish to deposit a specified amount instead of opting for land swapping, they should be permitted to deposit it in the Forest Development Fund with the approval of the Forest Ministry.
● Introduce a provision enabling the Forest Ministry to grant approval for the cutting or removal of trees up to one hectare in the national forest area to facilitate the implementation of national priority projects, OIBN-approved projects, or national pride projects. Such a provision is currently absent in the existing Forest Act.
● For projects granted a power transmission or distribution permit by the federal government, provincial government, local level or OIBN, when a tower is to be installed within a national forest area, the full specified amount for the tower's footprint (tower pad) and the funds required to plant ten times the number of trees cut within the jurisdiction (right of way) of the transmission line or power line must be deposited into the Forest Development Fund.
● Similarly, an amendment has been proposed in Sub-section 910 of Section 43 of the Forest Act. It is proposed to put a provision in the law that "if it is necessary to extract minerals within the national forest, after conducting an environmental study in accordance with the prevailing law, the government can give permission to use the forest area for the extraction of such minerals if there is no significant adverse effect on the environment."
National Park and Wildlife Conservation Act, 1973
It has been suggested that an amendment should be made in Section 6 of the Act to facilitate the construction of development in protected areas. It has been suggested that the provision should be added that 'within the national parks, reserves or protected areas, the government may give the approval to carry out projects of national priority, projects approved by the investment board or projects of national pride in areas other than those designated by the government as highly sensitive, maintaining the coexistence of nature and human beings'.
The Electronic Transactions Act, 2008
● If the investor requests foreign currency exchange facilities to import any software, hardware or computer or information technology-related materials or services used in computer networks or computer systems from abroad by paying money in foreign currency into Nepal, the information technology department shall recommend to the relevant agency as prescribed.
● Allowing IT/software companies to open branches or units abroad. Nepal Rastra Bank will grant authorization to establish branches or unit offices abroad to facilitate the export of software and information technology-related services by individuals, firms, industries, or companies established in Nepal. Furthermore, these entities will be permitted to repatriate the earnings generated abroad back to Nepal.
OIBN needs to be Empowered
We must exert more effort to attract Foreign Direct Investment (FDI) to Nepal. FDI is highly competitive, and there exists fierce competition among nations to attract it. To facilitate FDI inflow, it is necessary to have a robust project pipeline in place. To achieve this goal, it is essential to cultivate expertise within the Office of the Investment Board Nepal (OIBN), which serves as the primary interface for foreign direct investment (FDI) initiatives. Ensuring the sustainability of the investment board is crucial. Presently, the absence of full-time permanent staff within the OIBN is notable, with the majority being on contractual terms. Considering the magnitude of investment opportunities we aim to attract, it is imperative to establish a sustainable framework within the OIBN, enabling it to recruit permanent staff and effectively manage and facilitate investments.
While there may indeed be competent human resources within the OIBN, the current contractual terms create uncertainty and may lead to staff seeking alternative employment opportunities. One potential solution could involve adopting a hiring modality similar to that of the Nepal Rastra Bank (NRB) and utilising the Public Service Commission for recruitment. There needs to be a collaborative understanding between the OIBN and various ministries. OIBN alone cannot achieve significant progress. It can focus on strategic projects and securing funding. Once the projects reach financial closure, OIBN's role transitions to overseeing contract matters, while the ministries take charge of project implementation. This division of responsibilities ensures effective coordination and utilisation of resources for project success. We must amend the Investment Board Act to ensure both institutional and financial sustainability. The investment board's primary focus should be on strategic projects, with a clear mandate to attract FDI.
We want to Reduce the Transaction Costs
Our focus is on attracting efficient investors who not only invest in infrastructure but also establish production units in Nepal to serve both the domestic and international markets. Legislative reform alone is insufficient for this endeavour. We must address broader areas such as infrastructure improvement, ensuring reliable electricity, efficient transportation, and high-quality business services including banking, insurance, and human resources. It is necessary to advance these aspects alongside legal reforms. The overarching objective of these amendments is to reduce the transaction costs for investors. In addition, we are making efforts to finalise project agreements during the summit itself, a departure from past practices where only initial agreements were signed. As an institution, it is crucial to enhance and empower the Office of the Investment Board Nepal (OIBN) further. One of the weaknesses we face is the lack of institutional memory within our organisations. This issue is also prevalent within the OIBN where we have two types of staff: those deputed from the government and others hired by development partners.
Unfortunately, this setup often results in a lack of career security for staff members which can undermine their commitment to their roles within the OIBN. In addition to legal reforms, the government is working to complete Nepal's sovereign rating before the summit. Furthermore, there is ongoing review of hedging regulations. Additionally, efforts are underway to enable Nepali companies to issue bonds in the international market. There will be increased participation from development finance institutions (DFIs) in the investment summit. A memorandum of understanding (MoU) aimed at facilitating development finance institutions in Nepal was established between the Nepal government and six prominent DFIs in November of last year. We anticipate the signing of additional MoUs with more DFIs during the summit.
Green Energy, Agri-processing, Tourism, ICT are our Priority Sectors
What are the primary objectives of the Emerging Nepal Investment Summit 2024?
Investment summits are organised with specific objectives and anticipated outcomes. If we look back at the past summits, we find them fruitful in achieving their intended goals. The upcoming summit has been meticulously planned with a two-day program designed to comprehensively showcase our potential areas, signal our commitment to policy reforms, boost morale of investors, and convey the message that Nepal is an attractive investment destination. The summit aims at creating a vibrant atmosphere, involving all stakeholders within the private sector investment ecosystem, including investors, Development Finance Institutions (DFIs), International Financial Institutions (IFIs) and development partners.
All eyes are on the projects that will be showcased during the summit. How are the projects being selected? Is there any sector that you are prioritising?
We are currently examining projects that possess the potential to captivate investors. These projects are characterised by minimised risks or risk reduction strategies, ensuring a higher level of attractiveness to potential investors. Additionally, the selected projects will offer clarity regarding their financial and commercial aspects. We acknowledge the importance of presenting investors with projects of the highest calibre. Green energy projects, agro-processing, tourism and ICT are some of our priority sectors. Nepal's ICT sector, in particular, stands out due to its comparative advantage, with a burgeoning pool of young talent driving innovation and the growing export of IT services. Additionally, we are exploring opportunities in sectors such as transport, mining and minerals.
Could you please provide insight into the investments facilitated by the OIBN since its inception?
The OIBN so far has approved investments worth Rs 1,250 billion. We base our approval on the estimated project cost following thorough studies and analysis. Following approval, projects advance to the implementation stage only after the project agreement document is finalised. Actual commitments are considered only upon reaching the agreed-upon project implementation stage. Of the total investment approvals, projects worth Rs 300 billion are in the construction phase, Rs 100 billion in the implementation phase, and Rs 150 billion are ready to enter the implementation phase. This shows that the OIBN is progressing in the right direction.
The finance minister has said that Public-Private Partnership and Investment Act, Viability Gap Funding (VGF) Regulations, Hedging Regulations, and Country Rating of Nepal will be finalised before the investment summit. Will these initiatives indeed be completed before the conference?
Progress has been made on the sovereign rating, which, upon completion, will convey a positive message about Nepal to the global investor community. Additionally, advancements have been made in developing the bilateral investment framework agreement. While the OIBN has drafted the VGF regulation, further discussion is required to ensure adequacy.
As the head of the OIBN, you are in touch with foreign investors. What are the main concerns that foreign investors typically express regarding investing in Nepal?
The concerns among investors extend beyond laws, policies and regulations; they also revolve around our effectiveness in resolving their challenges. The OIBN has been proactive in addressing the concerns raised by investors within its jurisdiction. Nonetheless, challenges persist. Land acquisition procedures have become overly complex and need further streamlining to ensure smoother processes. Additionally, various other issues, ranging from policy intricacies to site clearance procedures, hinder investment flow. Investors seek a simplified pathway to invest in Nepal. Despite these challenges, the OIBN has successfully negotiated and signed project investment agreements with foreign investors. Our energy projects are structured on a public-private partnership model, accommodating their interests and addressing their concerns. Even with large-scale projects, we are flexible recognizing that not all authority should be centralised within the OIBN. However, it is crucial for the government and related agencies to be conscious and serious about completing the project on time.
Our track record in implementing projects under the public-private partnership model is less than satisfactory. What improvements do you believe are necessary to enhance our performance in this regard?
In many projects developed under the Build-Own-Operate-Transfer (BOOT) model within the realm of Public-Private Partnerships (PPP), investors shoulder the primary burden of risk. Nonetheless, the OIBN has played a crucial role in facilitating key aspects such as land acquisition, management of explosives and forest clearance. I believe that we have been successful in implementing projects under the BOOT modality. However, it is now imperative to depart from the traditional PPP approach. We must transition to a hybrid annuity model for road projects where risks are shared between the government and private investors.
There is a notable contrast between the agreements and commitments made during the last two investment conferences and their actual implementation. Why do you think foreign investors are hesitant to invest despite making commitments?
In the case of FDI, both the investment and project fruition typically materialise within 18 to 24 months as evidenced by the success of ventures like Hongsi and Huaxin Cement.
For projects under PPP agreements, the commercial operation period is contractually specified. Reservoir and semi-reservoir projects typically require five to seven years for completion, with project progress closely tied to physical developments on-site. It takes approximately three to four years to reach the construction stage, with the initial two years dedicated to studies, including securing approvals such as environmental impact assessments, followed by financial management arrangements. While entering into a project investment agreement does not guarantee immediate investment influx, a separate contract is necessary for that purpose. The OIBN typically allows developers and private investors two years for financial management. Considering the current scenario, we are making positive strides. Even when compared to the global benchmark for actual investment versus commitment, which typically falls in the 50-60% range, the OIBN is performing well in this regard.
