To overcome the problem of financing in large scale infrastructure projects, Nepal Rastra Bank (NRB) has proposed to form ´Infrastructure Development Bank´ in the new amendment to Banks and Financial Institution Act (BAFIA).
Such institution, bigger and separate than the existing commercial and development banks, will enable to unplug the funding gap for large scale projects in energy, transportation, and aviation, among other sectors. The central regulatory authority of banks and financial institutions (BFIs) has proposed to form a specific institution in the proposed amendment to BAFIA which is currently under consideration at the finance ministry.
Once approved, the provision will clear the decks for the establishment of the bank with higher long-term financing capital base.
“As the existing BFIs of the country are not in a position to finance large scale infrastructures, NRB, in the draft amendment to BAFIA, has envisaged the formation of Infrastructure Development Bank,” NRB Deputy Governor Maha Prasad Adhikari told Republica. “The modality and the capital structure of the bank, however, are yet to be finalized,” he added.
According to bankers, formation of such an institution will help to mobilize resources to fund large scale projects. They, however, point out limitations like liquidity mismatch, relatively low capital base, and failure to utilize remittance and pension funds, among others.
“Commercial banks are dependent on short-term money. Around 90 percent of our deposits are payable in three years. Since the infrastructure projects are of 10/15 years, commercial banks find it increasingly hard to supply loans to such projects," Sashin Joshi, CEO of NIC Asia Bank, said, addressing the ´Investment Financing Mechanisms´ session in the recently held ´Nepal Infrastructure Summit 2014´ "The country needs a long-term financing institution for such projects.”
Joshi, who is also the former president of Nepal Bankers Association (NBA), further said the government can have some stakes and invite foreign and domestic companies to inject capital into such financial institution.
PROPOSAL DATES BACK TO 2007
Radesh Pant, CEO of Investment Board Nepal (IBN), said that they had floated the idea of establishing an infrastructure banks under public-private-partnership (PPP) back in 2007. "But it did not materialize due to lack of legal provision," Pant said.
IBN is a special entity formed in 2011 for facilitating investments in large scale infrastructure projects.
According to Pant, they had proposed the government to take 31 percent of the shares, followed by multilateral donors like IFC and ADB (29 percent), BFIs (20 percent) and local business houses (20 percent). “The concept was that the proposed bank would refinance other commercial bank for long-term financing of infrastructure projects," he added.
Due to limited funding capacity of BFIs, hydropower developers do not even get sufficient long-term financing even for 40 MW project. The cost of such projects hover above Rs 8 billion and they have payback period of 7 to 10 years. It is because of fund crunch that 15-20 BFIs form a consortium to fund a single hydropower project, added Pant.
INVESTMENT IN INFRASTRUCTURE LOW
Country´s total investment in infrastructure sector has stood at around 3 percent of Gross Domestic Product (GDP) for the past few years. Experts say investment in infrastructure should stand at 8 to 12 percent of GDP if Nepal is to graduate to the league of developing countries from least developed countries by 2022. A recent report by the World Bank projected that Nepal needs investment of $13-18 billion from 2011-2020 in order to bridge the investment gap in infrastructure sector. To make things worse, over Rs 25 billion (about 33 percent of total capital expenditure) remained unspent in 2013/14 due to inefficiency in project implementation and other structural problems.
Though the government had promised to make amendment to over one and half dozen laws related to economic sector, including amendment to BAFIA, to increase its spending capacity and attract fresh investment, its promises remained mere pipedream. Not a single bill related to the economic sector was tabled at the budget session of the parliament which prorogued earlier this week.
The end of the budget session means, the focus will now be on constitution writing. And a recent monitoring conducted by the finance ministry showed no such bills will be tabled at the parliament before mid-January. Such bills take weeks to get cabinet approval which is a must before tabling them to the parliament for discussion and endorsement.
´TIMELY DECISION A MUST´
Visiting India´s Union Minister for Road Transport & Highways Nitin Jairam Gadkari, addressing Nepal Infrastructure Summit on Tuesday, said that government should take decisions in time and facilitate the private sector for infrastructure development in countries with limited resources.
He also said that bureaucrats should take prompt decisions as investors have to pay additional interest in millions of rupees if a project is delayed by a single day. Gadkari also suggested to the government to complete initial works ranging from land acquisition to forest clearance before handing over the project to the private sector for implementation.
Gadkari´s suggestions are quite relevant in the Nepali context as many projects are in limbo due to problems like land acquisition and forest clearance, among others.
source: SAGAR GHIMIRE,republica,14 nov 2014
LINK
Such institution, bigger and separate than the existing commercial and development banks, will enable to unplug the funding gap for large scale projects in energy, transportation, and aviation, among other sectors. The central regulatory authority of banks and financial institutions (BFIs) has proposed to form a specific institution in the proposed amendment to BAFIA which is currently under consideration at the finance ministry.
Once approved, the provision will clear the decks for the establishment of the bank with higher long-term financing capital base.
“As the existing BFIs of the country are not in a position to finance large scale infrastructures, NRB, in the draft amendment to BAFIA, has envisaged the formation of Infrastructure Development Bank,” NRB Deputy Governor Maha Prasad Adhikari told Republica. “The modality and the capital structure of the bank, however, are yet to be finalized,” he added.
According to bankers, formation of such an institution will help to mobilize resources to fund large scale projects. They, however, point out limitations like liquidity mismatch, relatively low capital base, and failure to utilize remittance and pension funds, among others.
“Commercial banks are dependent on short-term money. Around 90 percent of our deposits are payable in three years. Since the infrastructure projects are of 10/15 years, commercial banks find it increasingly hard to supply loans to such projects," Sashin Joshi, CEO of NIC Asia Bank, said, addressing the ´Investment Financing Mechanisms´ session in the recently held ´Nepal Infrastructure Summit 2014´ "The country needs a long-term financing institution for such projects.”
Joshi, who is also the former president of Nepal Bankers Association (NBA), further said the government can have some stakes and invite foreign and domestic companies to inject capital into such financial institution.
PROPOSAL DATES BACK TO 2007
Radesh Pant, CEO of Investment Board Nepal (IBN), said that they had floated the idea of establishing an infrastructure banks under public-private-partnership (PPP) back in 2007. "But it did not materialize due to lack of legal provision," Pant said.
IBN is a special entity formed in 2011 for facilitating investments in large scale infrastructure projects.
According to Pant, they had proposed the government to take 31 percent of the shares, followed by multilateral donors like IFC and ADB (29 percent), BFIs (20 percent) and local business houses (20 percent). “The concept was that the proposed bank would refinance other commercial bank for long-term financing of infrastructure projects," he added.
Due to limited funding capacity of BFIs, hydropower developers do not even get sufficient long-term financing even for 40 MW project. The cost of such projects hover above Rs 8 billion and they have payback period of 7 to 10 years. It is because of fund crunch that 15-20 BFIs form a consortium to fund a single hydropower project, added Pant.
INVESTMENT IN INFRASTRUCTURE LOW
Country´s total investment in infrastructure sector has stood at around 3 percent of Gross Domestic Product (GDP) for the past few years. Experts say investment in infrastructure should stand at 8 to 12 percent of GDP if Nepal is to graduate to the league of developing countries from least developed countries by 2022. A recent report by the World Bank projected that Nepal needs investment of $13-18 billion from 2011-2020 in order to bridge the investment gap in infrastructure sector. To make things worse, over Rs 25 billion (about 33 percent of total capital expenditure) remained unspent in 2013/14 due to inefficiency in project implementation and other structural problems.
Though the government had promised to make amendment to over one and half dozen laws related to economic sector, including amendment to BAFIA, to increase its spending capacity and attract fresh investment, its promises remained mere pipedream. Not a single bill related to the economic sector was tabled at the budget session of the parliament which prorogued earlier this week.
The end of the budget session means, the focus will now be on constitution writing. And a recent monitoring conducted by the finance ministry showed no such bills will be tabled at the parliament before mid-January. Such bills take weeks to get cabinet approval which is a must before tabling them to the parliament for discussion and endorsement.
´TIMELY DECISION A MUST´
Visiting India´s Union Minister for Road Transport & Highways Nitin Jairam Gadkari, addressing Nepal Infrastructure Summit on Tuesday, said that government should take decisions in time and facilitate the private sector for infrastructure development in countries with limited resources.
He also said that bureaucrats should take prompt decisions as investors have to pay additional interest in millions of rupees if a project is delayed by a single day. Gadkari also suggested to the government to complete initial works ranging from land acquisition to forest clearance before handing over the project to the private sector for implementation.
Gadkari´s suggestions are quite relevant in the Nepali context as many projects are in limbo due to problems like land acquisition and forest clearance, among others.
source: SAGAR GHIMIRE,republica,14 nov 2014
LINK
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