As recommended in the restructuring plan, the government has decided to write off the accumulated loss of around Rs 27.53 billion that has disfigured the NEA balance sheet. [break]
“NEA´s balance sheet will get a new look after this and foreign companies that sit to negotiate with us for the development of hydropower projects and other deals will now feel more comfortable doing business with us,” said Secretary at the Ministry of Energy Balananda Paudel, who is also ex-officio chairman of the NEA board.
NEA had been virtually bankrupt due to deferred payments of over Rs 5 billion apart from accumulated loss. The cabinet decided to give its approval to the plan a few days ago after the Ministry of Finance gave its go-ahead. The plan was forwarded through the Ministry of Energy.
The government has also agreed to raise NEA´s authorized capital to Rs 50 billion from Rs 30 billion. NEA had proposed raising the authorized capital to Rs 75 billion, but since the government is in the process of forming a separate entity--National Grid Company--for power transmission, with an authorized capital of Rs 25 billion, the authorized capital has been adjusted at Rs 50 billion, disclosed Deputy Managing Director of Finance Department at NEA, Badri Nath Roka.
The funds issued for projects from foreign grants would now be converted into shares and not remain as loans. “The government has till now been giving us the money from grants as loans, but this would henceforth be converted into shares and we will have to pay dividends for that only if we go into profit,” NEA Chairman Paudel explained.
The restructuring plan also proposes to reduce the interest rate on government loans to 5 percent from the existing 8 percent, which would reduce NEA´s financial burden by around Rs 1.4 billion per year. But the Finance Ministry has only agreed to periodic revisions, taking into consideration the weighted average cost of capital, foreign exchange rate risk and opportunity cost.
“We have yet to agree on the interest rate for the current fiscal year,” Roka added.
The interest incurred during the construction of projects would also now be adjusted into equity shares, while the government and NEA would equally share the investment in foreign-funded projects.
“As per existing practice 20 percent of investment had to come from within the country and the remaining 80 percent from foreign sources. While NEA had been asked to provide 15 percent from the national side the government and NEA will contribute 10 percent each from now onward,” Roka stated.
The restructuring plan also proposes a review of the electricity tariff rate and the approval of the plan has opened the way for a tariff hike that is expected to be announced in the next couple of days.
Roka said all the adjustments, to be done as per standard accounting procedures, would bring the debt/equity ratio to the standard 70/30 from the existing 60/40.
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