PM's India Visit

'Govt asking India to downsize Indian Line of Credit'

Published On: September 15, 2016 01:30 AM NPT By: Rudra Pangeni  | @rudrapang

KATHMANDU, Sept 15: Nepal has failed to fully utilize the Indian line of credit (LoC) of US$ 1,000 that the southern neighbor announced in 2014.

The government has identified projects to invest only $550 million of the pledged amount.
Government sources say one of the agendas of the Prime Minister Pushpa Kamal Dahal upcoming India visit is to downsize the assistance commitment. The reason behind this is the failure to identify a proper project to utilize the assistance, they say.

Officials of the finance ministry say that the government will propose amendment to the framework agreement of the LoC, which was signed on the sidelines of 18th SAARC Summit held in Kathmandu in November, 2014, during the PM's India visit. Nepal will push to remove a provision that requires it to pay commitment fee, which is about 0.05 percent of the loan amount, the officials added.

The agreement was signed as per the loan assistance announced by Indian PM Narendra Modi during his address to the Nepali parliament in August 2014. The assistance is meant for infrastructure projects like roads, irrigation facilities and hydropower plants. 

The government is investing $330 million of the pledged amount in 14 road projects including small and local roads. Similarly, it has set aside $200 million for two irrigation projects.  Remaining $20 million will be used to upgrade substations of three transmission lines. 

The finance ministry sources privy to the development told Republica that they would propose India to make amendment to the framework agreement during PM's visit so that they do not have to pay commitment fees for the unused money to the Exim Bank of India. “Amendment will be made in such a way that the fund can be utilized once the projects are identified,” a finance ministry source told Republica.

Experts say the amount should have been invested in hydropower projects as the country has been facing chronic power shortage for over a decade. “Though we don't have any ready to implement hydropower project, there was a discussion to invest Indian LoC to implement the Budhigandaki Hydropower Project. But it couldn't materialize,” Gokarna Raj Panth, deputy spokesperson of Ministry of Energy, said.

Republica has learnt that high-level political leaders did not give consent to inject Indian LoC to implement the Budhigandaki project for reasons best known to them.

India has committed $1,000 million assistance ($250 million as grants and $750 million as soft loan) for post-quake reconstruction. Agreement of the grants has already been signed and funds have been released. But agreement for soft loan is yet to be signed.

Finance ministry officials say the agreement for soft loan was unlikely to be signed during the PM's visit as Nepal has reservations on conditions put by India on mobilizing the funds.

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