Govt enforces hedging regulation to minimize risk on foreign investment emanating from exchange rate fluctuation

Published On: September 10, 2022 07:04 PM NPT By: Republica | @RepublicaNepal

KATHMANDU, Sept 10: The government has endorsed hedging regulation in a bid to attract more foreign direct investment in the country.

Publishing a notice in Nepal Gazette on Thursday, the Ministry of Finance has come up with a provision that will help minimize the potential financial risk emanating from the fluctuation of the exchange rate of the US dollars. In the new rule, if any foreign investors look for repatriation after seven or 12 years, they will be able to get the USD against Nepali currency at the current exchange rate of around Rs 127 per dollar.

Hedging is a risk management strategy used to reduce the risk due to fluctuation of asset price. It is a type of insurance that will cover additional liability created to any party (investor or government) due to the fluctuation of exchange rate.

According to the MoF, reservoir or semi-reservoir hydropower projects with at least 100 MW of capacity will be provided with hedging facilities. Similarly, 220 kV transmission lines in a stretch of 30 km or more and metro railways or monorail with at least 10 km distance will be eligible to receive this facility.

Similarly, the infrastructure projects like construction of roads, flyover, underpass, signature-bridge, tunnel roads, express highways with length of at least 50 km and international or regional airports that are subjected to toll charges, will also receive a hedging facility. Likewise, health, agriculture, education, tourism, information technology, industrial infrastructure and urban development with investment of at least Rs 2 billion will also receive a hedging facility to be provided by the government.

The banks and financial institutions which will float credit instruments in the international market to receive borrowing for the investment of green infrastructure will also be eligible to receive hedging service. Such investment, however, should be within the framework of the Special Drawing Right defined by the International Monetary Fund and the amount to borrow should not be less than USD 20 million, states the notice released by MoF in Nepal Gazette.

The government will bear liability between five to 20 percent of the hedging risk, while the investors concerned will have to assume up to 35 percent of the premium amount of hedging.