INVESTMENT ENVIRONMENT IN NEPAL’S ENERGY SECTOR:From the Perspective of the Ministry of Industry Rishi Raj Koirala Director Department of Industries
Contents • Salient Features of Industrial Enterprises Act (IEA), 1992 • Salient Features of Foreign Investment & Technology Transfer Act (FITTA), 1992 • Procedure for Foreign Investment in Hydropower Projects • Mechanisms Safeguarding Foreign Investment in Nepal • Key Laws Relevant to the Potential Foreign Investors • Conclusions
1. Salient Features of Industrial Enterprises Act, 1992 • Classification of Industries • Manufacturing Industries • Energy-Based Industries • Agro and Forest Based Industries • Mineral Industries • Tourism Industries • Service Industries • Construction Industries • No Licensing Required to set up ‘Energy Based Industry’ • Registration of ‘Industry’ is required
Contd……… IEA, 1992 • Time bound Registration: 21 days • Department of Industries (DOI) for investment on fixed asset > NRs. 30 million. For less than that Registration will be done at the Department of Cottage & Small Industries (DCSI) Note: However, for all the projects/industries involving foreign direct investment (FDI), DOI is the relevant authority.
Contd……… IEA, 1992 • Apart from the facilities granted by sectoral policies and acts, the ‘Industries’ may enjoy additional facilities as stipulated in Section 15, 16, 22 of the IEA 1992. 7. No nationalisation of privately owned industries enterprises.
2. Salient Features of Foreign Investment & Technology Transfer Act, 1992 • Foreign investors are permitted to own up to 100% equity shares in Energy based industries. • Foreign Investment means following investment made by a foreign investor in any industry: • Investment in share, (Equity), • Reinvestment of the earnings derived from the clause (a) above, • Investment made in the form of loan or loan facilities.
Contd……… FITTA, 1992 3. Technology Transfer means any transfer of technology to be made under an agreement between an industry and a foreign investor on the following matters: • Use of any technological right, specialisation, formula, process, patent or technical know-how of foreign origin, • Use of any trademark of foreign ownership, • Acquiring any foreign technical Consultancy, management and marketing service 4. Technology transfer is possible even in areas where foreign investment is not allowed.
Contd……… FITTA, 1992 • Permission of the DOI is required to get approval for foreign investment, technology transfer, loan investment and other related agreements • For projects with fixed asset of over NRs. 2 billion, Director General of DOI can approve the FDI. Proposal with investment above that, Investment Promotion Board (IPB) grants approval. • 100% repatriation possible on the proceeds obtained from the sale of shares, profit or dividend earned on investment on shares, loan principal and interest, fees/royalties in lieu of Technology Transfer
Contd……… FITTA, 1992 • Provision Related to Visa: On recommendation of the DOI, following types of visa can be granted by the Department of Immigration • Non-tourist Visa for up to 6 months, to conduct study or research for making investment • Business Visa (to foreign investor, dependent family, authorised representative) up to 5 years at a time till the foreign investment is retained. This visa can also be granted to experts deputed under TTA. • Residential Visa: Investment > USD 100,000 at a time
Contd……… FITTA, 1992 9. Provision Related to Dispute Settlement: • Parties to settle the dispute in the presence of DOI • Arbitration, in accordance with the prevailing arbitration rules of the UNCITRAL at Kathmandu • However, in case of projects with fixed asset investment of over NRs. 500 million, disputes may be settled as mentioned in the JVA.
3. Procedure for Foreign Investment in Hydropower Projects Two modalities are normally followed • Get the ‘Survey License’ from the DoED and approach the DOI for FDI approval, Company Registrar’s Office (CRO) for Company Registration & again DOI for industry registration • Apply at the DOI for FDI approval, which solicits the opinion of the DoED and after concurrence approves the proposal. The investor then approaches the CRO for Company Registration and DoED for ‘Survey License’
Procedure .........Contd..... • In DOI, clear procedures for FDI approval have been laid out for different forms of foreign investment • Establishing a new industry either with 100% equity or in Joint Venture (JV) with Nepalese investor/s. • Making an equity investment in an existing Nepalese industry by Share Transfer • Making a loan investment in an existing Nepalese industry (foreign or local) • Engage in Technology Transfer in an existing Nepalese industry
Procedure .........Contd..... • Additional Procedures for new proposals (after getting approval for FDI) before commencing the project implementation • Incorporate the company at the Company Registrar’s Office • Register the industry at DOI (Conditional when the project has to conduct IEE/EIA) • Registration at Inland Revenue Office to get Permanent Account Number (PAN)
4. Mechanisms Safeguarding Foreign Investment in Nepal Some of the key institutional arrangements that have been made to promote foreign investment in Nepal are: • Nepal is a member of the Multilateral Investment Guarantee Agency (MIGA) and the World Intellectual Property Organisation (WIPO) • Nepal has entered into Bilateral Investment Treaties (BITs) with countries such as France, Germany, Mauritius, and United Kingdom.
Mechanism .........Contd..... • Nepal has also entered into Double Taxation Treaties (DTTs) with 9 countries, namely, India, Norway, China, Pakistan, Sri Lanka, Austria, Thailand, Mauritius, and Republic of South Korea • Nepal is also a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States and a member of the International Centre for the Settlement of Investment Disputes (ICSID), associated with the World Bank.
5. Key Laws Relevant to the Potential Foreign Investors • Sector Specific Laws (Civil Aviation, Hydropower, Food Control, Drugs, Telecommunication etc) • Foreign Investment and Technology Transfer Act, 1992 • Industrial Enterprise Act, 1992 • Built Own Operate and Transfer (BOOT) Act and Regulation • Financial Transaction Act & Regulation (Nepal Rastra Bank)
…..Contd…. • Company Act • Immigration Act & Regulation • Income Tax Act & Regulation • Value Added Tax (VAT) Act & Regulation • Environmental Protection Act & Regulation • Labour Act • Insurance Act & Regulation
6. Conclusions • Registration at DOI/DCSI is must for setting up an ‘energy based’ industry • IEA, 1992 ensures ‘non-nationalisation’ of Industry • Ministry of Industry has taken to ensure numerous measures to protect the investment of the foreign investors through different bilateral and multilateral agreements. However, the scope of these measures need to be widened further • Energy based industry can enjoy additional benefits and concessions from industry related laws (IEA and FITTA), apart from that bestowed by the sectoral laws
Conclusions…….. Contd…….. • Up to 100% foreign investment is allowed in ‘energy based’ industries • DOI is the sole agency responsible for granting FDI approval, foreign loan approval, technology transfer approval and other regulatory aspects of FDI projects • Foreign Investors in energy sector requiring Visa need to get recommendation for different types of visa (non-tourist, business and residential) from DOI • FITTA, 1992 is flexible enough to accommodate concerns of foreign investors of large projects by allowing the investors to choose the jurisdiction for dispute settlement