Nepal and India have agreed to simplify the procedure for using the $1 billion line of credit extended to Nepal during Indian Prime Minister Narendra Modi’s visit to Kathmandu in August.
A follow-up meeting held between the two sides in New Delhi has decided to eliminate many procedural steps so that the loan can be utilized without delay.
Nepal has long been complaining about procedural hold-ups in releasing the funds from previous lines of credit extended by the southern neighbour.
Finance Secretary Suman Sharma, who led the Nepali official team, said that the two sides had agreed to create a provision allowing Nepal to utilize the credit by just “informing” the Indian authorities about the progress instead of obtaining approval.
“The progress of Indian-funded projects under the previous line of credit has been poor due to the time-consuming procedural arrangement,” said Sharma.
“India has now become ready to simplify the procedure as per Nepal’s request.”
The Nepali delegation consisted of Finance Secretary Sharma, Joint Secretary Madhu Marasini and Under-Secretary Narayan Dhakal. The Indian team was led by Sujata Mehta, secretary at the Indian External Affairs Ministry, who looks after the Development Partnership Administration and included Joint Secretary Alok Sinha and Indian Exim Bank Manager Geeta Pujari.
Marasini said that there had been policy level discussions on Tuesday at the secretary level, and that the agreement was reached at the technical committee meeting on Wednesday.
According to the Finance Ministry, the meeting endorsed Nepal’s proposal to invest the line of credit in three areas—hydropower, irrigation and roads and related projects.
As per Nepal’s plan, half of the Indian credit will be used in the construction of a dam for the Budhi Gandaki Hydroelectric Project. Of the remaining amount, 30 percent will be used for roads and 20 percent for irrigation projects.
Under the roads project, the Khotang-Diktel, Rabi-Ranke, Ghorahi-Lamahi-Salyan, Bardibas-Jaleshwor and Ramechhap-Salleghat roads and a motorable Mahakali Bridge will be constructed.
The two sides also agreed to simplify the process of appointing the contractor and consultant for the 32 MW Rahughat Hydroelectric Project which is being built with a previous Indian line of credit.
Meanwhile, Indian contractor IVRCL Infrastructure has abandoned the project after getting the contract for the civil works, and the Nepal Electricity Authority has initiated the process of terminating the agreement with it.
As per the previous arrangement, India is responsible for selecting the contractor for projects where its line of credit will be used. Sharma said that India had agreed to insert the provision that Nepali consultants can also be selected for Indian-funded projects.
The Nepal Embassy in New Delhi said in a press release that the two sides had also reviewed the progress of the projects being implemented under two previous lines of credit worth $100 million and $250 million respectively.
They expressed satisfaction at the performance of the past interventions and addressed a number of issues encountered during their implementation.
Meanwhile, government officials said that the meeting had opened the door for releasing the advance amount for projects being undertaken with the second line of credit which is currently at a standstill.
India has set flexible terms and conditions for the new line of credit including the interest rate and commitment fee.
The interest rate has been fixed at 1 percent per annum, while the commitment charge has been reduced to 0.25 percent from 0.5 percent. India will not charge any service fee. Earlier, it charged 0.25 percent as service fee.
Similarly, the southern neighbour has cut the portion of Indian-made goods required to be used in the projects besides approving Indian-Nepali joint venture contractors.
According to the Nepal Embassy, the meeting also agreed to send an Exim Bank team to follow up the implementation of the projects financed by the line of credit in February.
A review meeting of the third line of credit will be held in July, the embassy said.