Nepal seeks India nod to switch $750m credit line

July 20, 2018

The Kathmandu Post, 20 July 2018

The government seeks India’s consent to switch part of $750 million Line of Credit (LoC) granted to reconstruct earthquake-damaged buildings to other infrastructure projects.

Reconstruction project is unlikely to use the entire amount of LoC, therefore, the move to switch part of the grant to other projects, the government reasons.

Nepal made this request at the Nepal-India Line of Credit (LoC) Review Meeting held in Kathmandu last week.

Finance Ministry’s International Economic Co-operation Co-ordination Division (IECCD) Chief Shreekrishna Nepal led the Nepali panel while External Affairs Ministry’s Development Partnership Administration Joint Secretary Prashant Agrawal led the Indian panel.

The earthquake that struck Nepal on April 25, 2015 killed almost 9,000 people and destroyed properties worth millions of rupees.

Of the Indian grant of $1 billion pledged for reconstruction, $750 million is LoC and $250 million is grant.

Using the entire amount to reconstruct quake-damaged buildings would be difficult because a caveat in the LoC says Nepal should use Indian materials.

The LoC signed by the Government of Nepal and the Export-Import Bank of India (Exim Bank) on September 16, 2016, stipulates 75 percent Indian components including plant, machinery, equipment and services and 50 percent Indian components in civil works. Further, the contractor selection process should first go through pre-qualification process before starting the tender process.

IECCD Chief Shreekrishna Nepal said, “Fulfilling these conditions might not be possible in all reconstruction (quake affected) projects. We have sought India’s consent to use surplus funds in other infrastructure projects that may meet these conditions.”

Explaining why it would be difficult Nepal said, “For example, it may be difficult to use 75 percent Indian materials to build small buildings and health posts. Moreover, Indian contractors may not be interested to take up small projects.”

Earlier, Nepal discussed with India the probability of converting the LoC into an unconditional loan as per the request of National Reconstruction Authority (NRA), which argued the entire amount might not be used within the tenure of NRA due to conditions stipulated by India’s Exim Bank.

The NRA was of the view the long procedure of preparing detailed project report and getting approvals from several Nepali and Indian agencies would require a lot of time, making it impossible for the NRA to use the entire amount pledged for reconstruction during its tenure. The NRA’s term expires in December 2020.

The Finance Ministry has also requested the NRA to provide details on how much amount they could use for reconstruction from the Indian LoC and how much remains as surplus while meeting the conditions set by the India’s Exim Bank.

The NRA said it would need time to determine the amount it could utilise as it is preparing a list of projects where the LoC could be used.

NRA Joint Spokesperson Manohar Ghimire said, “After the projects are decided, we could determine the amount to be utilised within the tenure of the NRA. We shall discuss with the Finance Ministry and Indian side to decide whether implementation of the projects identified for reconstruction would meet the set conditions.” Nepal has sent to India proposals of two projects—reconstruction of Harihar Bhawan and a library at Balmiki Campus.

Nepal has identified half a dozen buildings of Tribhuvan University in Kirtipur to be built using Indian aid.