Nepal and India have been working to simplify the procedure to use the $1 billion line of credit extended to Nepal by the Exim Bank of India.

The loan agreement was signed last November during Indian Prime Minister Narendra Modi’s visit to Kathmandu for the 18th Saarc Summit.

A Nepali official team led by Finance Secretary Suman Sharma headed to New Delhi on Monday to talk about how to simplify the line of credit among other subjects. “We will discuss how to ease the process to make it short and time-bound,” Sharma said. The two countries have agreed to simplify the procedure so that the evaluation time and timely payment from India for development projects can be ensured.

It takes a long time to get the Exim Bank’s approval after Nepal submits the project design, government officials said. Another government official said that it was difficult to get the funding even six months after the contract has been awarded.

Since the contractor does not start work before receiving the mobilisation funds, work has stalled on some projects, the official said. India had recently sent a proposal stating the measures to simplify the procedures.

The government has almost finalised the projects in which the newly announced soft loan will be used. They are the Budhi Gandaki Hydroelectric Project, Mahakali III Irrigation Project, Koshi Pump Canal and a multi-lane motorable bridge over the Mahakali River in Mahendranagar, according to the Finance Ministry. According to Sharma, the government is also working to finalize various road projects where the money will be used. Potential projects include a road project in Ramechhap and the Ghorahi-Lamahi and Parasi-Rampur-Gaidakot roads, among others. “We are also considering investing a certain portion of the loan on a transmission line project,” said Sharma.  

India has provided flexible terms and conditions for the new line of credit, including interest rate and commitment fee. The interest rate has been set 1 percent, 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 reduced the portion of Indian-made goods to be used in the project and approved Indian-Nepali joint venture contractors.

The existing line of credit ($350 million) is being used in 11 road projects, rehabilitation of the 15 MW Devighat Hydropower Project, 27 MW Rahughat Hydroelectric Project, Muzaffarpur-Dhalkebar cross-border transmission line and rural electrification projects, among others.