Province 3 will receive the highest amount of royalties collected from the energy sector in the next fiscal year as the National Natural Resources and Fiscal Commission has set the formula for royalty sharing of natural resources among three tiers of the government.

Provision 3 will get an estimated Rs274.33 million in royalties.

In line with the Act for Inter-governmental Fiscal Arrangement, the federal government receives 50 percent of the royalties from hydropower while the provincial and local governments receive 25 percent each.

Out of the funds set aside for the local governments, the commission has fixed the hydropower royalty sharing mechanism, taking into consideration the project location (50 percent), affected areas (25 percent) and affected population (25 percent).

“It means the areas or villages where power plants are located will benefit most by the royalty sharing policy, followed by project affected locations and the population in the region,’ said Gopi Krishna Khanal, joint secretary and spokesperson of the commission.

“The benefit sharing formula will help provincial governments and local governments to estimate their share of energy royalties collected during the current fiscal and prepare their budget for the next fiscal accordingly.”

However, in the formula, the commission has not accounted the geographic areas or population affected by transmission lines. The number of affected local units is based on those which are affected by power generation in their region.

For instance, a local level where the river flow has declined because of the power plant located in the adjacent local level is deemed fit to receive its share of loyalties. But local levels through which transmission lines pass have not been accounted for as an affected area.

According to Khanal, the commission will revise its royalty sharing mechanism to include local levels affected by power lines in the upcoming years when the country sees increased power generation and substantial impact caused by transmission networks.

“For now we have excluded the transmission lines from the equation because of lack of adequate study on that front. But we will revise these policies again in the coming years,” said Khanal.

As per estimates, in the fiscal year 2019-20, the provinces will receive a total of Rs538.19 million in energy royalties under the new and formalised benefit-sharing policy.

The estimates suggest that Province 3 will receive the most from hydropower royalty followed by Province 5 which will receive Rs183.13 million.

Each year, the Nepal Electricity Authority collects massive amount in energy royalties from the hydel plants that are in operation. In fiscal year 2017-18 the state owned power utility had collected Rs 967.37 million and in the current fiscal year the projections are at Rs 1,351 million as energy royalties.

Depending on the generation capacity and years in operation, hydropower plants have been mandated by the Hydropower Development Policy, 2001 to pay annual capacity and energy royalties.

Plants generating power from 1 MW to 10 MW are liable to pay Rs 100 per kW up to 15 years in operation and Rs1000 per kW after 15 years. Hydel plants with installed capacity above 10 MW to 100 MW must pay Rs 150 per kW up to 15 years and Rs1200 after 15 years.

And the plants producing more than 100 MW of energy pay Rs 200 per kW for 15 years and Rs1500 after 15 years in annual capacity royalties.

Earlier, the National Natural Resources and Fiscal Commission was confronted with challenges on devising the royalty sharing mechanism because of differences with the local levels who demanded a fair benefit sharing mechanism.

“In line with the demands, the National Natural Resources and Fiscal Commission held rigorous consultations for six months at the central, provincial and local levels to come up with a formula for the sharing of royalties from natural resources,” said Khanal.

According to the commission, the estimates which were generated based on the formulas suggest that the government will collect Rs 4.56 billion in royalties from the natural resources and the provinces and local levels will receive around Rs 1.14 billion.

As per the law, royalties can be raised through mountaineering, hydropower, forests, mines and minerals, water and other resources.