Delhi loses initiative as Nepal seals power deal with Beijing

Nepal and China have sealed the deal on the West Seti Hydropower Project in West Nepal with the two sides signing a fresh Memorandum of Understanding last month – the development is likely to cause unease in New Delhi that has struggled with little progress in its own hydropower projects in Nepal, coupled with Nepal’s growing coziness with China.

The US $1.6 billion project — the biggest foreign investment project in Nepal — was earlier designed to supply electricity to India, but it will now be meeting Nepal’s own domestic requirements with the surplus being sold to China.

Nepal, which has been facing a severe power crisis, is estimated to have 43,000MW hydropower generation capacity, but the actual production is a woeful 650 MW.

India has dominated the hydropower sector in Nepal so far, but several of its projects have been stalled because of various reasons such as protests from Maoists against awarding deals to foreign companies. Projects like the Upper Karnali and Arun III have not showed any progress despite MoUs having been signed years ago. Last year, a GMR Power-led consortium’s camp site office in Dailekh district was reportedly burnt down.

In a recent letter to the prime minister’s office and the ministry of external affairs, the Research and Analysis Wing said, “The government of Nepal has granted permission to China Three Gorges Corporation (CTGC) to proceed on the 750 MW West Seti Hydropower Project on the Seti river in Dadeldhura district.

“The Investment Board of Nepal and the CWE Investment Company of China (sub group of CTGC looking after overseas operations) signed (August 27, 2012) a revised Memorandum of Understanding for construction of the WSHP.”

The communication states that the Nepal government took the decision following the visit of a three-member Nepalese delegation led by energy secretary Hari Ram Koirala to China on August 7, 2012 to negotiate issues related to investment and revision of the MoU signed earlier.

Estimated to cost about Nepalese Rs 180 billion, work on the project is scheduled to start this year and will be completed by 2020, the letter says. “The WSHP initially designed to export electricity to India, is now aimed at meeting the growing energy demand of Nepal,” the communication dated August 30 states.

The project was first awarded to an Australian company — Snowy Mountain Engineering Corporation — in 1997. On completion, the project was supposed to sell electricity to India. But it never took off. Last year, the Nepal government scrapped the contract and started discussions with China.

On February 29 this year, CTGC signed an MoU with the Nepal government for construction of WSHP. CTGC was supposed to hold 75 percent stake in the project and the Nepal Electricity Authority (NEA) 25 percent. The CTGC had also agreed to provide 2-5 per cent shares to the local investors from its stake and help the NEA to secure a soft term loan from the Exim Bank of China for the project.

The project had then run into rough weather over allegations of preferential treatment to China by not allowing international bidding for the project. Nepal’s Natural Resources and Means Committee (NRMC) of the Constituent Assembly, since dissolved, had, raised objections over the terms of the MoU. This forced the Nepalese government to put the project on hold. China had then reportedly threatened to pull out of the project if the Nepalese government did not take a decision soon.

“As per the revised MoU, the CWE will now provide 10 per cent stake to the local investors and agreed to make the project multipurpose by including irrigation, fishery and water transportation components in the project, in line with the recommendations made by the NRMC. About 150 MW of electricity would be allocated for the industrial development of local area.”

“The Chinese company has also reportedly agreed to help generate funds for construction of the transmission line simultaneously so that the electricity generated could be linked to the national grid without delay. China Exim bank and China Development bank have already expressed interest to invest in the project and provide additional funds for construction of the transmission line."