Kathmandu, December 19

The government has initiated the process of confiscating around Rs 3 billion in performance bond of the Italian contractor of Melamchi Drinking Water Project after it decided to abandon the crucial water project.

The money, according to the Ministry of Water Supply, would be used to complete the project and pay off around Rs 2 billion in dues to subcontractors hired by the Italian company.

Co-operativa Muratori e Cementisti (CMC) di Ravenna, the Italian contractor, has issued a performance bond of around Rs 3 billion from Standard Chartered Bank UK and an Italian bank, according to Water Supply Secretary Gajendra Kumar Thakur. Performance bond is issued by contractors as a security against job completion. Two banks in Nepal — Standard Chartered Bank Nepal and Nepal Investment Bank — are working on behalf of Standard Chartered Bank, UK, and the Italian bank to release the amount equivalent to the value of the performance bond in case the Italian firm fails to complete the work here.

“We have already directed Melamchi Drinking Water Development Committee to direct Nepali banks to seize the guarantee amount,” said Thakur. The instruction was issued as per the decision taken by a meeting of officials of the MoWS and MDWDC and experts today.

“We took this decision as the Italian company was intent on contract termination despite repeated requests to complete the project. The officials of the Italian firm also informed us that their company was on the verge of bankruptcy and they did not have adequate funds to complete the project.”

The agreement signed between CMC and MDWDC does not have a provision on contract termination, according to Thakur.

“But since the Italian company is no longer interested in completing the project, we will use their bank guarantee to complete the project and pay off dues of local contractors,” he said.

CMC owes around Rs 2 billion to local contractors, with due of one local contractor standing at around Rs 820 million, Thakur said, justifying yesterday’s decision not to allow Italian contractors to leave the country unless they provided a concrete proper plan on project completion. THT could not establish contact with CMC officials.

CMC is also involved in other projects worth billions of rupees in Nepal. On July 26, CMC won the civil works contract of the 160-megawatt Tanahu Hydropower Project. Under this contract worth Rs 20.64 billion, CMC should divert the flow of the river, build a dam and complete head works.

CMC is also engaged in construction of the 86 MW Solukhola Dudhkoshi Hydropower Project. Sahas Urja Limited has signed an agreement with CMC to develop the project under Engineering, Procurement and Contract model at an estimated cost of Rs 11.86 billion. The fate of these projects is still uncertain.

“We are waiting for the government’s decision on whether to work with CMC or terminate the contract with the Italian company and hire another contractor,” said officials from Tanahu Hydro.