CGGC contract for Budhigandaki in controversy

Kathmandu, May 31

The government’s decision to award the contract for 1,200-megawatt Budhigandaki storage project to China Gezhouba Group Corporation (CGGC) without any competitive bidding has raised quite a few eyebrows, even as the representatives of the company in Nepal try to dismiss the concerns as ‘government-to-government level understanding between the two countries’.

Surprisingly, though, contracts for projects below 100-megawatt capacity such as Kabeli A had been awarded only after carrying out competitive bidding in the past.

While the project development agreement is yet to be inked, the Cabinet meeting of the Pushpa Kamal Dahal-led government had decided on May 23 to hand over the construction contract of Budhigandaki project to CGGC.

To be developed under EPCF (engineering, procurement, construction and financing) model, the government is planning to entrust the crucial project to CGGC, whose subsidiaries had been blacklisted by the World Bank on May 29, 2015. The World Bank’s move was based on ‘acknowledgement of misconduct by these entities in three World Bank-funded projects in China in relation to water conservation, earthquake recovery and flood management’. This meant that the company and its subsidiaries were ineligible to participate in any contract of the World Bank for 18 months.

Om Bandhu Karki, a contact person of CGGC for Nepal, however, claimed that the company had never landed in controversy. “CGGC is just one of the over 150 subsidiaries of China Energy Engineering Corporation (CEEC). It was some other subsidiary company of CEEC that had landed in controversy, not CGGC.”

It has to be noted though that CGGC is involved in developing the 30-megawatt Chameliya project and has faced immense criticism time and again for inflating the cost of the project by citing various excuses and political hiccups. The construction of Chameliya project has ballooned to Rs 550 million per megawatt, while normally construction of a project is Rs 150 million to Rs 200 million per megawatt. Moreover, the project, which was supposed to be finished in May 2011, is yet to be completed.

Nepal Electricity Authority (NEA) has been bearing huge losses not only in terms of revenue but also due to increase in foreign exchange rate owing to the project construction delays, according to NEA officials. Besides, a case related to the company about tax evasion over fake VAT bill of over billion rupees is sub-judice at the Revenue Tribunal Office.

Despite all these details, the government handpicked CGGC to develop the national pride project that is estimated to cost around Rs 260 billion, with civil works of the project alone expected to hover at Rs 126 billion. These projections are based on the detailed project report of Budhigandaki prepared by a French firm.

The government has given due priority to the Budhigandaki project in the budget for fiscal 2017-18 as well, with allocation of Rs 10.17 billion for land compensation distribution in the project site. But there are lingering doubts about CGGC’s capability to complete a project of this scale, given its past record of abrogation of the contract after it completed only 10 per cent of works of 22MW Chilime power project during the contract period in fiscal 1997-98.

“In the fiscal of 2012-13, the company landed the contract to carry out civil works of 42.5MW Lower Sanjen hydropower project — a subsidiary of Chilime — but its performance was very dismal. As a result, the security deposit was forfeited and company was blacklisted,” an official of Chilime said under condition of anonymity, adding they had ‘faced immense pressure to revive the contract’.

Kulman Ghising, executive director of Nepal Electricity Authority, who was managing director of Chilime Hydropower Company and chairperson of Sanjen back then, had however, held steadfast to his decision to keep the company blacklisted.

Karki, on the other hand, is adamant that CGGC is well capable of completing the Budhigandaki  project properly and on time.