Nepal | September 22, 2020

CTGIC still unclear about investing in West Seti HEP

Expresses concerns on modality of project, tariff structure of NEA

Himalayan News Service
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Kathmandu, June 17

China Three Gorges International Corporation (CTGIC), which had signed a joint venture agreement with the Nepal Electricity Authority (NEA) to develop West Seti Hydroelectric Project in January, has shown some concerns related to the modality of the project and tariff structure of the off-taker.

CTGIC has written to the Investment Board Nepal (IBN), which looks over implementation of hydro projects above 500 megawatts, stating it intends to develop 750-megawatt West Seti Hydroelectric Project as multipurpose reservoir project. CTGIC has also put forth concerns over new tariff structure of the power utility to examine the project’s feasibility and bankability.

NEA, the sole power off-taker, has introduced new tariff for reservoir and peaking run-of-the-river (PRoR) projects in April and shared with CTGIC officially so that the implementation of the projects can take pace. However, the CTGIC has been taking a long time even to ratify the joint venture agreement with NEA, which was signed in January to implement West Seti. “It has been five months since the NEA board approved JVA between the two entities, however the CTGIC has been delaying to ratify the agreement and consuming time,” an official of the IBN told The Himalayan Times.

The IBN has given due priority to implement the West Seti HEP as it has already been five years since the survey licence was issued to CTGIC. However, CTGIC has been consuming more time to ratify the agreement and set up the company. The JVA that was signed by the two entities needs to be approved by their respective boards to bring it into effect.

The CTGIC has primarily expressed concerns on the new tariff structure. NEA has fixed Rs 12.4 and Rs 7.10 per unit in dry season and wet season, respectively. As per the NEA requirement, the project must generate 35 per cent of the total installed capacity in dry season to obtain the given rate. During the wet season, NEA offers Rs 7.10 per unit for 50 per cent energy of the rated capacity. If energy generation exceeds 50 per cent, tariff will be lowered for excess energy (above 50 per cent). Tariff will be decreased from the base tariff for the increased percentage. This means if the project generates 65 per cent of the rated capacity, tariff will be Rs 6.035 for energy exceeded from the requirement.

The CTGIC has also shown concerns on NEA’s new tariff structure that states base rate will be lowered if the project’s return on equity (RoE) exceeds 17 per cent. As NEA has offered three per cent escalation on tariff for first eight years, the CTGIC has also expressed apprehension about whether the base rate (Rs 12.4 per unit for dry and Rs 7.10 per unit for wet season) will be lowered or not if RoE exceeds 17 per cent.
Prabal Adhikari, spokesperson for the NEA, said that the CTGIC has not written to NEA officially on new tariff structure, but the base rate will be lowered if the project’s RoE exceeds 17 per cent.

CTGIC is also worried about foreign exchange facility of local currency 10 years after the project starts commissioning power. As per the NEA rule, foreign currency denomination power purchase agreement (PPA) is only for 10 years or during the payback period of foreign loan portion, whichever comes first.

“Since we are investing in US dollars, in the case of receiving large amount on local currency after 10 years, advise us on any policy to guarantee foreign exchange in favour of investors,” the recently written letter by CTGI to IBN stated.

A version of this article appears in print on June 18, 2017 of The Himalayan Times.

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