The construction work of the Melamchi Water Supply Project has been completely halted ever since the Italian contractor, Cooperativa Muratori e Cementisti, left the project on December 15. Moreover, the failure of CMC to resume the project and the government’s inability to take a timely decision have increased uncertainty of the project. Sujan Dhungana and Umesh Poudel of The Himalayan Times spoke to Surya Kandel, executive director of Melamchi Water Supply Development Board, to know details of the project. Excerpts:   

Recent developments related to the Melamchi Water Supply Project show increased uncertainty of the project. What do you have to say on this?

It is true to some extent. Though the project development was nearing completion, the Italian contractor abruptly left the project on December 15 and construction work of the water project has been completely halted since then. As per the provision in the contract, we cannot resume project works on our own, especially if the contractor leaves the project, without finalising the new contractor and the contract. In such a context, either the contractor needs to return to the project and resume project development or the government must terminate the contract with the contractor. If we resume construction work by breaching the contract provision, the contractor can charge huge compensation from the government in the future through arbitration or a court. Every international contract has equal footing of the engineer, employer and the contractor and one cannot dominate the other. However, the employer of the contract should always remain strong from the legal point of view.

So, what is the latest development in the water project?

It is now clear that CMC has terminated its contract from the project. However, I must say the reasons that CMC had mentioned in the termination letter were baseless. Thus, we did not accept the termination letter of CMC and informed the contractor about this. Indirectly, we invited the contractor to resume the project. However, there are talks in the market that CMC officials were intentionally allowed to return to their respective countries, which is completely false. We accept that CMC has been facing financial problems at present and is almost bankrupt. As CMC has been facing cash flow problem, it is logical that the contractor cannot handle international projects. In spite of all these, the government had been issuing payments to CMC regularly. Moreover, 72 per cent of the project’s payment would directly go to the CMC’s headquarters as provisioned in the project contract. However, we do not have any data on how much money CMC sent back to Nepal. As a result, CMC had been raising various problems since almost two years citing cash crunch to build the Melamchi project. It is to be noted that the government had been facilitating CMC financially beyond the contract terms as well. This reflects the government’s intention to continue and complete the water project through CMC itself.

You mentioned that reasons cited by CMC for terminating the project were not satisfactory. Can you elaborate on this?

CMC had cited two reasons for terminating the Melamchi project. The first reason it cited was that the government did not issue necessary payments worth Rs 360 million, which is totally wrong. This charge is baseless as CMC should first register a claim letter in this regard with the project’s consultant firm and it has to be verified. Moreover, the employer (government) gets 56 days to analyse the claim of the contractor and verify other documents. However, CMC has neither claimed this amount in a procedural manner nor has it submitted any documents to the government regarding this. Thus, CMC’s claim that it did not receive payment from the government is not based on evidence. Meanwhile, at present we are following the Interim Payment Certificate (IPC)-46. However, CMC has mentioned that the government reduced the committed payment citing IPC-38. CMC had registered a claim of Rs 140 million at the dispute settlement board of the project while the board has already concluded that CMC’s claim is invalid. Similarly, CMC did not file any notice of dissatisfaction with regard to the decision of the board, which means that the contractor had accepted the board’s decision. Thus, the basis of CMC terminating the project is wrong which is why the government did not accept CMC’s termination letter. Though CMC registered its termination letter, the government had not accepted it which means the contract had not been terminated. The government then time and again urged CMC to resume the project and committed its necessary support. CMC then asked the government to fix a date for a meeting and we called CMC for a meeting on January 7. However, CMC did not come for the meeting and asked the government to postpone it. Following this, the government had only two options — to either terminate the contract with CMC or wait for the contractor to come back and resume works. Waiting for CMC to come back has already delayed the Melamchi project by one-and-a-half months. Now we have already sent a notice of termination to CMC, which gives the contractor a final chance to resume the project works as per the contract provision. However, CMC has not been responding and it is unlikely to resume the project. Moreover, CMC has falsely stated on its website that it has completed the Melamchi project.

Meanwhile, CMC could opt for arbitration and seek compensation from the government. What is the government’s position?

Termination of any project should be based on proper grounds. The contract has clearly stated circumstances in which the contractor or the employer (government) can terminate the project. However, CMC has terminated the project without any proper and logical reason. This is where the government is in a strong position even if CMC knocks on the door of the international court. We are strong as we have already frozen the security deposit of CMC immediately after it terminated the project. Moreover, the Patan High Court has already cancelled the stay order appeal against the government’s decision to freeze CMC’s security deposits. Meanwhile, we have already transferred all security deposits of CMC worth Rs 2.16 billion to the bank account of Melamchi Water Supply Development Board from Nepal Investment Bank and Standard Chartered Bank Nepal. Similarly, CMC now has limited basis to go for arbitration. Had CMC been able to validate its termination letter, the company would have been stronger if it went for arbitration. Likewise, the project agreement does not allow CMC to leave the project without properly consulting with the employer and this is where CMC is weak again if it goes to the international court. On the other hand, the government gave a termination notice to CMC by following due provisions in the contract. Thus, the government is in a strong position even if CMC opts for arbitration.

How will the project proceed now?

As I mentioned earlier, CMC still has a few more days to come back and resume the work. However, I do not see this prospect. So, the other options are either to complete the project through a new contractor or adopt a fast-track method to complete the project as soon as possible. Completing the project through a new contractor is a lengthy process and might delay the project completion. However, we can complete the project soon if the government adopts a fast-track method and takes necessary decisions promptly.