Nepal | July 11, 2020

Joint agreement on West Seti project likely to be signed in a month

Himalayan News Service
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Once pact is sealed, an SPV, with 75pc stake of CWEI and 25pc of NEA, will be formed

Kathmandu, June 8

CWE Investment (CWEI) Corporation, the Chinese developer of the 750-megawatt West Seti Hydroelectric Project, has expressed interest to conclude a crucial agreement with Nepal Electricity Authority (NEA) within a month to expedite the process of forming a special purpose vehicle (SPV) to build the project.

“We have received a letter from the Chinese company stating that it wants to conclude the joint development agreement (JDA) with NEA within a month,” Khagendra Prasad Rijal, deputy spokesperson at Investment Board Nepal (IBN), told The Himalayan Times.

Another source told THT that senior officials of CWEI, a subsidiary of China’s Three Gorges Corporation, are visiting Nepal within a month to wrap up the deal.

Once the pact is sealed, an SPV, with 75 per cent stake of CWEI and 25 per cent stake of NEA, will be formed. This SPV will oversee implementation of West Seti Hydroelectric Project being built in the far western part of the country.

Although CWEI is all set to enter into the pact, an NEA official privy to the issue said a few outstanding issues need to be settled before signing the agreement.

First is the issue of equity.

Before signing the JDA, NEA must agree to acquire 25 per cent stake in the project.

The Cabinet has already extended green signal to NEA to purchase the shares. But NEA’s management still has not forwarded the proposal to the board, a board member said on condition of anonymity. Unless the NEA board of directors endorses the decision, NEA cannot invest in the project.

NEA management has been delaying the process of forwarding the proposal to the board, as it is seeking assurance from the government or the Chinese developer to arrange credit required to purchase the stake, citing the utility company does not have enough funds to purchase shares on its own.

Earlier, it was said that CWEI had agreed to talk to the Chinese government to mobilise loan for NEA. But a source said only ‘companies that are 100 per cent owned by Chinese are eligible for Chinese government loan’.

Another outstanding issue is that of the pre-construction expenses. Since IBN endorsed CWEI’s proposal to invest in the West Seti project in April 2015, the Chinese developer has started conducting geological tests and studies to locate sites where dam and power house could be built. This means Chinese company has already started spending money on the project.

Once NEA becomes an equity partner, CWEI will ask NEA to bear 25 per cent of the expenses incurred by it so far.

“But since expenses made by CWEI are not in line with the Procurement Act of the country, NEA is not comfortable about shouldering these costs because of fear that corruption watchdog may hold it liable for spending money without adhering to Nepal’s legal provisions,” a source said, adding, “These issues need to be settled before the joint development agreement is signed.”

Also, discussions on construction of transmission line, which the government has agreed to build, and rehabilitation and resettlement plan, which the government has agreed to execute on behalf of the project developer, will be held during the proposed meeting between CWEI and NEA after a month.

West Seti project was handed over by the government to CWEI in February 2012.

Around 2,500 hectares of land, of which 30 per cent is private, needs to be acquired in Doti, Dadeldhura and Baitadi districts to build the project. Around 3,000 households also need to be relocated while developing the project.

A version of this article appears in print on May 09, 2016 of The Himalayan Times.

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