‘Make or break' talks with CTGI kick off

Kathmandu, August 28

The government and a Chinese company - China Three Gorges International (CTGI) - have begun the final round of discussions to break the long impasse to begin construction of West Seti hydel project.

Based on the instruction of the board of directors of the Investment Board Nepal (IBN) led by Prime Minister KP Sharma Oli, the IBN has invited CTGI for a final round of negotiations and the meeting will conclude on Wednesday, according to IBN officials.

The highest ranking executive from CTGI, President Zhao Jianqiang and his Investment Operation Manager Yao Fiexiong have come for the talks with the Nepal government officials here.

“This meeting is expected to break the long impasse regarding the development of West Seti hydel project and we are flexible enough this time to conclude the meeting on a positive note,” said Maha Prasad Adikari, CEO of IBN - authorised agency to look into hydel projects with capacity of over 500 megawatts.

This is the final round of negotiations with CTGI and if the negotiating parties fail to make a breakthrough, the previous agreement with the Chinese company will be scrapped.

Senior officials from IBN, Nepal Electricity Authority (NEA), Ministry of Energy, Water Resources and Irrigation, Ministry of Finance and Ministry of Law, Justice and Parliamentary Affairs are in the Nepali delegation that is negotiating with the Chinese team.

The Chinese side has asked for lowering the capacity of project and IBN is also convinced to bring down the installed capacity of the project from 750 megawatts to between 550 megawatts and 620 megawatts. The CTGI has concerns regarding the market of the electricity and the tariff rates. The NEA has already ensured tariff of Rs 12.4 and Rs 7.10 per unit in dry season and wet season, respectively, for storage projects. The storage project must generate 35 per cent of the rated capacity in dry season to obtain the tariff fixed by NEA - the sole power off-taker in the country.

Earlier, CTGI and NEA had signed a joint venture agreement to form a company with 75 per cent stake from CTGI and 25 per cent from NEA to develop West Seti hydel project. However, since then, the Chinese side has put forth various demands, including capitalisation of the expenses during the period of study.

However, Nepal side is not convinced of the amount proposed for capitalisation of investment. IBN and CTGI had inked a memorandum of understanding to develop West Seti project in February 2012.

The CTGI has asked for the hedging of the foreign loan it obtains for investment in West Seti project and is seeking dollar-denominated power purchase agreement for the initial 12 years since commissioning or the till the payback period of foreign loans, whichever comes first.

As per the PPA policy of NEA, it provides foreign currency denominated PPA in foreign investment projects till the payback period of loan or for initial 10 years, whichever comes first. However, CTGI has asked for exclusive tariff and dollar-denominated PPA for 12 years stating that the power off-taker has to treat peaking and storage projects differently in its PPA policy, according to IBN officials.