Nepal | May 26, 2019

Italian contractor abandons Melamchi water project

Himalayan News Service

Kathmandu, December 17

The fate of the much-delayed Melamchi Drinking Water Project hangs in the balance once again as the Italian company, which was building the project, has decided to abandon it due to its worrisome financial state.

Officials of Cooperativa Muratori e Cementisti (CMC) di Ravenna had submitted a letter informing the government about its decision to discontinue with the water project on Sunday but the government refused to accept the proposal.

Nepali representatives of the Italian firm had visited the project office on Sunday and submitted a letter stating that they would not be able to continue with the project. However, after instructions from the Ministry of Water Supply, the Melamchi Drinking Water Project refused to acknowledge the letter.

Shankar Prasad Subedi, joint secretary of the ministry, said CMC had decided to abandon the project citing lack of funds. “The ministry has yet to decide what steps to take regarding the issue, but we are firm that the company must complete the project at any cost,” he said, adding the government is committed to building the project on time.

As per Subedi, CMC wanted the government to provide additional funds, but the government had made it clear it would provide funds only after completion of the project.

After the government refused to give funds, Italian officials from CMC decided to return home.

CMC is involved in over 80 projects in 21 countries. It generates a huge chunk of revenue from projects owned by government and state-owned companies throughout the world.

A Bloomberg report says companies like CMC got a steady supply of contracts and local banks provided them with funds, helping them raise their profits. “Then came the financial crisis and the longest recession of the postwar era leaving states unable to spend and banks unwilling to lend.” Thus began the fall of companies like CMC.

CMC witnessed a sharp increase in debt in the first half of 2018, Bloomberg says. Since then investors have been “questioning CMC’s liquidity position”.

La Repubblica reported that CMC, in November, said it would not be able to repay 500 million euros to bond investors, indicating worrisome financial condition of the company. It also needs to renegotiate 165 million euros in bank debt at the end of 2019.

The government had selected CMC for Melamchi water project in 2013 after terminating the previous contract with China Railway 15 Bureau Group following their slow work.

The work of concrete lining along nearly 700 metres of the Melamchi tunnel is still remaining, according to project officials. Works related to water intake and closing the hydro-mechanical gate also have yet to be completed.

If the project runs as per present pace, it will be completed by May, but the project is again facing uncertainty due to the contractor.

The construction of the drinking water project began in 2001.

CMC is also involved in other projects worth billions of rupees in Nepal.

It had won the civil works contract of the 160-megawatt Tanahu hydropower project on July 26.

It has also started building Solukhola Dudhkoshi hydropower project with 86-megawatt capacity. Sahas Urja Ltd had signed an agreement with CMC to develop the project as per the Engineering Procurement and Contract model at an estimated cost of Rs 11.86 billion.

The fate of these projects is unknown.


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