Staff of Italian contractor for Melamchi project detained briefly

Published On: December 18, 2018 06:30 AM NPT

Company's financial health downgraded in Italy

KATHMANDU, Dec 18: Police have briefly detained eight staffers of the Italian contractor for the Melamchi Water Supply Project (MWSP), who were apparently trying to abscond, and released them after confiscating their passports.

Acting on information from the Ministry of Water Supply and Sanitation, police located the eight staffers of Cooperativa Muratori e Cementisti (CMC) di Ravenna, including project manager Christian Greco, from a hotel in Thamel on Sunday night and seized their passports. Four days ago, another staffer was stopped at the airport from flying out after not being able to produce essential documents.

The company is failing to pay its debts due to a severe cash flow problem. These incidents have thrown the much-vaunted water supply project into further uncertainty although the government claims Melamchi water will reach the capital within a few months.

The Italian firm has been pressing claims for Rs 1.63 billion in damages, citing its cash flow problem, according to officials at MWSP. The claims are for delays due to earthquake and also the Indian blockade. However, a dispute resolution board fixed the damages at Rs 360 million. The project has not yet paid .

The Italian company, which has been doing tunnel work and head works construction on the project since 2013 , is said to have faced a severe cash flow problem back home also.

The company's officials in Kathmandu were pushing repeatedly for damages payment in recent days, but the project management has not yet made any payment, according to Ram Prasad Kharel, deputy project director.

A project board meeting had discussed paying the Rs 360 million . Talking to Republica, Kharel informed that they have not yet made any payment and they will soon assess the project status. “We will sit in a meeting over the matter soon and inform the public,” he added .

Work on concrete lining for a kilometer of tunnel still remains and the separate work on intake has yet to be completed.

The government awarded the task of completing the 27-km tunnel to the Italians in 2013 after terminating a contract with a Chinese company. The Italian company was hailed for its tunnel work last year and for a breakthrough in April.

The global credit rating agency Moodys downgraded the Italian company in September to B3 from B2 to reflect deterioration in its liquidity during the first half of 2018. That was when it had reported an unexpectedly substantial increase in working capital due to delay in the collection of certain key receivables and advance payments.

“The company's liability in Nepal is in the tune of Rs 2 billion while its receivables are far lower than that,” said a government source with direct knowledge of the matter. Meanwhile, local sub-contractors who are yet to be paid have registered cases against the company, according to sources.

Tanahu Hydropower safe but Sahas Urja in trouble

Meanwhile, the Italian firm has also won two other major contracts in the last 18 months, probably due to a good track record in the tunnel work. But the apparent attempt to abscond by key staff and also poor financial health back in Italy have put at risk one major independent power producer in Nepal.

Tanahu Hydropower Limited (THL), a subsidiary of Nepal Electricity Authority, picked the contractor recently for dam work at the 140 MW Tanahu Hydropower Project . But it has not yet mobilized the contractor and no advance payment has been made. The contract is worth Rs 18 billion.

NEA Managing Director Kulman Ghising informed that they were close to becoming a liability but are safe till now as no payment has been made. The project however may take some time to select another contractor.

“The company has been asked in Italy to pay all its debts within 60 days,” said Ghising. But Sahas Urja Limited (SHL), which is building the 86 MW Solukhola Dudhkoshi Hydropower Project, is believed to have landed in major trouble. It has awarded the Rs 11.86 billion project on an Engineering Procurement and Contract model.

The contract price has not yet been made public but it is estimated that the company has already made a sizable payment .

SUL signed an agreement with CMC in June last year. Company Chairman Him Prasad Pathak did not receive calls or respond to SMS . Kumar Pandey, vice president of Independent Power Producers Association Nepal, confirmed that the project has landed in trouble as the contractor is in trouble. The project is at the confluence of the Solu and Dudhkoshi rivers.

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