After over 6 yrs, Three Gorges walking away from West Seti

Australian company had previously wasted 17 yrs

KATHMANDU, Aug 30: China Three Gorges International is on the verge of walking away from the 750-MW West Seti Hydroelectric Project.

Two days of negotiations with a high-level delegation from the Chinese company failed to reach agreement on a few major issues. The company has sought 17 percent return on its investment, and it also found the resettlement and rehabilitation work under the project challenging and costly .

The Chinese company bagged the project in February 2012 through direct negotiations with the government. It is now on the verge of walking away from it, blaming an unfeasible power purchase policy and possible complications in resettlement and rehabilitation.

A team led by Investment Board Nepal CEO Maha Prasad Adhikari had negotiated with Three Gorges President Zhao Jianqiang and his team on Tuesday and Wednesday.

Following an in-depth study of the project development process to address the concerns and demands of Three Gorges, the government of Nepal had agreed to extend the US dollar PPA (power purchase agreement) rates for two more years to 12 years and also revise the project capacity down to 620 MW from the origional 750 MW.

"The company said the project is still not financially feasible due to low rate of return, cost and also unpredictable rehabilitation and resettlement work," Adhikari told journalists at a press meet on Wednesday evening. At least 10 percent of the project cost needs to be spent on rehabilitation and resettlement . The estimated project cost is US$ 1.8 billion. The company has found only 12.5 percent return on investment under the current PPA rates. NEA's PPA rate is Rs 12.4 and Rs 7.10 per unit of electricity for dry and wet seasons respectively for the reservoir-type plant. The project's capacity revision was required to meet a mandatory 35 percent energy output in the dry months out of the total annual production.

After the meeting, the company delegation met Minister for Energy, Irrigation and Water Resources Barshaman Pun and Finance Minister Yuba Raj Khatiwada. Both ministers told the Chinese delegation that the government of Nepal would take a final decision on the matter later. "IBN's board will take a final decision and Three Gorges has also said that it will honor the board's decision," reads a statement issued by IBN.

Asked why the company was walking out, Adhikari blamed several policies. "We should re-look into several policies related to hydropower development as well as the policy of burdening the developer with all the resettlement and rehabilitation work," added Adhikari.

IBN is chaired by the prime minister and its board meeting in mid-July had given a time period of two months to sort out the issues with the Chinese.

The government had signed a joint venture agreement with the Chinese company, which has a stake of 75 percent. The remaining 25 percent stake is with Nepal Electricity Authority.

Economists say a walk out from the project does not bode well for investment in Nepal. "Unpredictable behavior by the government is largely to blame," said economist Keshav Acharya.

The current government announced in its budget in May that it would build West Seti on its own. This was when negotiations with Three Gorges were underway.