Govt moves to award Budhigandaki Project to Chinese firm

Published On: May 24, 2017 06:00 AM NPT By: Rudra Pangeni  | @rudrapang

KATHMANDU, May 24: With Prime Minister Pushpa Kamal Dahal “all set to resign”, the Cabinet meeting on Tuesday decided to award the Budhigandaki Hydropower Project to a Chinese company. But the decision, according to government officials, to award the reservoir project to China Gezhouba Group Corporation (CGGC) has a rider - CGGC will have to come up with a technically and financially viable proposal within a year. 

The Chinese government-owned company will be asked to build the project under the engineering procurement, construction and financing (EPCF) model - a new model for the country. The cabinet has decided to initiate the process to award the project to CGGC under the EPCF model, according to Ajay Shankar Nayak, Minister for Law and Justice. 

The government will prepare a guideline to sign the final agreement to award the project to the Chinese firm under this model, he said. 

The 1200 MW project located in Gorkha and Dadhing districts could be crucial in addressing the country's energy crisis. The previous government led by KP Sharma Oli had also considered CGGC's proposal to develop the project but the proposal was shelved without furnishing any clear reason. 

A Detailed Project Report (DPR) prepared by a French consultant last year has estimated the project's cost at Rs 261 billion. Considering the massive investment needed for the mega project and its technical complexities, the government chose to award it to the Chinese company, according to officials at the Ministry of Energy (MoE). 

Talking to Republica, MoE Spokesperson Dinesh Kumar Ghimire said, “The government will enter into a preliminary agreement with the company but this agreement will not be legally binding until a project development agreement (PDA) is signed.” The government expects the company to arrange major financing (at least over 50 percent of the project cost) in the form of a soft loan because the project is not viable on commercial loans. “If the government is satisfied with its proposals - both technical and financial - the final contract may be signed,” added Ghimire. 

According to the plan, a 263 meters high dam will be built in the Budhigandaki River which will form a reservoir about 15 times bigger than the Fewa Lake in Pokhara, that will generate 1330 GWh electricity annually and will displace about 45,000 people. 

With the decision to award the reservoir-based project to the Chinese company, the government has put an end to the process of building the plant under the company model.

According to experts, the government's decision is aimed at striking a balance between China and India, which is developing two major hydro projects, namely, Arun III and Upper Karnali. 

CGGC started its work in Nepal by building the Upper Bhotekoshi Hydropower plant (45 MW) in the early 2000s. The company is currently working as the civil contractor of at least three hydropower projects but its overall performance has been poor and the projects have seen multiple cost variations and time overruns. 

The company's proposal to upgrade the Upper Trishuli III project in 2013 had courted controversy. Similarly, a serious dispute had unfolded with alleged corruption in cost variation of the Chameliya Project which has suffered a cost overrun of more than double the estimated cost. 

Sino Hydro Resources Ltd, a Chinese government undertaking, completed the Upper Marshyandi A Hydropower Project of 50 MW in September and the project is the first one to be built with Chinese investment. The government is building the 750 MW West Seti Hydropower Project in the western part of Nepal with joint investment from China Three Gorges Corporation (CTGC), another Chinese government-owned company. CTGC has 75 percent stake in the project. 

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