GMR and Satluj have already won, through global competitive bidding, contracts to develop the 900MW Upper Karnali and 300MW Arun II, and only this week China’s Three Gorges Corporation signed an MoU with the Nepal government to develop the 750MW West Seti project. All this is good news for a country where there is so much hydropower potential and yet so little of it has been harnessed.
When foreign investors vie to develop hydropower projects they throw up challenges just as much as they bring opportunities. One of the key challenges for us is how to lock in foreign investment in hydropower in a way that is fair to both sides—the investor and the recipient country. The MoU signed between the Nepal government and Three Gorges has once again brought this issue to the fore. The MoU says NEA will have a 25 percent share in West Seti and Three Gorges will have 75 percent. Seasoned experts in hydropower have raised a legitimate question about fair benefit sharing here. What is the benefit that Three Gorges is offering Nepal for being allowed to develop such a key project?
For instance, when the GMR Group bagged Upper Karnali it offered 27 percent free equity along with 12 percent free power to Nepal. In the Three Gorges case, officials who were part of the Nepali negotiating team argue that the Chinese have agreed to help Nepal secure a soft loan from the Ex-Im Bank of China to finance the 25 percent of its investment share in the project. We are not convinced about the soundness of this arrangement. We don’t think we need to commit a major hydropower project just to receive a soft loan from a foreign bank for financing a portion of our investment obligation.
Investment is hydropower involves complicated technical issues, along with equally vexing economics and we don’t pretend to understand it all. But it’s precisely for this reason that investment decisions in huge hydropower projects like West Seti require informed public discussions and a transparent decision-making process. Awarding projects through competitive international bidding takes care of some of these concerns. But when projects on the scale of West Seti are awarded through close-door, bilateral negotiations, such concerns naturally turn into huge worries.
The agreement on West Seti is still at the MoU stage and it needs a comprehensive discussion before the cabinet endorses it and before another level of agreement is signed, sealing the fate of the project. We welcome Chinese investment—or any foreign investment for that matter— in our hydropower, but we would also call for a fairer deal when the projects are offered to foreign companies.
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