Three Gorges, NEA to build West Seti

KATHMANDU, March 1: The Ministry of Energy (MOE) and China Three Gorges Corporation signed a Memorandum of Understanding (MoU) Wednesday to construct 750 MW West Seti Project in a Private Public Partnership model with a minimum of 25 per cent share of Nepal Electricity Authority and a maximum of 75 per cent of China Three Gorges. Joint Secretary at the MOE Arjun Karki and Executive Vice-chairman of China Three Gorges Wang Shofeng signed the MoU at the ministry in the presence of Energy Minister Posta Bahadur Bogati and Chinese Ambassador to Nepal Yang Houlan. [break] The government had issued construction license to West Seti Hydropower Limited on June 27, 1997 but revoked it on July 27, 2011 because the company, promoted by Australian company Snowy Mountain Engineering Corporation (SMEC), failed to manage funds for project despite 10 amendments to the agreement over 14 years. "They say once bitten, twice shy," Minister Bogati said. "There are reservations about timely construction of this project due to the bitter experience of the past, but we are hopeful that it will be constructed soon.” Chinese Ambassador Houlan said the agreement was per the understanding reached during the Nepal visit of Chinese Premier Wen Jiabao to contribute to economic development of Nepal. Estimated project cost: US$ 1.6b NEA to own 25% equity, Chinese firm 75% Project expected to complete by 2019 Project to provide 3.33b units of energy per year Minister Bogati said the ministry went for bilateral agreement for the reservoir project to save time. “We need to complete the project as soon as possible," Bogati said. "The project would have been delayed had we gone for bidding,” A senior officials at the MOE claimed that opting for international competitive bidding would have pushed the signing of MoU by at least another two years. The MoU mentions that West Seti Hydropower Development Limited Company would be formed according to the Electricity Act and China Three Gorges will make arrangements of the requisite loans for the project. China Three Gorges will also help NEA get soft loan from Exim Bank of China for its equity. If the loan from Exim Bank is not sufficient, China Three Gorges will make provision for the remaining loan. China Three Gorges can also include Nepali promoters if it so wishes. It has agreed to help get the funds required by National Grid Company Limited to build transmission line to connect the project to the national grid from Exim Bank. It has also consented to provide 2-5 per cent of shares to locals of the project sites from its shares. The project sites will be located in Doti, Dadeldhura, Baitadi, Bajhang, Kailali and Kanchanpur districts. China Three Gorges will conduct technical and financial evaluation of the project to fix the project cost, estimated at around US$ 1.6 billion, in coordination with NEA by the end of May, 2012. If the fixed cost does not look financially viable, Nepal government reserves rights to revoke the survey license of the project. The Power Development Agreement (PDA) for the project would be done by December, 2013 as per the tentative schedule provided by a senior technical officer at the MOE, and the financial closure would be done by October, 2014. The officer said that the PDA should be completed before financial closure as Chinese regulations do not allow financial closure before PDA. The government can also revoke the PDA if China Three Gorges is unable to conduct financial closure by the stipulated period. The construction will begin in January, 2015 and is expected to be completed by the end of 2019. The project will provide 3.33 billion units of energy per year and is expected to significantly contribute to the annual energy demand which is expected to reach 9.56 billion units by the end of 2019. The project will be constructed on Build, Own, Operate and Transfer (BOOT) basis and will be handed over to Nepal 30 years after issuance of generation license. State-owned China Three Gorges has constructed the Three Gorges Project-the biggest hydropower project in the world producing over 20,000 MW of electricity-in China. The Three Gorges Project built on the Yangtze River is the biggest hydropower project in world with a 600-km reservoir and installed capacity of 22,500 MW when it is fully developed.