Investment Board begins parley with developers on PDA template

Nepal Investment Board has launched formal round of discussions with developers on the legal framework of the Project Development Agreement (PDA) Template for large hydropower projects above 500MW.

The agreement – drafted by leading global firm Herbert Smith in consultation with Nepali legal counsel– ensures balanced and bankable deals that fully benefit and protect the country’s interests while ensuring a fair return to investors, according to chief executive of the board Radhesh Pant.

Herbert Smith has recently been appointed legal advisers to the Investment Board to assist the Board in its negotiations of detailed, tailored PDAs with each of the developers.

Pant also shared that initial discussions with three developers of the four export oriented projects – 650MW Tamakoshi 3, 600MW Upper Marsyangdi 2, 900MW Upper Karnali and 900MW Arun 3 – was held to ensure a common understanding of the legal terms in the PDA template and to listen to and respond to any remaining concerns as a crucial first step towards kick starting bilateral negotiations tailored to individual projects.

“Our preliminary discussions with SN Power, Sutlaj JVN and GMR to clarify legal issues on the PDA template went very well,” he said, adding that the board has clarified that Nepalis and Nepal’s interests are first protected while ensuring a fair return to investors on any project.

The developers also understood and respected Nepal’s priorities and we re moving towards intensive bilateral negotiations in the next few months,”he added. “However, the meetings did not touch upon any commercial aspects of the PDA or any project specific concerns.”

The board was leading an exercise to assess the technical readiness of the four export projects in terms of legal, economic, financial and technical issues, which would inform the negotiations with each of the three developers.

He also shared that two initiatives were currently underway –Benefit Sharing Exercise that aims to ensure that spin offs from mega projects reach true beneficiaries – for the local communities affected directly by hydro projects and Industrial and Employment Benefits Plan that seeks to develop a services and supplier base so that domestic industries can meet developer demands while ensuring on time budget delivery.

“It will leave local communities with improved livelihoods, labour force with job opportunities and industries with the opportunity to supply quality goods and services at competitive prices,” Pant said, adding that these exercises will help us develop frameworks to be included in the PDA and negotiated with developers.
The four projects aimed at the Indian market will have an installed capacity of 3,050MW, and will first aim to satisfy Nepal’s domestic power needs. Of the four, Arun III has committed to provide Nepal with 21.9 per cent free electricity while Upper Karnali has committed 12 per cent free electricity and 27 per cent free equity, in addition to paying royalties and taxes.

The new PDA template comes as a response to the previous model PDA that was rejected by developers and financiers in 2010 for not being bankable.