Investment Board of Nepal, GMR sign PDA for Upper Karnali

Investment Board of Nepal and Indian company Grandhi Mallikarjuna Rao (GMR) Energy today signed Project Development Agreement (PDA) for construction of the $1.5 billion Upper Karnali Hydropower Project in western Nepal.

Investment Board of Nepal chief executive officer Radhesh Pant, president of Hydro Energy Business Unit of GMR RV Seshan and Nepal chief Harvinder Manocha signed the agreement after six years of signing of memorandum of understanding between Nepal government and India’s GMR-ITD Consortium.

The Project Development Agreement is expected to open a door for the Indian company to move ahead for financial close and construction of the 900 megawatt Upper Karnali Hydropower Project.

According to the PDA, Nepal will get 27 per cent free equity and 12 per cent (108 MW) free electricity from the project. Likewise, the agreement also ensured handover of the project, along with the 100-km transmission line, to the government after 25 years of operation.

GMR is planning to sell the remaining 88 per cent energy to India, Bangladesh and Nepal. However, the price will depend on the final project cost and the situation of demand and supply in the market on completion of the 900 MW hydel project.

Likewise, GMR will also construct a 2-MW project that will supply electricity round the year to locals. More than 2,000 people are expected to get employment opportunity from the project estimated to cost Rs 145 billion.

The project will bring road connectivity, hospital, technical school and bridge in the district.

Prime Minister Sushil Koirala, some of his cabinet colleagues, senior government officials, visiting Indian home minister Rajnath Singh and ambassador to Nepal Ranjit Rae were present at the signing ceremony at Singha Durbar in Kathmandu, on the occasion.

The agreement will be implemented with immediate effect, said deputy prime minister and home minister Bam Dev Gautam, after signing of the agreement.

"The agreement has opened the door for developing other large hydropower projects in Nepal," he added.

Likewise, wishing timely completion of the project visiting Indian home minister Singh termed the agreement a 'historic' one. "I believe this is the single biggest foreign investment in the history of Nepal," he said, adding that the success of GMR in Nepal will ensure credibility of both the company and India both.

The Investment Board of Nepal had been working hard on PDA negotiation with GMR since last June. But according to Pant, serious negotiations actually began last September. "Today's PDA agreement is the outcome of several rounds of discussions with stakeholders and has addressed issues raised by them," he said, adding that the board has prepared the PDA document according to the international norms and standards and good practices. Pant also said Nepal can buy energy at competitive market rates from the export-oriented project.

"GMR Group will mobilise 25 per cent equity capital while the remaining 75 per cent will be raised from international lenders including International Finance Corporation (IFC)," Seshan said, after signing the agreement.

There will not be any problem in raising prerequisite equity and debt capital to execute the project,” he said, adding that the GMR was confident of completing the financial closure within two years, according to the PDA. "We will implement the project within the next five years."

However, construction of re-regulating dam by GMR is yet to be finalised.

"The decision will be taken based on the consultation with Nepal government once the joint study team submits its report,” Seshan added.

According to the PDA, the Indian developer will have to build the re-regulating dam on its own, if the study report shows Upper Karnali will impact water flow for downstream irrigation project. Construction of the re-regulating dam was suggested by an independent study team has been included in the PDA document after experts and Irrigation Ministry drew attention to the matter, saying the hydropower project would affect irrigation projects.

Likewise, planning commission vice chair Dr Govind Raj Pokharel, who led the technical team to study the PDA, hoped that the PDA signing would be a first step towards the prosperity of Nepal. "It will also send message of an improved investment climate in the country," he added.

The Cabinet has approved the PDA yesterday after the Investment Board of Nepal approved the amended PDA draft a day ago on Thursday.

The government yesterday also formed a high-level task force led by Dr Pokharel for the implementation of the project that is planned to be generate power by 2021. The panel will help address problems arising during project development.

The 900-MW Upper Karnali Hydro Power project – located on Karnali river in the Surkhet, Dailekh and Achham districts – was awarded to the GMR Group through an International competitive bidding process in 2008 on BOOT model.