Tuesday, February 13, 2018

Cabinet approves Rs 94 billion viability gap funding for Budhi Gandaki

The government is providing Rs 94 billion as viability gap funding (VGF) – as recommended by the National Planning Commission (NPC) – for the development of the 1,200-MW Budhi Gandaki Hydropower Project with domestic resources.
A cabinet meeting on Friday (February 9) has decided to issue the grant equivalent to around one-third of the project’s estimated cost. The viability gap funding is provided to important infrastructure projects that may not be financially feasible.
The storage-type hydropower project Budhi Gandaki that is located in Dhading and Gorkha districts in central Nepal is estimated to cost $2.6 billion (approximately Rs 270 billion). The construction is expected to take eight years.
According to the spokesperson at the Energy Ministry Dinesh Kumar Ghimire, the cabinet has informed the ministry about the decision. "However, the ministry is yet to receive a formal letter from the Prime Minister’s Office,” he said, adding that the ministry will start the project development process and look for other sources of funding once they receive the formal letter.
The planning commission had started looking for implementation and funding modalities for the construction of the Budhi Gandaki Hydropower Project after the Prime Minister Sher Bahadur Deuba-led government terminated the memorandum of understanding (MoU) signed with China Gezhouba Group Company (CGGC) to build the project under the engineering procurement construction and financing (EPCF) model.
After cancelling the agreement with the Chinese company, Deuba government decided to construct the project by itself through Nepal Electricity Authority (NEA). Subsequently, the government formed a committee led by NPC vice chair Swarnim Wagle to look for financing options to build the power plant.
However, with a new government, the decision seemed to lose its validity as the premier Kp Sharma Oli had publicly criticised Deuba’s decision to scrap the MoU with the Chinese company. Oli had also openly pledged to reinstate the deal after becoming prime minster.
According to the National Planning Commission (NPC) report, the government should provide gap funding covering around one-third of the project’s total development cost. "The NPC submitted the report to former energy minister Kamal Thapa, who took the proposal to the cabinet."
If the project is built through a special purpose vehicle, the government may provide viability gap funding of Rs 94 billion to the developer, according to the NPC report.
According to the report, the funding is needed for land acquisition and resettle locals, who will be displaced by the project. If this amount is deducted from the project cost, the developers will have to invest only Rs 176 billion and it will raise the return on the investment.

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