In a key move to strike a balance between China and India – that is developing two major hydro projects Arun III and Upper Karnali – the Cabinet today decided to award the 1200-MW reservoir project Budhi Gandaki hydropower project to a Chinese company.
Minister for Law and Justice Ajay Shankar Nayak, after the cabinet meeting informed that the cabinet had decided to begin the process of awarding the project to China Gezhouba Group Corporation (CGGC), China’s government-owned company.
The government will prepare a guidelines on awarding the project including financing model.
The project will be awarded in engineering, procurement, construction and financing (EPCF) model, - a new model for the country. According to this model, the developer has to bring in financing to build the plant to be built in Budhi Gandaki river in Dhading and Gorkha district. The EPCF model of project development, under which the contracting firm makes all the arrangements including the funds to build the project, is considered to be one of the most effective models for the development of huge infrastructural projects.
Currently, the Finance Ministry is in the process of preparing the guideline for the EPCF model of project development. After it is ready, there will be more clarity on how the model works.
The cabinet meeting also approved the draft memorandum of understanding (MoU) to be signed with CGGC soon. The MoU – according to Energy Minister Janardan Sharma – is a preliminary accord and it will not bind the government legally or financially without entering into a separate agreement. However, the CGGC will also have to come up with a technically and financially viable proposal within a year.
"As per the draft MoU, CGGC will get a year to make an assessment of the hydropower project and arrange funds for its development,” he said adding, "If the Chinese developer comes up with a proposal agreeable to us, we will sign another contract."
A Detailed Project Report (DPR) prepared by a French consultant last year has estimated the project's cost at Rs 261 billion including the cost of land acquisition. Land acquisition is underway after completion of Detailed Project Report (DPR).
The 1200-MW project located in Gorkha and Dadhing districts could be crucial in addressing the country's energy crisis. The previous government led by KP Sharma Oli had also considered CGGC's proposal to develop the project but the proposal was shelved without furnishing any clear reason. And the then Finance Minister Bishnu Poudel had – through the budget – started collecting Rs 5 per litre Infrastructure Tax on petroleum products claiming to construct the reservoir project on Nepali's own investment. The government has already collected Rs 84 million from the consumers in the name of Budhi Gandaki that the government was planning to construct in a company model. The government has also allocated a budget of Rs 5.33 billion – as compensation – in the budget for the current fiscal year. The district administration offices of Dhading and Gorkha – the project affected districts – are currently distributing compensation to the owners of the land required for the construction of the project.
But with the decision to award the reservoir-based project to the Chinese company, the government has put an end to the process of building the plant under the company model.
Considering the massive investment needed for the mega project and its technical complexities, the government chose to award it to the Chinese company, according to the Energy Ministry.
According to Energy Ministry spokesperson Dinesh Kumar Ghimire, the government will enter into a preliminary Memorandum of Understanding (MoU) with the company soon but this agreement will not be legally binding until a project development agreement (PDA) is signed. "The government will enter into an agreement after the MoU."
According to the Energy Ministry, the Chinese government was very keen on having a Chinese company develop the project, and had proposed with Prime Minister Pushpa Kamal Dahal during his recent visit to China. Chinese officials had even pledged to provide a soft loan via the Export Import Bank of China to the Chinese company to build the project, if it is awarded the contract.
The government also expects the CGGC to arrange major financing – at least over 50 per cent of the project cost – in the form of a soft loan because the project is not viable on commercial loans. "If the government is satisfied with its proposals – both technical and financial – the final contract will be signed,” added Ghimire.
According to the plan, a 263-meter high dam will be built in the Budhi Gandaki River, which will form a reservoir about 15 times bigger than the Fewa Lake in Pokhara that will generate 1330-GWh electricity annually and will displace about 45,000 people.
The Chinese company CGGC had started working in Nepal in early 2000s by building the 45-MW Upper Bhotekoshi Hydropower plant.
Currently, the company is working as the civil contractor of at least three hydropower projects – including Chameliya that has suffered a cost overrun of more than double the estimated cost – but its overall performance has been poor and the projects have seen multiple cost variations and time overruns, though not only because of CGGC always.
Likewise the company's proposal to upgrade the Upper Trishuli III project in 2013 had also courted controversy.
Sino Hydro Resources – a Chinese government undertaking – completed the 50-MW Upper Marshyandi A Hydropower Project – the project is the first one to be built with Chinese investment – in September.
Likewise, the government is building the 750 MW West Seti Hydropower Project in the western part of Nepal with joint investment from China Three Gorges Corporation (CTGC), another Chinese government-owned company. The government led by Dr Baburam Bhattarai had awarded the project to CTGC that has 75 per cent stake in the project.
Minister for Law and Justice Ajay Shankar Nayak, after the cabinet meeting informed that the cabinet had decided to begin the process of awarding the project to China Gezhouba Group Corporation (CGGC), China’s government-owned company.
The government will prepare a guidelines on awarding the project including financing model.
The project will be awarded in engineering, procurement, construction and financing (EPCF) model, - a new model for the country. According to this model, the developer has to bring in financing to build the plant to be built in Budhi Gandaki river in Dhading and Gorkha district. The EPCF model of project development, under which the contracting firm makes all the arrangements including the funds to build the project, is considered to be one of the most effective models for the development of huge infrastructural projects.
Currently, the Finance Ministry is in the process of preparing the guideline for the EPCF model of project development. After it is ready, there will be more clarity on how the model works.
The cabinet meeting also approved the draft memorandum of understanding (MoU) to be signed with CGGC soon. The MoU – according to Energy Minister Janardan Sharma – is a preliminary accord and it will not bind the government legally or financially without entering into a separate agreement. However, the CGGC will also have to come up with a technically and financially viable proposal within a year.
"As per the draft MoU, CGGC will get a year to make an assessment of the hydropower project and arrange funds for its development,” he said adding, "If the Chinese developer comes up with a proposal agreeable to us, we will sign another contract."
A Detailed Project Report (DPR) prepared by a French consultant last year has estimated the project's cost at Rs 261 billion including the cost of land acquisition. Land acquisition is underway after completion of Detailed Project Report (DPR).
The 1200-MW project located in Gorkha and Dadhing districts could be crucial in addressing the country's energy crisis. The previous government led by KP Sharma Oli had also considered CGGC's proposal to develop the project but the proposal was shelved without furnishing any clear reason. And the then Finance Minister Bishnu Poudel had – through the budget – started collecting Rs 5 per litre Infrastructure Tax on petroleum products claiming to construct the reservoir project on Nepali's own investment. The government has already collected Rs 84 million from the consumers in the name of Budhi Gandaki that the government was planning to construct in a company model. The government has also allocated a budget of Rs 5.33 billion – as compensation – in the budget for the current fiscal year. The district administration offices of Dhading and Gorkha – the project affected districts – are currently distributing compensation to the owners of the land required for the construction of the project.
But with the decision to award the reservoir-based project to the Chinese company, the government has put an end to the process of building the plant under the company model.
Considering the massive investment needed for the mega project and its technical complexities, the government chose to award it to the Chinese company, according to the Energy Ministry.
According to Energy Ministry spokesperson Dinesh Kumar Ghimire, the government will enter into a preliminary Memorandum of Understanding (MoU) with the company soon but this agreement will not be legally binding until a project development agreement (PDA) is signed. "The government will enter into an agreement after the MoU."
According to the Energy Ministry, the Chinese government was very keen on having a Chinese company develop the project, and had proposed with Prime Minister Pushpa Kamal Dahal during his recent visit to China. Chinese officials had even pledged to provide a soft loan via the Export Import Bank of China to the Chinese company to build the project, if it is awarded the contract.
The government also expects the CGGC to arrange major financing – at least over 50 per cent of the project cost – in the form of a soft loan because the project is not viable on commercial loans. "If the government is satisfied with its proposals – both technical and financial – the final contract will be signed,” added Ghimire.
According to the plan, a 263-meter high dam will be built in the Budhi Gandaki River, which will form a reservoir about 15 times bigger than the Fewa Lake in Pokhara that will generate 1330-GWh electricity annually and will displace about 45,000 people.
The Chinese company CGGC had started working in Nepal in early 2000s by building the 45-MW Upper Bhotekoshi Hydropower plant.
Currently, the company is working as the civil contractor of at least three hydropower projects – including Chameliya that has suffered a cost overrun of more than double the estimated cost – but its overall performance has been poor and the projects have seen multiple cost variations and time overruns, though not only because of CGGC always.
Likewise the company's proposal to upgrade the Upper Trishuli III project in 2013 had also courted controversy.
Sino Hydro Resources – a Chinese government undertaking – completed the 50-MW Upper Marshyandi A Hydropower Project – the project is the first one to be built with Chinese investment – in September.
Likewise, the government is building the 750 MW West Seti Hydropower Project in the western part of Nepal with joint investment from China Three Gorges Corporation (CTGC), another Chinese government-owned company. The government led by Dr Baburam Bhattarai had awarded the project to CTGC that has 75 per cent stake in the project.
