7 August, Kathmandu. Indian company Gandhi Mallikarjun Rao (GMR) has agreed to sell its half ownership of the Sutuk Upper Karnali Hydroelectric Project to a French company, eight years after acquiring the project.
The government had given GMR two more years in the last week of last June to raise investment for the construction of the 900 MW project. Within two months of that, he sold half ownership to the French company Electrique de France (EDF) without informing the investment board .
According to an official of GMR, with the agreement to give 50 percent ownership to EDF, government employees and bankers were given a party at a one-star hotel in Kathmandu on Monday. "Only a formal agreement is left," said an official of the company.
After GMR took over the project in 2014, EDF tried to take ownership of the project. This was also discussed in 2017. However, the 'deal' could not be finalized after EDF demanded 51 percent ownership. GMR was ready to sell its ownership to EDF after failing to raise investment despite repeated deadlines.
Investment Board Nepal has claimed that it is not aware of EDF's involvement in Upper Karnali. The spokesperson of the board, Amrit Lamsal, told Online News, "The board has no information about this."
Government of Nepal, Cabinet meeting itself decided to extend the period of raising investment for the project by 2 years and give time to GMR till July 2081 to raise investment. Earlier, a high-level committee formed to suggest whether or not to extend the agreement with GMR in Upper Karnali had recommended 6 months for Power Sales Agreement (PSA) and 18 months for financial closure.
On October 23, the committee chaired by Vice Chairman of the National Planning Commission Vishwa Paudel, formed by the Investment Board, recommended an additional 24 months, and the proposal reached the Cabinet.
During the study, the committee asked GMR to submit the reasons and basis for not being able to raise investment. According to that, GMR claimed that since the Bangladesh government has issued a letter of intent to buy 500 megawatts of electricity for the project, if they get some time, they will secure the market and raise investment.
GMR had claimed that the discussions with the Indian nodal agency NTPC Vidyut Vyar Nigam (NVVN) to obtain permission to sell electricity in India and deliver it to Bangladesh.
According to one of the members of the committee, a study was conducted on whether or not the contract with the company could be broken. However, after October 2, 2007, as there was no decision from the board about whether or not to give the company time to raise investment, the deadline was extended claiming that the contract could not be broken immediately.
Although there was no decision to extend the deadline from the board, it was argued that the forest and other agencies had formal discussions with the company in various processes and when the contract was broken, it was considered that the contract was unfairly broken while working in dialogue with the government. According to British law, if such a case goes to international arbitration (arbitration) in Singapore, an environment of extension was created by showing the risk of having to pay compensation up to 5 billion rupees.
Idle for 13 years
The construction of the Upper Karnali project has not progressed for 13 years due to the inability of GMR to raise investment resources. Even though GMR got the project in 2008, it has not yet been able to raise investment for construction.
This project was given to GMR when Girija Prasad Koirala was the Prime Minister. However, the project itself is in confusion as the company is unable to manage the financial management of the project (financial closure).
The company has been saying that after signing a 500 MW power purchase agreement (PPA) with Bangladesh, the source of investment will be ensured. However, so far it is not certain how the investment will be collected and how the construction of the project will proceed. The company said that it will sell 292 megawatts of electricity from Upper Karnali to the Indian government.
A Project Development Agreement (PDA) has also been signed in 2014 to build the project. GMR has also received two additional deadlines legally to raise investment. In the last three years, even though there was no decision regarding extension, the Board of Investment had been quietly giving time to the company.
After October 2, 2007, there was no decision from the board about whether or not to give time to the company to raise investment. In the Project Development Agreement (PDA) of October 071, it was mentioned that the financial management of Upper Karnali will be completed within two years (by October 073). However, after that deadline was exceeded, an additional year was given in 073 when Pushpa Kamal Dahal 'Prachanda' became the Prime Minister. GMR could not raise investment even till October 074. Again, when Sher Bahadur Deuba was the Prime Minister, the Board of Investment extended another deadline to GMR until October 2, 2007.
However, even in the meantime, GMR could not raise investment for the project. After this, the Indian company was in a rush for a decision to extend another deadline. However, by not setting a new deadline, the government is leaving time for GMR to manage its finances.
There is a provision that the construction of the project should be completed within 5 years from the date of financial management of Upper Karnali ie within 7 years of PDA. In case of special and uncontrollable circumstances, the construction period can be extended up to 4 years and 6 months. According to this, the target was to build Upper Karnali by 2021. However, the construction has not yet started.
From Upper Karnali, Nepal will get 108 megawatts (12 percent) of electricity and 27 percent of its own capital for free. This project is designed to run at full capacity only for three months a year. In the PDA, there is a provision that Nepal can buy 10 percent of the electricity produced by the project.
The cost of Upper Karnali was estimated at 1 trillion 16 billion. At that time, the government had entrusted this project to GMR on the basis of competition. To facilitate the construction of the project, the government has given many facilities to the promoter GMR including tax exemption subsidy.
After the start of commercial production from the project, there is a provision to get 100% income tax exemption for 10 years and then 50% income tax exemption for another 5 years.
This project will be built with a 58 meter high dam. Water picking will be done in the project by building a 207 meter wide dam. It will have 8 surface powerhouses of 112.5 MW. The electricity produced by this project will be connected to India's central transmission line through a 99 km transmission line. GMR plans to take 500 MW of this electricity from India to Bangladesh.
Now that EDF has also joined it, it is not certain how the project will proceed.