Upper Karnali a three billion dollar bonanza for Nepal

The much debated Upper Karnali hydroelectric project is expected to bring a windfall with the government standing to earn Rs 144 billion in dividend from equity extended by the developer of the 900-megawatt power project. 

This money is exclusive of Rs 121 billion that the project developer will provide to the government in royalty and around Rs 66 billion worth of free electricity throughout the concession period of 25 years. Indian multi-national GMR Group, the developer of the hydroelectric project, has pledged to provide 27 per cent equity in the project free of cost to state-owned Nepal Electricity Authority. 

The value of these shares is approximately Rs 9.45 billion. These shares will generate returns of around Rs 5.76 billion per year, or Rs 144 billion throughout the concession period, sources told THT. The government, through a competitive bidding, had decided to allow GMR Group to develop the Upper Karnali project in 2008. 

The project, located in Surkhet, Achham and Dailekh districts, is being built under build, own, operate, transfer (BOOT) model of 25 years, meaning the developer will have to transfer the ownership of the project without charging any fee after 25 years of commercial electricity production. With this ownership transfer, the government will get asset of Rs 240 billion for free, which is around 12 per cent of the country’s GDP of the last fiscal year. 

“The project holds so much potential for development of the country’s hydro sector, and also promises to extend financial benefits. But, unfortunately, a project development agreement is yet to be signed, which is delaying project implementation,” a government source told THT. The Investment Board Nepal, a government agency which is overseeing implementation of the project, had started negotiations on the PDA with GMR Group in April 2013. 

After numerous rounds of meetings, both the sides had agreed to sign the deal during Indian Prime Minister Narendra Modi’s visit to Nepal in the first week of August. However, that did not materialise after some of the political parties raised objections, citing ‘more homework needs to be done’.

Following that a 13-member high-level committee was formed under National Planning Commission Vice Chairman Govind Raj Pokharel to find out pros and cons of the draft PDA. The committee, formed on August 2, was asked to submit a report to Prime Minister Sushil Koirala in three weeks. 

Two issues were debated during the committee’s meeting. First was on the impact that the hydroelectric project could have on irrigation projects like Rani-Jamara-Kuleriya, Rajapur, Surya Patuwa that lie downstream of the project site. This problem was immediately addressed, as the committee members agreed to deploy a team to conduct a study within six months of signing the PDA. 

The more controversial issue was the proposal to extend one-time cash incentive of five million rupees for every MW electricity produced by the project. Two members of the committee, Chief Secretary Leela Mani Poudyal and Nepal Rastra Bank Governor Yuba Raj Khatiwada, opposed it on the grounds that the incentive should only be given to projects that generate electricity for domestic consumption. But since the fiscal policy has not been approved by the Parliament so far, the two sides will have to negotiate on the issue of cash incentive at a later date, a source said. This raises the question: Will the government be able to sign PDA with GMR Group of India within the deadline of September 17 issued by PM Koirala?

Future looks bright

• Rs 144 billion in dividend from equity

• Rs 121 billion in royalty 

• Rs 66 billion worth of free electricity 

Source: THT