Arun-III PDA likely to be signed

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    way-to-pdaKATHMANDU: The Investment Board Nepal (IBN) and India’s state-owned Satluj Jal Vidyut Nigam (SJVN) are expected to sign project development agreement (PDA) on 900-MW Arun-III hydroelectric project during Indian Prime Minister Narendra Modi’s visit to Nepal in November.

    Modi will be visiting Nepal again to attend the 18th SAARC (South Asian Association for Regional Cooperation) summit, which will continue from November 26 to 27 in Kathmandu.

    “The agreement (on development of Arun-III hydro project) is expected to be signed around the visit of PM Modi to Nepal,” says a statement issued by the Indian Embassy in Kathmandu.

    Arun-III is a hydroelectric project, which will be built on Arun river in Sankhuwasabha district. The project was formally handed over to SJVN in 2008 through a competitive bidding process. The project will be implemented by Arun Project Development Company, a subsidiary of SJVN.

    The IBN has been holding negotiations with SJVN since mid-2013 to sign the PDA, which will pave the way for the Indian company to formally build the project.

    “Talks between us have been fruitful so far and most of the issues have been resolved,” IBN CEO Radhesh Pant told The Himalayan Times. “But we are still holding discussions on equity for locals, as they are one of the major stakeholders. Hopefully, we’ll be able to sort this issue soon.”

    Once the PDA is signed, SJVN will start looking for funds to build the project, which is expected to cost around Rs 100 billion.

    SJVN has said it would complete construction works within five years of PDA signing. This means the project would start generating electricity by 2020 if PDA is signed during Modi’s visit in November.

    Once the project starts commercial operation, it would export 78.1 per cent of the electricity to India and extend 21.9 per cent power — or 197.1 megawatts — free of cost to the government. This electricity would amount to around Rs 166 billion throughout the concession period of 25 years.

    The project is being handed over for a period of 25 years. This means it has to be handed back to the government in a good condition after 25 years of commencing commercial operation. During this concession period, the project developer will also extend around Rs 160 billion in royalty.

    “Overall, the government stands to gain Rs 362 billion in financial benefits from the project throughout the concession period,” an IBN official said.

    The government had initially floated the idea of developing Arun-III project in the mid-1990s. At that time, the project’s installed capacity was fixed at 404 MW.

    The project cost, in 1994, was estimated at $1.08 billion, of which two-thirds was coming from foreign donor agencies, including the World Bank, says an extensive article, titled ‘The Loss of Arun-III’, written about a decade ago by Ram Sharan Mahat, who is now the finance minister.

    “Over half of the assistance (from donor agencies) was in the form of grants. The remaining debt portion was of a concessional nature carrying around one per cent interest rate and payable over 40 years, with a grace period of an additional 10 years,” Mahat has said in the article.

    But the project could not take off because of protests, especially by international non-government organisations and their local counterparts, Mahat noted.

    “The first criticism was that Arun-III was a huge project costing more than the country’s annual budget. Second, the project cost of $3,800 per installed KW was exorbitant. Third, the project would have adverse effects on natural resources of the Arun basin.”

    Because of these claims, coupled with written concerns expressed by then General Secretary of Nepal Communist Party (UML), Madhav Kumar Nepal, the World Bank — which was leading the group of financiers — in a letter dated August 3, 1995, said it had cancelled the project.

    But the claims made by the crusaders of ‘anti-Arun project’, according to Mahat, were not ‘convincing’.

    “The charge that Arun-III’s cost was equivalent to one year’s national budget did not make economic sense, since the project expenditure was spread over eight years,” Mahat has said in the article. “Also, of all the projects studied till that time, Arun offered energy at cheapest price of 5.94 cents per unit. Similarly, the project affected only 958 households, of which 119 were seriously affected.”

    A recently conducted survey has shown that Arun-III project would affect 203 households in six village development committees, namely Pawa Khola, Pathibhara, Makalu, Yafu, Num, Diding. “Of these, around 40 to 50 households would probably need to resettled; others would need to sell their land to the project developer,” the IBN official said.

    The project developer would need to acquire around 82.13 hectares of private land and 98.19 hectares of land belonging to the government. “This would cost around Rs 820 million to the project developer,” IBN official said.

    Source : The Himalayan Times