Seeks additional financial support from EIB
The government is all set to drop the name of Abu Dhabi Fund for Development (ADFD) as co-financier of the 140-megawatt Tanahun Hydropower Project after the Gulf-based sovereign wealth fund placed conditions that could not be fulfilled by the state.
To fill the fund gap created by this decision, the government has sought additional financial support from the European Investment Bank (EIB).
“EIB has agreed to provide us another $14 million for the project,” said Madhu Kumar Marasini, chief of the International Economic Cooperation Coordination Division at the Ministry of Finance (MoF). “The commitment was made during Finance Minister Dr Ram Sharan Mahat’s recent visit to Brussels.”
With this support, government will now have to mobilise an additional $14 million on its own to fill the funding gap that will be created upon removal of the ADFD from the project. “This is a relatively small amount and we’d be able to arrange funds,” Marasini said.
The $505-million reservoir-type Tanahun Hydropower Project is being built with the support of the Asian Development Bank (ADB), which has pledged to contribute around $150 million; Japan International Cooperation Agency (JICA), which has promised to chip in around $184 million; EIB, which has pledged to contribute 55 million euros; and the government itself, which is contributing around $71 million.
Although ADFD had pledged to contribute around $30 million to the project, it has not signed a co-financing agreement with the government demanding that pact be ‘ratified’.
In technical terms, ratification means passing the agreement from Parliament, which is ‘not relevant in Nepal’s case, as the Cabinet has the full authority to endorse such agreements’.
As the ADFD started insisting that Nepal ‘ratify’ the agreement, the MoF had started warning that it would rather seek financial assistance from other donor agencies than agree to its demands.
Nepal had taken this stance fearing other donor agencies would also start placing such conditions, further complicating the process of getting foreign aid. Upon seeing Nepal’s resistance, ADFD made a reconciliatory move and asked the government to provide copies of similar agreements signed with other donor agencies.
“This was also not that easy as we cannot show an agreement signed with one donor agency to the other,” an MoF official said.
This delay, meanwhile, had restricted the government from making use of funds pledged by the ADB, ‘as the agreement with the bank clearly says the loan would be effective only after the government signs agreements with all financiers’.
“We are now planning to officially notify ADB about our plan to drop ADFD’s name as co-financiers. This could
happen as early as next week,” Marasini said. The Tanahun Hydropower Project is being developed in the Seti River in Tanahun district, about 150 km west of Kathmandu. The project has three main components: a hydropower plant of 140 MW with significant water storage facilities and associated transmission lines to evacuate the generated power; rural electrification and community development in the project area; and a reform and restructuring plan for the national utility, the Nepal Electricity Authority, according to ADB’s website.
If things go according to plan, the project should be complete within seven years of the launch of the construction process, which includes about one-and-a-half years for project site development and the execution of safeguard plans.
The project is essential for Nepal as it is a reservoir-type project, meaning it will continue to generate electricity even during the dry season.
Source : The Himalayan Times