PDA template gets final shape, finally

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KATHMANDU, JUN 15 –

It’s official. The much-awaited project development agreement (PDA) template is finally ready, much to the relief of power producers who have been waiting for it for the last three years.

A meeting of the Investment Board (IB) on Thursday chaired by Prime Minister Baburam Bhattarai approved the PDA template that will provide the much-needed impetus to begin negotiations with foreign hydropower companies.

The draft was prepared by the IB with help from Herbert Smith, one of the world’s leading legal firms. The PDA template comes as a response to the previous model that was discarded by power developers and financiers in 2010 for not being bankable.

The PDA template will currently be applicable to four mega hydro projects—Tamakoshi 3 (880 MW), Upper Karnali (900 MW), Upper Marsyangdi (600 MW) and Arun 3 (900 MW). The template is for hydropower projects above 500 MW.

According to Investment Board Chief Executive Officer Radhesh Pant, the board will present the template to key developers in the next few days so as to enable both the sides to lay the groundwork for intensive negotiations.

With the template now in place, the IB will sign individual agreements that will be negotiated and tailored to fit different projects. Investors seek government assurance through the PDA that helps avert any possible social, economic or policy-level uncertainties during the construction. Generally, issues related to taxes, licence period, free energy, royalty, repatriation rights and parties’ obligations are included in the PDA.

The delay in preparing the PDA template had barred the government from concluding deals with power developers.

Four years have gone by since the government signed MoUs with two Indian companies—GMR Energy and Satluj Jalvidyut Nigam—to develop Upper Karnali and Arun 3, respectively. The Energy Ministry had committed to wrap up the PDA work within 18 months, while granting them survey licences. Same is the case with SN Power that is developing Tamakoshi 3. While signing the MoU for Upper Karnali, GMR had agreed to provide 27 percent free equity and 12 percent free energy to the government. Likewise, Satluj had agreed to give 21.9 percent free energy from Arun 3.

“The approval of the draft has now enabled us to begin negotiations with investors of the four hydro power projects,” Pant said. “This template also ensures balanced and bankable deals that will fully benefit and protect Nepal’s interests.”

Independent power producers (IPPs) have hailed the government’s move. Subarna Das Shrestha, the president of the Independent Power Producers Association Nepal (IPPAN), said the PDA draft approval will be instrumental in sending out a positive message with regard to the investment climate, especially in the hydropower sector.

“It is a positive move for hydropower developers like us who have been waiting to invest in Nepal,” said Sandeep Shah, the country representative of SN Power, the developer of Tama Koshi III. According to the IB, the PDA template protects the interests of both the Nepalis and the investors, ensures a fair return for investors and a timely approval mechanism from the government, while also

guaranteeing a model community benefits package and fair resettlement and rehabilitation, among others.

According to Pant, the PDA endorsement has opened up an opportunity to bring in US$ 6 billion in foreign direct investment. The template says the government will act in time to assist companies to acquire land if all reasonable efforts on the part of the company fails. Similarly, force majeure definitions have been tightened to conform to international definitions for the benefit of both the government and the developer.

It also has provisions requiring full financial disclosure that will help the government understand how it will benefit from those projects where it has been offered or will request an equity interest, while the shareholders agreement, yet to be drafted, will ensure a profit and dividend and other policies and procedures to protect the government’s equity interest over a 30-year term.

Also, power developers can now deal directly with the board. SN Power’s Shah said the IB should expedite the PDA negotiations, enabling IPPs to start construction at the earliest. The PDA signing process with seven hydro projects was initially postponed to September 2010 after the UCPN (Maoist) asked the government to shelve projects being developed by Indian developers. A power tussle between the then energy minister Prakash Saran Mahat and energy secretary Shankar Koirala delayed the process further.

Posted on: 2012-06-15  on  eKantipur