Herbert Smith Freehills advises on Nepal’s biggest ever foreign investment deal


    logo-herbert-smithHerbert Smith Freehills has advised the Investment Board of the Government of Nepal on its project development agreement (PDA) with a consortium led by Indian infrastructure company GMR (the GMR Group) to develop the 900 megawatt, US$1.4 billion hydroelectric Upper Karnali Hydro Power Project (the Project). The Project was awarded to the GMR Group through an international competitive bidding process in 2008 on a build-own-operate-transfer basis.

    This is Nepal’s biggest ever foreign investment deal, and when completed the Project will be the largest of its kind in the country and one of the few cross-border projects in the region. The PDA was signed on Friday 19th September 2014 by officials from the Investment Board (on behalf of the Government of Nepal) and the GMR Group in the presence of Nepal’s Prime Minister Sushil Koirala and Indian Home Minister Rajnath Singh. The Project is a big step towards integration of power markets in South Asia and follows the  finalisation of an agreement on cross-border power trade, transmission and grid connection between Nepal and India.

    As part of the local benefits package agreed for the Project, the GMR Group has given Nepal a 27 percent free equity share in the generation company and will provide Nepal with 12 percent of the electricity output from the Project free of charge. This is in addition to the payment by the GMR Group of all applicable royalties as well as the implementation of several environmental and social sustainability measures to ensure the long term sustainability of the Project and benefits to the local community. The balance of the electricity from the Project will be transmitted to India through a 400 kV double circuit transmission line to be developed by the GMR Group. Construction of the project is anticipated to be completed by 2019 and the GMR Group will transfer the Project to Nepal at the end of the 25-year operating life of the concession. International multilateral agencies such as IFC as well as international, Indian and Nepali commercial banks are potential lenders for the Project.

    This is the first of six large-scale hydroelectric power projects Herbert Smith Freehills is advising the Investment Board of the Government of Nepal on. The projects will be granted to international developers under the relevant concession instruments and electricity from such projects will be sold both domestically and across borders into India and potentially Bangladesh.

    London Finance partner Martin Kavanagh led the Herbert Smith Freehills team, assisted by Shashank Krishna (senior associate, Corporate), Aleem Tharani (senior Associate, Corporate) and Lisa Quelch (associate, Finance). Abhinawa Law Chambers advised the Investment Board of the Government of Nepal on local law.

    Amarchand & Mangaldas & Suresh A Shroff & Co (India) and Sinha-Verma Law Concern (Nepal) advised GMR.

    Martin Kavanagh comments: “This is the first of six ground-breaking hydroelectric power deals in Nepal which will help the country to exploit the largely untapped resources of its Himalayan rivers and ease its severe power shortages, as well as earning valuable export revenues. We are particularly pleased to have advised on a transaction which, as the first large-scale, cross-border project to be privately developed in Nepal, is likely to open the door to further investment in the country’s estimated 80,000 megawatt of hydropower potential using a similar template.”

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    Source : herbertsmithfreehills.com