International Finance Corporation requests Energy Minister to expedite PPA


    Aug 17, 2017-

    International Finance Corporation (IFC), the private-sector wing of the World Bank Group and one of the promoters of Upper Trishuli-1 Hydroelectric Project have requested the Energy Minister Mahendra Bahadur Shahi to expedite the power purchase agreement (PPA) of the project.

    Wendy Werner, country manager of IFC for Nepal, Bhutan and Bangladesh met Shahi on Wednesday and requested him to expedite the PPA of the project. The project is currently in limbo after project developer Nepal Water and Energy Development Company (NWEDC) and Nepal Electricity Authority (NEA) missed the deadline to do so as specified in the project development agreement (PDA).

    According to the press statement issued by the Energy Ministry, Werner during her meeting with Shahi said the IFC is interested in making investment in energy sector of Nepal via private sector and asked him to take the initiative to expedite such investments.

    As per the PDA, the NEA and NWEDC were supposed to complete the PPA by the end of June, but it did not happen as both parties failed to agree over some sticking points, according to the NEA.

    NWEDC has asked that a force majeure clause be inserted in the PPA under which the NEA will have to pay compensation. As per this clause, if the developer fails to meet the contractual obligation due to unforeseeable circumstances like war, strikes or blockades, among other mishaps, the NEA will be liable to pay compensation.

    The NEA is not willing to insert the provision in the agreement as it has already been included in the PDA. Likewise, the developer has asked the NEA to bear the hydrology risk associated with the hydropower project and include the provision in the PPA.

    If this provision is included in the PPA, the developer will not be fined even if it fails to supply the amount of energy pledged at the time of signing the PPA. The NEA is reluctant to include this provision in the PPA saying that it has already relaxed the hydrology penalty provision under which the developer will not be fined even if it fails to supply up to 50 percent of the pledged energy.

    Similarly, the NWEDC has rejected the NEA’s demand to include a provision under which the developer has to pay liquidated damage in case it fails to meet the generation deadline.

    The liquidated damage is the compensation amount an aggrieved party should get if the other party breaches certain parts of the contract. NWEDC turned down the NEA’s demand saying that it is already included in the PDA. The NEA, however, is of the view that it should be entitled to receive compensation as it will suffer a substantial loss if the developer fails to meet the generation target.

    NWEDC is a joint venture company formed by three Korean companies, International Finance Corporation (IFC) and Nepali investor Bikesh Pradhanang. The three Korean companies are Korea South East Power Company, Daelim Industrial Corporation and Kyeryong Construction Industrial Corporation.

    The Upper Trishuli-1 will generate 216 MW of energy through three turbines with a capacity of 72 MW each. The project is expected to generate 1,456.4 gigawatt hours of net electricity per year, of which 1,149.7 gigawatt hours will be generated in the wet season and 306.7 gigawatt hours in the dry season.

    Source: The Kathmandu Post