NEA, CTGC to hold final talks to form Joint Venture firm

Nov 3, 2017-The Nepal Electricity Authority (NEA) is preparing to hold final talks with China Three Gorges Corporation (CTGC) to sign a joint venture agreement to construct the West Seti Hydropower Project in Farwest Nepal.

CTGC officials are scheduled to arrive in Nepal on November 16 to finalise the long-delayed deal which has held up construction of the 750 MW project. The state-owned power utility has warned that if the Chinese company stalls again, it will request the government to scrap the memorandum of understanding (MoU) signed with it.

“We have addressed all the demands put forth by CTGC. If the Chinese company does not sign the pact, the only way out is to find another company,” said Kul Man Ghising, managing director of the NEA.

In August 2012, Investment Board Nepal (IBN) and CWE Investment Corporation, a subsidiary of CTGC, signed a memorandum of understanding to construct the West Seti Hydropower Project.

As per the pact, the Chinese company will have a 75 percent stake in the planned joint venture company while the NEA will hold the rest of the shares. More than four years later in January 2017, NEA chief Ghising and the CTGC vice-president initialed a joint venture agreement which had to be ratified by the boards of their respective organizations. The NEA board immediately approved the agreement, but the Chinese developer took around eight months to make conditional endorsement.

The Chinese company is still seeking clarity on a number of issues including capitalization of pre-incorporation expenses, modality of issuing shares to locals and the power purchase rate for the electricity generated by the project. The NEA claims that most of the concerns of the Chinese developer have been addressed.

Nepal Rastra Bank (NRB) has issued a directive allowing foreign companies developing infrastructure projects in Nepal to factor in the cost incurred prior to their establishment as paid-up capital. According to the central bank, foreign companies constructing national pride projects and those that have received investment approval from IBN are eligible to receive this facility.

Similarly, the power purchase rate, according to the NEA, will be set as per the guidelines issued by the Energy Ministry in January. According to the guidelines, reservoir-type projects like the West Seti will get Rs12.40 per unit during the dry season (December to May) and Rs7.10 during the wet season (June to November).

The NEA has time and again said it would devise a proper mechanism for the distribution of shares to the general public. However, the Chinese company is concerned that the proposed joint venture company will automatically become a public limited company requiring greater disclosure and compliance if shares are issued to the public.

“This is just a joint venture deal which will pave the way for the establishment of the joint venture company,” said Ghising. “If the Chinese developer has other concerns, they can be addressed after the company is formed.” As the NEA is an equity partner in the project, it will also make sure that investor interest to make the project bankable is protected, he added.

The reservoir-type West Seti project, which will be spread over Baitadi, Bajhang, Dadeldhura and Doti districts, is being built at an estimated cost of $1.6 billion.

Source: The Kathmandu Post