Nepal is still waiting

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    By : Sujata Awale 

    KATHMANDU: Foreign investors are disappointed with the delays in Project Development Agreements (PDAs). Although the government has spoken eloquently about its commitment to solve the energy crisis within three years, get PDAs passed within months and keep inviting Foreign Direct Investment (FDI) in the energy sector, promoters of major projects are still waiting for a light at the end of the tunnel. Despite them having several rounds of discussions with Nepal Investment Board (NIB) and the Ministry of Energy (MoE) in the last four years, even one single such PDA is yet to be concluded.

    Five major projects namely the Upper Karnali (900 MW), Arun III (900 MW), Upper Marsyangdi (600 MW), Tamakoshi III (650 MW) and Upper Trishuli (216 MW) are in limbo due to lack of concrete progress on PDA and Power Purchase Agreement (PPA). The total investment for these projects is more than five billion dollars.

    way-to-pda

    Playing safe

    Lengthy and complicated processes and slow delivery mechanisms are the main reasons for these delays. Furthermore, changes in government and lack of expertise and exposure in the government agencies and the instinct to play safe as these are the first PDAs have added to the delay. “PDA is an important document for the government and promoters. As hydropower projects are long term capital intensive projects, the document should address sensitive issues such as: cost implication, risk implication and size implication which takes time,” says Rajendra Kishore Kshatri, Secretary at MoE. Citing that lenders fund projects with reference to the document, he says, “If this document does not address the risk and other aspects of the project, it could be harmful for both parties and financial closure can be difficult.”

    Stating that financial institutions need privilege rights to step in on major issues, Kshatri adds, “We need to include these rights in this document but the government is hesitant to provide such rights and the finalisation of the entire process gets even further delayed.” He states that these being the first of their kind, government officials do not have exposure or experience in this area. “As government 

    officials lack exposure, we hired independent consultants and experts for amending and negotiating other factors,” he says, adding that even NIB lacks the required expertise to solve these issues.

    What kind of commitment

    Citing that a PDA generally takes time, Kshatri says, “It was immature on the government’s part to commit to accomplish PDA within one year in the memorandum of understanding. When the model document of PDA itself is not finalised yet, it is not at all abnormal for the process to take more time to finalise.”

    Agreeing with Kshatri, Radhesh Pant, CEO of NIB, says that they are continuously working on the negotiation process to finalise a bankable PDA. “Unlike any other agreement, PDA has to address probable risk factors during pre-construction and construction phases along with hydrological risk and force majeure which needs detailed work,” he states. However, according to him, the government should be more result oriented rather than process oriented to complete PDA timely. Interestingly, getting not even one project up and running will also determine the role and success of NIB which is yet to make its presence felt. To motivate investors, Pant says that the current blame game should be put to an end and should capitalise on the opportunity, one window system and modify slow paced delivery mechanism and assure political force majeure.

    Paying for delays

    Promoters of hydropower projects have to pay a PDA processing fee at the rate of USD 1,500 per MW. Promoters have already paid fees for PDA, however, since the past few years they have got nothing but assurances. Nepal Water and Energy Development Company Pvt Ltd (NWEDC), promoter of the Upper Trishuli I Hydro-electric project, submitted USD 324,000 for PDA processing a year and half ago. They say that till date all they have got is more assurances.

    “Foreign investors are disappointed with the delays in the PDA process,” says Pradeep Gangol, Liaison Manager of NWEDC, adding that foreign investors are now following a policy of ‘wait and watch’. Citing that foreign investors are running out of patience, Gangol warns, “Investors can change their minds and can go in search of ‘greener pastures’ elsewhere.” According to him, “due to extended delays in the signing of PDAs, the floodgates for FDI in Nepal’s hydropower development is also slowly closing.”

    What is the deadline

    Stating that the main challenge for the PDA is to make it bankable, Gangol says, “International lenders should feel comfortable with the PDA document and the government should prepare it with care.” He further adds, “We cannot afford to spend such a long time in negotiating a PDA, especially at a time, when the country is reeling under unprecedented energy crisis. The government needs 

    to expedite the preparatory works for concluding negotiations.”

    The company plans to initiate power generation by 2019 and stresses the need for concluding the PDA within a few months to  retain FDIs.

    Agreeing that delays in PDA negotiations have a negative impact and dissuade foreign investors, Kshatri says, “If the stakeholders work with dedication on these topics then within a month the PDA can come to fruition.”

    On this Pant says, “We are in the last phase to conclude the PDA for the Upper Karnali and Upper Marsyangdi II projects. Hopefully, it will soon be finalised.” Citing that the present political leadership is also positive on the issue, he assures that these PDA will be finalised within 2014.

    So near, yet so far

    GMR Nepal, promoter of the Upper Karnali and Upper Marsyangdi II projects have invested Rs 700 million in each project. A representative of GMR Nepal says that negotiation between the government and the company are in the final phase and within two months they will be signing the PDA. The company initiated negotiation with MoE way back in 2010 and it has been one and half year since the file has been handed over to NIB. The company is hoping to sign the PDA soon and initiate the process of financing closure and infrastructure development.

    Likewise, SN Power, the promoter of Tamakoshi III, also started negotiations in February 2010 with MoE. From April 2013, the company is in active discussions with NIB. For this project, a Norwegian company will invest USD 1.5 billion. Sandip Shah, vice president and country director of SN Power in Nepal, says, “We are concerned about the delays in PDA negotiation. Being a multinational company we do have other options for investment but we are hopeful for a positive response from Nepal.”

    Arun III project is also in oblivion state due to delays in the signing of PDA and PPA. Indian company Sultaj Jal Vidyut Nigam is the promoter of the project.

    Benefits from these projects to Nepal

    • Revenue and tax from the projects

    • Free energy, free equity with dividend and royalty

    • Employment to thousands of people 

    • Growth in construction material industries

    • Infrastructure development

    • Market to agricultural goods

    • Transfer of technology

    • Access to tourism

    Source : The Himalayan Times