PDA negotiations for Upper Karnali, Arun 3 delayed

Power development agreements

KATHMANDU, NOV 01 –

Negotiations with power developers GMR Energy and Satluj Jal Vidyut Nigam over power development agreements ( PDA ) have been pushed back by a month.

According to the Investment Board (IB), the two Indian companies have asked for additional time to make preparations for the planned talks. The much-talked about PDA negotiations will be held in early December, said the IB.

GMR and Satluj are developing the Upper Karnali and Arun 3 hydel projects respectively. The two projects have a capacity of 900 MW each. The IB had planned to start negotiations with the two companies during the first week of November and sign the PDA by December-end after sorting out key issues.

“As per the request of GMR and Satluj, we have given them a month’s time to take care of their internal matters,” said IB chief executive Radesh Pant. He added that negotiations would be held with the two companies separately starting from the first week of December.

IB sources said that the companies were analyzing the PDA template with the assistance of international experts after giving their preliminary comment on it. They added that one of the reasons for the delayed PDA negotiations was the changes made to the draft following the comments by the Indian companies.

The IB had prepared the PDA template in the middle of June with help from Herbert Smith, one of the world’s leading legal firms. The template approved by Prime Minister Baburam Bhattarai during the IB board meeting was expected to provide much-needed impetus to begin negotiations with foreign hydropower companies. However, the template could not impress the Indian investors, and they termed it “not bankable”.

Following complaints by the two Indian investors, the IB has made some amendments in the PDA draft to make it more profitable and bankable for investors. “Negotiations will start once the amended draft is approved by the board meeting,” said Pant. He added that the Indian investors had complained that the proposed format of the PDA was not bankable as it had been designed to give Nepal the maximum benefit. “Apart from this, the remaining issues will be sorted out during the negotiations,” Pant said.

The current PDA template was formulated after power developers and financiers rejected the old one in 2010 saying it was not bankable.

The Indian investors, however, are not happy at the PDA negotiations being delayed. A source at Satluj said that the year-long delay had resulted in a huge loss to the company. “Moreover, the banks in India which are providing loans for Arun III have been applying pressure on the company to begin the project soon or scrap the agreement,” he said. He added that Satluj could not sign the PDA as it was. Similarly, GMR has labelled the PDA template unsupportive for project financing.

The Upper Karnali and Arun 3 hydel projects have been in limbo for the last three years due to the government’s indecisiveness and lack of an appropriate PDA model in the country. The IB had forwarded the PDA template to GMR and Satluj at the end of June. On April 21, Prime Minister Bhattarai directed the Ministry of Energy to ask the IB to draft the PDA as it was taking too long.

The IB has studied the documents submitted by these two Indian companies including their financial model. Since these documents are at a matured stage, the IB had rushed through discussions with a plan to sign the PDA without much delay.

Apart from Upper Karnali and Arun 3, two other mega projects, Tama Koshi 3  (880 MW) and Upper Marsyangdi (600 MW) have been waiting for the PDA for the last few years.

Source : The Kathmandu Post (ASHOK THAPA)