Sticking points remain over power purchase agreement

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    Jun 13, 2017-

    The Nepal Electricity Authority (NEA) and Nepal Water and Energy Development Company (NWEDC), the developer of the Upper Trishuli-1 Hydroelectric Project, are unlikely to sign a power purchase agreement (PPA) within the deadline specified in the power development agreement (PDA).

    As per the PDA, the NEA and the NWEDC need to complete the PPA by the end of June, but that does not look like happening as a number of sticking points remain, 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, both parties have locked horns over the value of the PPA in dollar terms. The NEA has agreed to sign a dollar-denominated PPA covering 70 percent of the total project cost, while the developer has demanded that the proportion be raised to 85 percent.

    The NEA has argued that only the foreign debt portion of the total project cost should be taken into account while signing a dollar-denominated PPA.

    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.

    Source: The Kathmandu Post