Most hydro projects in Nepal are either Run-of-River (RoR) or Peaking Run-of-River (PRoR) type. Currently, there are only two storage projects—Kulekhani-I (60 MW) and Kulekhani-II (32 MW)—which account for around 13 percent of total installed capacity in Nepal. The energy output from RoR and PRoR projects decreases in the dry season. In light of the current energy crisis, it is imperative to develop a world-class all-season storage project.
If Prime Minister KP Oli is somehow able to lend momentum to the stalled West Seti, being developed jointly by India and China, it would be manna for Nepal’s energy-starved economy. In addition to meeting current gaps in energy supply and demand, embarking on this journey would strengthen relations between Nepal and China and serve as a milestone in business partnership between the two countries.
Much progress has been made on the West Seti project since the formation of Investment Board Nepal (IBN) in 2012. Recently, Nepal Electricity Authority (NEA) Coordination Committee has also been formed to fast track the project. Detailed discussions are underway to finalize Joint Venture Agreement (JVA) between NEA and China’s CWE Investment Corporation, since NEA will be a minority equity partner on West Seti. It would be terrific to see NEA and CWE work together.
CWE Investment Corporation (subsidiary of China Three Gorges Corporation) has already demonstrated its commitment to develop the project. China Three Gorges, an old and reliable developer of hydroelectricity in China, has unparalleled expertise in building world-class storage projects.
There have already been significant milestones in West Seti project. Detailed feasibility study has already been completed by SMEC, an Australian firm. CWE Investment Corporation has further studied the feasibility of the project and has found it promising, both for Nepal as well as the developer—a win-win that will create conducive atmosphere for more Chinese investors in Nepal.
After much debate on how to move the project forward, the government had a MoU with Chinese developer CWEI in 2012. The Parliamentary Committee on Natural Resources endorsed selection of CWE Investment Corporation as the developer, given its expertise in large hydro projects, including the 22,500 MW Three Gorges Dam in China. The Parliamentary Committee had also emphasized the project’s importance to the historically-ignored, poverty-stricken Far-West of Nepal.
Cost comparison shows how storage projects make financial sense. Based on cost comparison, West Seti appears to be the most cost-effective. With the capacity of 750 MW, its estimated project cost is around US$ 1.5 billion, which comes to around US$ 2,000 per KW. This is among the lowest estimates of the cost of such storage projects.
Typically, tariff structure is fixed on a cost-plus basis by NEA. Because of its low cost, NEA will be able to purchase energy at reasonable tariff. West Seti is a highly technical project, requiring significant underground excavation in areas of relatively untested geology. The current developer, notably, gained its fame with the development of the Three Gorges Dam, the largest in the world.
Since the developer has not only built the largest dam in the world but also set records through various technological breakthroughs, we can take comfort that it is capable of managing any technical hurdles in project implementation. West Seti is a strategic project. It would yield multi-dimensional benefits to Nepal, and transform the Nepali economy.
The socio-economic context of West Seti is important. It would serve as a stimulant to the underdeveloped Far West by generating employment, strengthening the industrial base, providing electricity and promoting tourism.
With the area packed with strategic assets—including Khaptad and Api mountains—the value of West Seti reservoir is incalculable. As a storage project, it could create opportunities to simultaneously integrate other economic activities including fishery and irrigation. The expectations of the people in the Far West have been elevated and shattered time and again since West Seti was first conceived as a 37-MW project in 1980-81. The government cannot disappoint people this time.
The author is a founding partner and director at PDL Consulting Group