The China Three Gorges Corporation (CTGC) has withdrawn from the 750 MW West Seti Hydropower Project saying the project is not fit for investment.
The company said the project is not financially viable despite Nepal agreeing to slash capacity of the project and sign power purchase agreement (PPA) in US dollars for 12 years during the two days of meeting with the Investment Board, the latter said organizing a press conference on Wednesday to announce withdrawal of the Chinese company that had signed agreement with the government six years back.
Chief Executive Officer (CEO) of the Investment Board Maha Prasad Adhikari said the CTGC was not assured even after the Nepali side expressed commitment to resolve the problems of transmission line and other practical problems cited by the company.
The CTGC previously had submitted a report to the Investment Board and stated that the project cannot be developed at any cost due to Nepal’s policy about PPA for reservoir based projects. It had informed its inability to invest on the project saying it will not provide adequate returns.
The Chinese company had said the project cannot be developed due to the rate of Rs 12.40 per unit during the winter and Rs 7.10 during the rainy season set for PPA for reservoir based projects. Stating that the provision of PPA in dollars for 10 years or only until repayment of debts renders the project financially unviable, it had demanded PPA in dollar for the whole contract period.
It had also stated that the project can be moved forward only in the Pakistani model wherein profit is added on cost as rate of return on capital and the internal rate of return for the project both are low.
The CTGC has withdrawn after the government said the PPA rate cannot be changed only for West Seti, electricity cannot be procured in dollars throughout the PPA period, and the rate of return on the cost and profit as in the Pakistani model cannot be accepted.
The Nepal Electricity Authority (NEA) last year had implemented the policy for PPA for reservoir based projects after the Energy Ministry drafted the policy. PPA can be signed in dollars only for 10 years or loan repayment period whichever is earlier for the projects bigger than 100 MW.
The CTGC was to make 75 percent of investment and NEA 25 percent, according to the agreement signed on November 16, 2017 to complete the project in six years and seven months.
The estimated project cost including the interest for the construction period was US$ 1.81 billion, and US$ 1.40 billion without including the interest.
The then Baburam Bhattarai government had signed a memorandum of understanding with the CTGC in 2012 for development of the project after the license of Snowy Mountain Engineering Corporation (SMEC) was revoked as the latter could not make financial arrangements to develop the project.
