Nepal: Tale of proposed Hydro Projects of West Seti and Marsyangdi

Dr. Shastra Dutt Pant

Water Resource, Analyst, Nepal

The West Seti:

The West Seti is the country’s largest (750MW) reservoir power project. It was envisioned some 13 years ago. The 750-megawatt project site lies in Doti district in far-western Nepal, some 865 kms from Kathmandu. The project’s construction time period is estimated to take five- and-a-half years.

The Asian Development Bank (ADB) made a proposal to the government for the latter’s 15 percent equality participation in the 750-megawatt West Seti project. For this, the Bank is ready to provide a loan of up to US $ 45 million to the government. This arrangement was being mulled to win the trust of Chinese investors. The government is most likely to invest the money through Nepal Electricity Authority. However, the government will be free to withdraw its participation any time it wishes, by selling its equity share.

ADB with equity participation worth 20 percent, the SMEC with equity participation worth 25 to 30 percent hold the project’s generation license. There is an agreement for providing 10 percent royalty to the Nepal government, in the form of 75 megawatt of peaking power from the storage projects; Nepali financial institutions will also be investing in the project through power bonds. The financing to the project will be met by the Seti project by 26 %, W. Bank by 25 %, CMEC (China) by 15 %, IOL/IS by 15 %, Nepal by 15%, and SPV by 14%. The projects were expected to be completed by 2012.

A company is being registered in Hong Kong to run the project between SMEC, ADB and Chinese investors. The peaking station of the storage project is targeted to stabilize the power grid in northern India, which faces a tremendous shortage of peaking power. SMEC, which obtained the license for the West Seti project in 1994, has a power purchase agreement with PTC India Ltd. at around five cents per unit. The project’s construction time period is estimated to take five-and-a-half years. All studies needed to be done before project construction have been complicated.

Estimated total cost is $1.2-1.7 billion. The country’s largest reservoir power project (750MW) was envisioned some 13 years ago after a private builder-West Seti Hydro Power Limited-struck a deal with the government. The WSHPL signed a MoU with China National Machinery Import and Export Company in December last year in the presence of Prime Minister Madhav Kumar Nepal and Energy Minister Prakash Sharan Mahat in Beijing. CMEC backed out of the deal a few months later without citing any reason. The Australian promoter, Snowy Mountain Energy Corporation, decided to stop funding the liaison office in Kathmandu and field offices in Doti and Dadeldhura in August. The project was supposed to come up with complete financial arrangements by December-end. The Ministry did not respond to the request. The government and the CMEC are willing to commission the project under Public Private Partnership program.

Five Parliamentarians representing the major parties in the Interim Parliament demanded that the government amend the agreement with Australia’s Snowy Mountain Engineering Corp (SMEC) so that it provided free energy to Nepal from the 750 megawatt West Seti project, instead of providing cash benefits. SMEC was supposed to provide free energy from West Seti itself, instead of building another project to give Nepal free energy. The parliamentarians also asked for 10 percent of the total power generated, instead of just 75 megawatts, as it was possible that the project’s installed capacity would cross 750 megawatts. ‘The agreement was revised to “either free energy or cash” in 1997, and later to cash benefit in 1998.

It has been rightly proved that the West Seti Hydropower project is not in favour of the nation. The project will incur a loss of Rs 122.3 crores per year to Nepal. According to the latest (Oct 29, 2006) agreement, Nepal would receive free of charge per annum the amount equivalent to 10 percent of the gross annual revenue received from the sale of power and energy generated from the power station and the rest of the electricity would be exported to India. The provisions of these agreements have compromised Nepal’s rights to its own resources. As per the present provisions of the agreement, SMEC and India will get maximum benefit from the project. India will get irrigation and flood control facilities free of cost while WSHL, which is not a Nepali company, will get the entire profits of the project. On the other hand, the social, environmental and their attendant financial costs will have to be borne by Nepal. More than 15,000 people will be displaced from their homes to ensure power to India. The agreement has been signed without the approval of the parliament. Since this project pertains to the use of the natural resources of Nepal, the agreement should be approved by a two-thirds majority of the joint session of the parliament according to Article 156 of the Interim Constitution of Nepal.

Water and Energy Users’ Federation (WAFED) Nepal filed a writ petition at the Supreme Court demanding that the agreement between the Department of Electricity Development and the SMEC West Seti Hydroelectric Limited for development of 750 MW West Seti project be nullified, as the project violates article 156 (2) of the interim constitution. The WAFED has stated in the petition that since the agreement states all electricity generated by the project will be exported to India and Nepal will get 10 percent of the profit, this is a clear case of long-term sharing of natural resources, and therefore it violates article 156 (2). According to the management of the constitution of article 156, the agreement on the West Seti project without the majority consensus of the parliament is illegal and unconstitutional.

The West Seti hydroelectric project, proposed to provide 10 percent free energy as royalty to Nepal by making another project or 10 % in cash. The project will supply the entire of its generated power to India putting its main grid in India. Thus Nepal due to bad governance would get only ‘peanuts’ from West Seti. The SMEC, which is developing the project, will pay Nepal cash far less than the market value of the 75 megawatt free energy stipulated in the first project agreement signed 10 years ago.

Money payable by SMEC in connection with the project will have priority in payment over money payable to Nepal, and following payments to debt participants and operating costs if there is insufficient money to pay Nepal, the obligation to pay Nepal will be deferred until SMEC has sufficient funds to make payments.

Most astonishingly, there is no clause in the agreement stating how long SMEC can defer payments in the event it continues to have insufficient funds. It is better to ask SMEC to provide free energy.

The project has the involvement of four countries and two international banks in areas including investment, construction, insurance, transmission and consumption.

SMEC took a decade to bring the storage-type project to the construction stage since signing a Project Agreement with the government of Nepal in June 1997 to develop and operate the project for 30 years. The project will be owned by Chinese, Australian and Indian investors, apart from the government of Nepal and the Asian Development Bank (ADB). Six percent of equity shares for the project will be owned by SMEC, and 15 percent each by China National and Machinery Import and Export Corporation, CMEC, ADB, the government of Nepal, and India’s Infrastructure Leasing and Financial Services (IL&FS). Holders of the remaining 14 percent of shares will be finalized soon. The project will be run by a company registered in Hong Kong. Ninety percent of power generated from the project will be traded to India by PTC India Ltd. with which SMEC signed a 25-year Power Purchase Agreement in October 2003. Nepal will get the rest of the generated power as royalty.

The Asian Development Bank has made a proposal to the government for 15 percent equality participation. The bank is ready to loan up US $ 45 million to the government. ADB will charge the London Inter Bank Offered Rate (Libor) on the loan plus minimum percentage points. ADB is willing to provide maximum concession on the percentage points that is normally charge above the Libor rate. The government is most likely to invest the money through Nepal Electricity Authority.

This arrangement has become necessary to ensure that the project moves forward. However, the government will be free to withdraw its participation any time it wishes, by selling its equity share”. ADB itself has a separate equity participation worth 20 percent (US $ 1.2 billion), and the SMEC another 10 percent. The equity participation may go up to 25 to 30 percent. Meanwhile, Nepali financial institutions will also be investing in the project through power bonds. The peaking station of the storage project is targeted to stabilize the power grid in northern India (this is what India wanted to do since Panchayati regime), which faces a tremendous shortage of peaking power. SMEC, which obtained the license for the West Seti project in 1994, has a power purchases agreement with PTC India Ltd. at around five cents per unit.

The country is facing electricity crisis because of uncompleted projects by private sector which have signed PPA with NEA. The PPA signed with private sector is for producing 224 MW of electricity, but only 142 MW of electricity has been produced so far.

(a) Nepal Electricity Authority has proposed the height of the dam would be 136 m, the length of the reservoir would be 27.5 Km. the area would be 7.6 Sq. Km and the design discharge would be l4l Cu. m. This project will be ready by the year 2011 AD.

(b) The West Seti Hydropower project once again asked the Ministry of Energy to give it one more year to attract investors. This is what is called anti nationalism.

Because of the lack of the appropriate and sustainable policy the government could not decide on the West Seti power project even after its global tender. The issue of royalty remains undecided (in ten percent energy or cash in equivalent) and this was the main issue which has plagued the project for 14 years and the signing of 8th round of contract.

The PTC of India will purchase the power at the rate of 4.86 cents (NRs.3.15). If the project was implemented by the government itself, it could have sold electricity to India at the rate of the electricity it currently purchases from India. I wonder why even communist parties do not like to produce electricity by the state expenses and try to seek alien investors? It is clear that the party ideology is being suppressed by the commissions the leaders receive. Their political ideology it seems is just to confuse the commoners. Nepal will get only 1 billion rupees for the electricity generated annually if received in cash. Instead if Nepal receives 10 percent power and sells it itself, it becomes more than double of the amount for which NEA would not be responsible for any added extra administrative costs. In other words NEA can distribute electricity at the cheaper price or compensate to gasoline. Why does government makes such wrong decisions by coming under Indian influence is always a question to ask to each of the cabinet ministers.

Some NGOs and so called experts are against this project. That may abort projects to the tune of billions of rupees, like the Karnali, Kankai , Arun-3 and so on. Thus the terms such as patriotism, nationalism, and environmentalism are being misused by the political leaders and the pundits in the name of fresh water exploitation. They are no more different than the petrol-mafia. We should not forget the present gain that can be made and the nationalization of the project after 30 years later. Furthermore, this project is not as bad as the Gandaki and Koshi projects of the past. The nationalists must understand the long term benefits of this project.

The experts and the environmentalists do not raise their voice in favour of NEA which has said that the Upper Tamakoshi must be run by Nepali money and Nepal can afford to do this. On the contrary, they defame NEA by alleging that it does not have the efficiency to run and operate the project. On the other hand, they plead that the West Seti project must be implemented by the government. The Macaulian minded people in the developing nation some time seem “Intellectual Fools”. The country’s nationality and sovereignty are not weakened by selling electricity to India. Such national values will weaken only when all rights are given away, as in the case of the Koshi and Gandaki projects, implementing the new Citizenship Act and also making Nepal economically and politically dependent upon India. The export of electricity is no more different than exporting Chow-Chow noodles. Nepal will not be emptied of its hydropower. Nepal will need more than 4000 MW of power by another decade and it must be able to generate at least this much power. Those willing to work for the people concerns must concentrate on policy matters, the contract papers, Acts & Rules and Regulation and matters of commission should be ignored. They should care for making projects such as Kaligandaki-A and Melamchi cheaper so that the Nepali people can enjoy the services provided by such projects. But because of the wrong attitude of politicians and some bureaucrats, such projects have already been delayed by two decades and Nepal is lagging behind both in power supply and water distribution.

Upper Marsyangdi II project:

This project was suspended due to the disturbances created by Maoists, but now the local people are demanding that the project should again be started. This project site is located at Taghring of Lamjung district, while the dam will be constructed at Taal village, Dharapani of Manang district. A tunnel will connect the dam at Taal village of Manang with Taghring village of Lamjung. The tunnel will be 11.2 km long. The projects generation capacity is 600 MW. Maoists had obstructed the works in the project in the month of Falgun 2067 BS. The Maoists had alleged that the project was started by the Indian Company (Himtal Hydro Power Company) without confirming the rights of the local people. However, now the local people are themselves opposing the Maoist obstruction. They feel that the Maoists have looted the fate of the local people from which the locals would have benefited tremendously. The government had permitted the Himtal Company to prepare a DPR of the project two years ago. A 260 meter long test tunnel has already been completed. The project has affected 60 families of Taal Village, but they are hopeful that the project will later be beneficial to them. Presently they are feeling that they are in a water induced disaster prone area. Any political or local obstruction to the project, will no doubt not only delay the project, but also make it more expensive. I have two questions to put forth in this regard. ‘What the government/ political parties in power like to do? Make Nepal a prosperous country or only enjoy themselves while destroying Nepal and its natural resources, thus, ultimately inviting alien forces in Nepal? And do they also want to make Nepal dependent on outsiders and continue keeping it as a poor country and driving our youths to foreign nations?

It is not good to only blame India or any other foreign nations for playing political games here. It is Nepali politics and the party leaders that have invited foreign influence inside Nepali territory. One way or the other, they are playing the role of villains, anti-nationalists and also the role of Lendhup Dorje who sold out ( Independent) Sikkim for personal gains. If the politicians love Nepal and if they have a sense of nationalism, they must unite to frame a long term national policy and run the development projects accordingly without any hurdle from any side.

Upper Seti: The Upper Seti is a hydro power project having 127 MW capacities. Its detail survey was carried out by JICA. A bank of Japan will provide a loan of $ 250 million at 1 % interest to implement the project. This project is of high importance for power consumption and system management The estimated cost of this project is $ 1,900 per MW. It is a reservoir based project, which is good for peak hour demand of electricity. It was estimated t0 be completed by 2011, but sadly the project has not been started yet due to inefficient, commission oriented, non-nationalistic and lethargic attitude of the government This project could play a vital role for normal supply of power for the Nepali people, who are burdened with hours of daily load shedding.

The Upper Seti hydropower project cost in terms of generation of electricity would be nearly one thousand nine hundred-dollar per kilowatt. Text courtesy: Author’s book, 2012, on Water Politics on Nepal’s Fresh waters. ( Excerpts only). 

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