The proposed modality of investment and equity sharing have come under scrutinty because this project has been awarded through bilaternal negotiations rather than international competitive bidding. [break]
The MoU on the project says that Nepal Electricity Authority (NEA) will have a minimum of 25 percent share in the project and China Three Gorges a maximum of 75 percent.
Experts have raised questions about the very rationale behind this equity division: What is the benefit to Nepal for offering China Three Gorges a 75 percent share in West Seti? The only apparent benefit, if it can be called that, is that China Three Gorges will help NEA get a soft loan from Exim Bank of China--or from other sources if the soft loan is not sufficient-- for NEA´s equity investment.
"There is no judicious benefit-sharing in the agreement with China Three Gorges," says former water resources secretary Surya Nath Upadhyaya.
If we look back at the MoU with India´s GMR for the development of the Upper Karnali Project signed in January, 2008, the Indian developers agreed to provide 27 percent free equity and 12 percent free energy to the government for the use of Nepal´s river. In West Seti´s case Nepal will have to make an investment, borrowing from the Chinese, to get a 25 percent equity in its own river.
Joint Secretary at MoE Arjun Karki, who signed the MoU with Executive Vice-chairman of China Three Gorges Wang Shofeng on Wednesday, contends that the cases of the Upper Karnali and West Seti are different.
"The Upper Karnali Project is export-oriented and GMR provided the benefits to Nepal because it can add the additional cost thus incurred to its generation cost and demand a higher rate while selling electricity in India, but West Seti will be built solely for domestic consumption," Karki argues.
Why didn´t MoE ask China Three Gorges to build this project wholely themselves and ask for benefits like we did with GMR? Karki claims that asking for benefits now would raise the cost of electricity production, which would eventually be reflected in the power purchase agreement (PPA).
"If we had asked them for the benefits now, they would have added the additional cost to its accounts and the government would be forced to do the PPA at a higher rate. So, the Nepali people would have to buy the energy at a higher tariff," he adds.
By not asking for benefits now, Karki insists, we have ensured that the PPA will be concluded at a lower rate.
But the experts argue that international bidding would have resulted in greater benefits for Nepal, with bidders competing to bag the project. "There was already a procedure in place to go for competitive bidding but the ministry has bypassed it and done the agreement without any transparency," states Upadhyaya, who is also a former chief commissioner of the Commission for Investigation of Abuse of Authority (CIAA).
Senior officials at MoE claim that the ministry can never satisfactorily explain how the proposal of China Three Gorges is better than what potential bidders would have offered had there been international bidding.
Energy Minister Posta Bahadur Bogati argued that the ministry went for a bilateral agreement for the reservoir project in order to save time. "We need to complete the project as soon as possible. The project would have been delayed had we opted for competitive bidding," Bogati contends.
But avoiding competitive bidding for a project with an estimated cost of US$ 1.6 billion just to save a few months of time, experts insist, is a clumsy excuse.
Bogati´s predecessor at MoE, Gokarna Bista, opines that the government should have built the project on its own through a development committee, or NEA and should have gone for bidding if it could not arrange the necessary funds.
Besides the benefit issue, Bista also took exception to a provision for the National Grid Company Limited to build transmission lines to connect the project to the national grid, with a loan from Exim Bank. "Why should the government pay for constructing transmission lines for a project which is 75 percent owned by a foreign company?" he asks. Senior officials at the ministry concede that an individual project has to build its own transmission lines up to a certain point to connect its energy to the national grid.
Bista further points out that the provision of allotting 2-5 percent of shares to locals of the project site is against MOE policy, which has proposed allotting up to 10 percent of shares to locals.
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