Government mulls allowing NEA to develop the 1200 MW project

The Annapurna Express

The Annapurna Express

Government mulls allowing NEA to develop the 1200 MW project

In yet another twist in the long-delayed development of the Budhi Gandaki Hydropower Project, the government has started discussions to allow the Nepal Electricity Authority (NEA) to develop the multi-billion project.

The government in the last fiscal year decided to build the reservoir project on its own and also established Budhi Gandaki Jalbidhyut Public Limited to develop the 12,00MW project. However, the company is yet to come into operation as the government has not provided the budget to get approval for commencement from the Office of the Company Registrar (OCR).

The company was supposed to explore the resources after getting approval from OCR to carry on with its business. “Recently, there has been a discussion on developing the project under the leadership of NEA,” said a senior official of the Ministry of Energy, Water Resources and Irrigation (MoEWRI).

“NEA has the technical expertise on developing big projects. So, we have asked NEA to take the lead role to develop this project,” the official said, adding, “For this, NEA could have a majority stake in the newly established company.”

An NEA official also confirmed such discussion saying that the government has said that NEA could develop the project by having a majority stake in the company.

As developing storage-type projects is quite expensive compared to the run of the river-type project, a viability gap funding could be required from the government to develop this project.

Budhigandaki is a ready-to-go project as its detailed project report (DPR) has already been prepared. Compensation distribution for the land acquisition and houses has also been in the final stage, according to MoEWRI officials.

The project, which has been touted as important to ensuring Nepal’s energy security as it is expected to help the country to be self-reliant even during the dry season, has been in limbo for a long due to uncertainty over the modality of its development.

Nepal is currently importing electricity from India as domestic production has dropped sharply along with the reduction in water levels in the rivers where the hydropower projects are based. Even though the Budhigandaki Hydropower Project has been highly prioritized on paper, the company established to execute the project is yet to function seven months after its establishment.

Earlier, Budhigandaki fell victim to policy inconsistency despite facing hardly any problem in land acquisition and completion of DPR.

In 2017, the then government led by Pushpa Kamal Dahal awarded a contract to build the project without competitive bidding to China Gezhouba Group Corporation under the engineering, procurement, construction, and financing (EPCF) modality.

The Sher Bahadur Deuba-led administration in November 2017 overturned the earlier government’s decision. A high-level team led by Swarnim Wagle, former Vice-chairperson of the National Planning Commission, was then established. The committee suggested that the project could also be developed using domestic resources. Again in September 2018, the government led by KP Sharma Oli decided in favor of the Chinese company, reversing the decision of the Deuba-led government.

In April of last year, the Sher Bahadur Deuba-led government once more decided to terminate the license granted to the Chinese company since it was not making any progress on the project.

Budhigandaki, which will be Nepal’s largest reservoir-type project with an estimated cost of USD 2.6 billion, is situated at the boundary between the districts of Gorkha and Dhading. For the government, generating resources and closing the project’s budget gap will be a difficult undertaking.

The report prepared by the committee headed by Wagle in 2017 suggested that the government should develop the project on its own by providing viability gap funding, covering around one-third of the project development cost.

As per its report, the government could cover the cost of land acquisition and resettlement of displaced families which could total as high as Rs 94 billion. A significant chunk of resources can be generated from government institutions. An infrastructure tax being imposed on imported fuel could be an important source of revenue that can be used to develop the project.

“Based on an average increase in petroleum consumption by 10 percent a year, as much as Rs 164 billion can be collected from taxes imposed on fuel alone by the fiscal year 2026/27” reads the report submitted by the committee led by Wagle.

The NEA official said that discussions are underway on how to generate resources for the project. “One option could be issuing an initial public offering for the development of the project,” said the official.

According to the report, Nepal Electricity Authority, Employees Provident Fund, Nepal Telecom, Rastriya Beema Sansthan, Hydroelectric Investment and Development Company, Upper Tamakoshi Hydropower Company, Chilime Hydropower Company, Nepal Army, Nepal Police, and the General Public could be tapped for the project.

The Wagle report also stated the resources could also be generated from international donor agencies or by the issuance of project-specific bonds and credits from the project’s suppliers.

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