Tender for transmission line projects under MCC: Finance Ministry mulls reissuing the tender due to the high pricing

The Millennium Challenge Corporation (MCC) Nepal Compact hit a roadblock after the Finance Ministry raised concerns about the elevated cost of the transmission line project. Finance Minister Prakash Sharan Mahat has expressed dissatisfaction over the financial proposals, which have exceeded the estimated cost. 

According to the Finance Ministry sources, discussions have started to call for the tender again for the construction of the transmission lines. Mahat, on Monday, discussed with MCA-Nepal executive director Khadga Bahadur Bisht about issuing the tender again. 

Six Indian companies had submitted bids to construct the power line which will be constructed in three separate packages. An association of Megha Engineering and Infrastructure Ltd and Power Mech Projects Ltd along with Kalpataru Power Transmission Limited, KEC International Ltd, Transrail Lighting Ltd, Tata Projects Ltd, and Larsen & Toubro Ltd participated in the bid. 

MCA-Nepal has prepared an estimated cost of constructing the transmission line at $226m. However, when financial proposals were opened, the total cost of the three packages stood at $365m, a staggering 66 percent increase over MCA Nepal’s initial estimates. With the huge difference between the initial estimates and financial proposals, the Finance Ministry is inclined to initiate a fresh bidding process for the construction of the transmission lines.

“The amount quoted in the financial proposals is unusually higher than the estimated cost,” said a senior official of the Finance Ministry. “Even if we were to accept the lowest bid, it would pose a significant budgetary challenge for us. We have no alternative but to initiate a fresh tender process.” Amid the Finance Ministry’s reservation over the pricing, the MCA Nepal has not made any official statements or disclosures regarding the matter.

MCC, the US aid agency has committed to provide $500m while the government had earlier pledged $197m to implement the transmission line and road improvement projects under the MCC Nepal Compact. Since the MCC will not provide an additional amount, the Finance Ministry believes it has to bear the additional financial burden if it accepts the financial proposals.

According to Finance Ministry officials, should these financing proposals be accepted, half of the total budget would have to be allocated to the transmission lines, potentially leaving insufficient funds for other critical components of the Nepal Compact. Initially, the government had planned to invest $130m, but an additional $67m had been contributed for the Nepal Compact. 

A 315-km high-capacity transmission line will be built and a section of the East-West Highway upgraded under the $500m US aid. Five segments of transmission lines to be built are—New Butwal-India Border (18km), New Butwal-New Damauli (90km), New Damauli-Ratmate (90km), Ratmate-New Hetauda (58km), and Ratmate-Lapsephedi (59km). Three substations will be built in Ratmate, Damauli, and Butwal.

Once completed, these transmission lines are expected to provide a vital missing link for power projects of different river basins to the existing high-voltage grid in Nepal.

The government has allocated Rs 10.84bn for the MCA-Nepal for the current fiscal year. While Rs 9.27bn had been set aside for the entity in the last fiscal year, only Rs 4.11bn was spent, according to the Finance Ministry.

Six years after Nepal signed an agreement with the MCC, the much-debated MCC Nepal Compact entered into the implementation phase on Aug 30. The execution of the Nepal Compact will span a precise five-year duration from its initiation, at which point the responsibility for the projects will shift to Nepal. Once this five-year period concludes, the funding from the MCC for the execution of the MCC Compact initiatives will cease.

Initially, the Nepal Compact was supposed to enter into the implementation stage on 30 June 2020. However, the delay in the ratification of the compact by Nepal’s Parliament amid a controversy threw the US assistance into uncertainty. The Nepal Compact finally moved ahead after the parliament endorsed it in Feb 2022. 

Price quoted by bidders