Govt decides to invest in West Seti

Govt decides to invest in West Seti, Construction after monsoon
eKantipur.com, 25-April-2007
BY BIKASH SANGRAULA

A cabinet meeting Wednesday approved a proposal made by the Asian Development Bank (ADB), which ws forwarded by the Ministry of Finance, for the government's equity participation of US $ 45 million in the 750 megawatt (MW) West Seti project. ADB is extending the sum as loan to the government.

"The cabinet has approved the proposal," said State Minister for Water Resources Gyanendra Bahadur Karki. "With this decision, the project, whose license was issued 12 years ago, has reached conclusion. It will enter construction after two or three months," Karki added.

ADB will charge the London Interbank Offered Rate (LIBOR) on the loan plus minimum percentage points, providing a concession on percentage points that it normally charges above the LIBOR rate. The government itself will loan out the sum to Nepal Electricity Authority (NEA), which will own shares of the project. The government charges a loan interest of eight percent to NEA.

The project's developers aim to start its construction immediately after monsoon this year. "We aim to make shareholding decisions next month, and seal financial closure by the end of monsoon, after which we aim to start construction," said Himalaya B Pande, director of SMEC West Seti Hydroelectric Corporation Ltd.

ADB, which will itself have a separate equity participation worth 20 percent through its private sector window in the US $ 1.2 billion project, had made the proposal to the government to win over Chinese investors, who are set be the biggest investors in the project. The project is being financed on a 75/25 debt/equity ratio, with most of the debt contribution sought from Chinese financial institutions, including Export Import Bank of China and Bank of China.

The project will also have equity participation of 25 to 30 percent from Australia's Snowy Mountain Engineering Corp (SMEC), which holds the project's generation license. China National Machinery and Equipment Import and Export Corporation (CMEC) that will build the project, and some Indian agencies will also have equity participation. A company is soon being registered in Hong Kong to run the project.

SMEC has an agreement for providing 10 percent royalty to the Nepal government, in the form of 75 megawatts of peaking power from the storage project.

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 license for the West Seti project in 1994, has a Power Purchase Agreement with PTC India Ltd at around five cents per unit.

West Seti project site lies in Doti district in far-western Nepal, some 865 km from Kathmandu. The project's construction is estimated to take five-and-a-half years. All studies needed prior to project construction have been completed.