What Nepal gets from Arun III, Upper Karnali?

What Nepal gets from Arun III, Upper Karnali?
eKantipur.com, 6-May-07
BY BIKASH SANGRAULA

Should the Interim Parliament's Natural Resources and Means Committee favorably conclude its ongoing inquisition on "suspected lapses" in recommendations made for license award of the 402 MW Arun III and 300 MW Upper Karnali projects, what exactly will Nepal get from the developer of these projects?

Furthermore, what conditions has the government set for the developer?

The recommendation report, submitted by a high-level government committee to the Ministry of Water Resources on April 27, a copy of which has been obtained by the Post, answers this and many other queries.

Based on nearly two dozen parameters approved by the ministry, the committee has recommended India's GMR Energy Ltd for both the projects.

The evaluation committee has given GMR 96 percent points for Upper Karnali and 92.70 percent for Arun III. GMR's closest rival in the former is KSK Electricity Financing Pvt Ltd, India, which scored 93 percent, while its closest competitor in the latter is Sutlej Jal Vidhyut Nigam, India, which scored 83 percent.

Benefits to Nepal

A detailed look at the 14 proposals for Upper Karnali and nine proposals for Arun III reasonably establishes GMR's offers as the most attractive for both project. They are also far better than past deals in projects, sought to be developed in a similar model, like the 750 MW West Seti, where Nepal is offered only 10 percent free energy.

GMR's financial worth and funding commitments for the two projects, mentioned in the report, look promising.

GMR has offered Nepal 33 percent free equity in Upper Karnali, apart from 7.5 percent free energy. It has sought 2.5 years for conducting preparatory works for the project, and another 4.5 years for construction. GMR has proposed to finance the project on a 75:25 debt-equity ratio.

Similarly, in Arun III, GMR has offered Nepal 15 percent free energy in the first 15 years of operation, and 10 percent in the remaining license period. It has sought 2.75 years for preparatory work and 7 years for project construction.

For both the projects, GMR has submitted letters of commitment from UTI Bank and Standard Chartered Bank, and has proposed to sell power to India through PTC India Ltd.

GMR, which is listed in BSE & NSE ITD in India as well as in the Thai Stock Exchange, has the experience of building the 1070 MW Nam Theun II Hydroelectric Project worth US $ 1.1 billion as well as the 388.5 MW Vemagiri Power Project, according to the report.

Nepal's terms and conditions

Both the export-oriented projects are to be implemented on Build Operate Own and Transfer (BOOT) model for a period of 30 years including the construction period, according to Nepal's hydropower policy 2001. After the period, total ownership of the projects should be handed over to Nepal.

Apart from free power, Nepal retains rights to purchase 10 percent of power generated by the projects for internal consumption, if needed. Additionally, before issuing generation license, the government may demand a bank guarantee of a nominal Rs 10,000 per MW, to ensure that the developer does not walk away from the project.