We will renegotiate West Seti: Mahat

We will renegotiate West Seti: Mahat
eKantipur.com, 4-Jun-2007
BY BIKASH SANGRAULA

The government will renegotiate its deal with Australia's Snowy Mountain Engineering Corp (SMEC), developer of the 750 megawatt West Seti project, to revert the provision on benefit to Nepal from cash to 10 percent free energy.

"We will ask them (SMEC) to provide free energy. I am sure they will agree," said Finance Minister Dr Ram Sharan Mahat on Monday.

The government can still renegotiate the project agreement as it is yet to issue a generation license to SMEC, which is expected to take place after the end of the monsoon when the Australian company is commencing construction of the project in Doti district in far-western Nepal.

According to Mahat, the project agreement, which had originally stipulated that SMEC provide 10 percent free energy to Nepal, had been revised in favor of a cash benefit in the course of agreement renewals over the years.

The cash benefit arrangement, which was revealed by the Post on Monday, has an objectionable clause which can have a direct bearing on the security of the benefit for Nepal.

The current agreement with SMEC puts payment to Nepal at low priority.

Clause 2.4 of the existing agreement says, "Money payable from time to time by SMEC to debt participants or for operating costs in connection with the project will have priority in payment over money payable to Nepal, and following payments to debt participants and operating costs if there is insufficient money to pay Nepal, the obligation to pay Nepal will be deferred until SMEC has sufficient funds to make payment."

For the past 10 years, West Seti had been promoted, both by SMEC and the government, as a project that would provide 10 percent free energy to Nepal. This continued till recently despite the fact that the government had revisited all project papers before a cabinet meeting agreed in April 26 this year to an Asian Development Bank (ADB) proposal for Nepal's 15 percent equity participation in the project through an ADB loan.

Parliamentary committee to throw in its weight

The Interim Parliament's Natural Resources and Means Committee, which has initiated an investigation into the the objectionable provisions contained in the agreement with SMEC, will settle for nothing less than reversal of the cash benefit arrangement to free energy.

"The clause related to the cash benefit arrangement demonstrates clear intention of non-payment," said Ananda Pokharel, committee member and interim parliamentarian from the CPN-UML. "We will revert the benefit arrangement to free energy."

Pokharel added that the committee would also assist the government in effecting further revisions in the project agreement, including the provision of additional energy to Nepal on a commercial basis if needed.

West Seti, a storage type project, is designed to supply peaking power to northern India. It's estimated cost is US $ 1.2 billion.

Twenty-six percent equity shares in the project are owned by SMEC, and 15 percent each by China National and Machinery Import and Export Corporation (CMEC), ADB, the government of Nepal, and India's Infrastructure Leasing and Financial Services (IL&FS). On the debt financing side, China Exim Bank is investing US $ 400m, IL&FS US$ 300m, Bank of China US $ 300m, the Industrial and Commercial Bank of China US $ 200m, and ADB US $ 50m.

Holders of the remaining 14 percent shares will be finalized soon, after which SMEC will seek a generation license.