Monday, March 19, 2012

Doubts Raised Over China Hydro Project (West Seti) in Nepal

Doubts Raised Over China Hydro Project in Nepal

By KRISHNA POKHAREL
Wall Street Journal
http://online.wsj.com/article/SB10001424052702304724404577291311760939638.html?mod=googlenews_wsj
March 19, 2012


NEW DELHI�China Three Gorges Corp. said it might shelve its proposed
$1.6-billion hydroelectric power project in Nepal amid a parliamentary
probe in the South Asian nation into whether the project was properly
awarded, a Nepal government spokesman said Monday.

If the project falls through, it would be a big setback for Nepal's
ambition to harness huge untapped hydroelectric power from its Himalayan
rivers and streams. It would also add to the setbacks faced by Chinese
power companies in the region.

China Three Gorges "sent a letter to the government on Friday saying if
things are not moving and the dilemma continues, we can mutually agree
to pull out of the project," said Arjun Kumar Karki, joint secretary in
the policy and foreign coordination section of Nepal�s Ministry of
Energy. "But we see it as our priority project and we are committed to it."

He said the Nepali government is planning to communicate this in its
written reply to the Chinese company in the next few days.

A China Three Gorges official said it is up to Nepal's government to
decide whether to proceed with the project.

The brouhaha stems from a probe by a committee on natural resources in
Nepal's Constituent Assembly, which is its parliament. For more than a
week, the committee has been looking into whether "proper procedures
were followed by the government while granting the license to the
Chinese company for the power project," said Shanta Chaudhary, the
committee�s head.

Members of the committee had voiced concerns that the government granted
the project to the Chinese company hastily, without inviting
international competitive bidding as has been the general practice in
the past, she said.

Ms. Chaudhary said her committee will submit its report to the
parliament within a week. "If we find any irregularity, we will simply
ask both sides to follow the proper procedures," she said.

Mr. Karki at the energy ministry said the government had the power under
the country�s water-resources law to grant hydropower projects to any
company without a bidding process. "We are hopeful of a positive
decision from the parliamentary committee," he said.

Some 40% of Nepalis don't have access to electricity, according to the
government, so the nation has been trying to foster new power projects.
Some of its cities are without power for 14 hours a day.

On Feb. 29, China Three Gorges and the Nepali government signed a
memorandum of understanding for the construction of a 750-megawatt
hydroelectric dam and power project on the Seti River in northwestern
Nepal. They agreed on a public-private partnership called West Seti
Hydropower Development Ltd. in which Nepal's state power utility will
hold 25% and the Chinese company the rest.

The Nepali government said all the estimated $1.6 billion cost will come
through the company and in the form of a loan from China's Exim Bank.
The government said the annual 3.33 billion units of energy the project
is expected to supply after its completion in 2019 will be for Nepal�s
internal energy consumption.

If the project is shelved, or significantly delayed, it will add to
similar frustrations of Chinese power companies in South and Southeast
Asia. Last year, the government of Myanmar halted a $3.6 billion
hydroelectric-dam project run by China Power Investment Corp., referring
to environmental and human-rights concerns. Earlier this month, China
Power said it hoped to resume the project after addressing those concerns.

The Nepali government has sought foreign investment in its hydropower
industry, which many Nepalis believe can put their poor country on the
path toward economic prosperity through the sale of surplus energy to
its neighbors, India and China.

But many power projects have stalled due to the country's prolonged
political instability. It has been governed under an interim
constitution since 2007 and the Constituent Assembly that Nepalis
elected in 2008 has failed repeatedly to meet deadlines to give the
nation a new constitution and to complete the peace process with the
former Maoist rebels who now lead the national coalition government.

Politicians now have a nonextendable deadline of May 28 to deliver a new
constitution and conclude the peace process.

A number of hydropower projects in which Indian companies hold
significant stakes also have failed to take off due to politically
motivated protests by local residents who tend to view Indian
investments as against national interest. Nepal's Prime Minister Baburam
Bhattarai, a Maoist ideologue, recently sought to reassure Indian
investors that their investments in hydropower would be protected.

In the past fiscal year that ended July 15, Nepal's economy grew by
3.5%, the slowest rate of the past four years, according to Nepal�s
central bank.

�Sarah Chen in Beijing contributed to this article.

Write to Krishna Pokharel at krishna.pokharel@wsj.com
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