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Stalled for 15 years by Maoist opposition, West Seti will now be built under a Maoist government by Chinese investors



DEWAN RAI

RATAN BHANDARI

For 15 years, Australia's Snowy Mountain Engineering Corporation (SMEC) tried to build the huge West Seti project to export power to India, but was stalled by complicated negotiations with India, lack of financing, corrupt officialdom in Nepal and the Maoist war.

Now, the Maoists who tried their best to stop the project are in government and have brought in China's Three Gorges Corporation (CTGC) to take over the huge 195m high dam in western Nepal that will create a reservoir 70km long and generate 750MW of power for domestic consumption.

Under the terms of the deal, it will be a build, operate, own and transfer mode for 35 years. Construction is set to start in mid 2014 and expected to be completed in five years. CTGC will invest 75 per cent of the shares, the Nepal Electricity Authority (NEA) will put up 25 per cent and local communities will be entitled to 2-5 per cent of the shares. It is not clear how SMEC will be compensated for its preparatory work.

SMEC stuck to Nepal despite tremendous odds. It had marathon negotiations to fix a feasible price for export to India's Power Trading Corporation, then there were complications over Nepal's demands for compensation for downstream benefits in flood control and irrigation. The project was targeted by the Maoists during the war, SMEC also found it difficult to get financing for the $1.2 billion project, and finally gave up last year.

Even though it is not clear if the Indians are happy with the Chinese building a hydro project 100km upstream from their border, this time the project seems to stand a better chance because of the involvement of a Chinese company with deep pockets and also because it is now a project for domestic power consumption.

There are questions about how the deal was hurriedly pushed through without a proper bidding process. Energy Minister Post Bahadur Bogati clarified that the country was facing a power emergency, and the project would have been delayed if the government opened it up for bidding.

Arjun Bahadur Karki, Joint Secretary of the Energy Ministry, says finding bidders who would be interested in doing business in Nepal would be difficult. "There is no difference between signing a deal first and then adjusting the conditions in the power purchase agreement," Karki told Nepali Times.

Under the terms negotiated with CTGC, the government has agreed to sign the power purchase agreement only after the Detail Project Report is completed. "It will be fixed in both currencies to tackle the fluctuation in foreign exchange rates," Karki says. NEA will have to take a loan for its share of the $1.2 billion project from China's Exim Bank.

The government has agreed to shoulder the burden of constructing transmission lines, but the project document is silent on payback for water regulation, flood control and irrigation. The reservoir can irrigate up to 270,000 hectares of land downstream in Doti, Achham, Bardiya and Banke districts in the dry season and partially mitigate floods in the monsoon.

"We always forget multi-usage of water and focus only on electricity while planning projects, which is unfortunate," says hydropower expert, Ratna Sansar Shrestha, who emphasises that there should be a dollars and cents value to regulated water.

The reservoir will submerge dozens of villages, affecting some 18,000 people. But the man who led earlier protests against West Seti, Ratan Bhandari, now sees huge advantages. "If local people get their share of benefits and the issue of compensation, relocation and rehabilitation is sorted out, we will all support the project," he told us.

Most experts agree that the project will benefit a hitherto neglected part of Nepal which suffers chronic food deficit and a massive out-migration of young people. The construction phase itself will create jobs, and once the project is completed irrigation will improve food supply.

The biggest impact of the project will be in alleviating Nepal's crippling energy crisis. The country's installed capacity is now above 700MW of which only Kulekhani is a reservoir project. This means generation capacity dips in winter when demand is the highest. Shortfall this year was 550MW, and there is a deficit of 270MW even in the monsoon.

Besides West Seti, there are five big projects (including Upper Tamakosi and Chilime) totalling 840MW that will be completed by 2017. Even if all the projects are done on time, total installed capacity by 2020 will be over 2,300MW which will barely keep up with increase in demand.

UPDATE: The parliamentary committee on Natural Resource has directed the government not to proceed with the works of West Seti hydropower project (9 March 2012).

See also:

No light at the end of the tunnel, DEWAN RAI and RUBEENA MAHATO

The bad news is that the power crisis will get worse before it gets better