West Seti Taking Too Long

West Seti Taking Too Long
TRN Editorial, 27-Dec-07
Dr. Trilochan Upreti

Pursuant to the policy of involving the private sector in the power market, Snowy Mountains Engineering Corporation (SMEC), which had showed interest in the West Seti, had concluded an MoU with the government on Asad 24, 2051. In it, the company had promised to provide Nepal at least 10 per cent of the total hydroelectricity to be produced and exported to India from the project.

Delay
SMEC, however, has not bothered to commission the project to date except to renew the survey licence numerous times and amend the conditions of the project eight times. The initial agreement to provide at least 10 per cent of the produced electricity, that is to say, 75 MW, was amended at a later stage on the pretext that there is no national grid in the area and also on the technical advice of an expert from the Asian Development Bank. It was argued that monetary reimbursement in lieu of the power could be higher.

The then cabinet, pursuant to the proposal submitted by the Ministry of Water resources, had decided on Kartik 14, 2055 to give the project to SMEC for a period of 30 years, for a royalty of 0.05 per cent to be paid to Nepal instead of the 75 MW of power. In fact, it was a manipulation detrimental to the nation and beneficial to the decision-maker and the producer.

Later, a high-level meeting of the then Water Resources Ministry, headed by Minister Deepak Gyawali, had decided to get 10 per cent of hydro-electricity from SMEC instead of the 0.05 per cent royalty.

On Aswin 12, 2059, it had asked the company to develop a separate 122 MW Upper Seti project.

SMEC has been trying to manage funds for the project by negotiating with Chinese and Indian investment banks and other financial markets in the world. It has been negotiating with India's Power Trading Corporation for a power purchase arrangement, amending the license for its wider benefit and also extending the time of the license until it can finalize the above mentioned activities.

However, from the perspective of our national interest, Nepal was waited too long. Nepal has been providing more and more benefits to the producer for more than 13 years. The concerned ministers have been providing every concession and comfort to the company in an inconsistent manner, thereby causing harm to Nepal and penalising ourselves for the omission of the developer.

The irony is that the major political parties and their high-level leaders are alleged to be working for the wider benefit of the water mafia to the detriment of the nation. SMEC had hammered out a power purchasing agreement for 4.95 US cents per unit with India's Power Trading Corporation on Kartik 4, 2060. Likewise, the Exim Bank of China along with other commercial banks of India and Australia have agreed to finance the project in which the Government of Nepal will have a 15 per cent share of investment, for which the ADB has agreed to provide a loan of US$ 45 million.

A major impediment to the project has been sorted out, in that, there is a political guarantee by the Government of Nepal. The power purchase agreement with the Indian entity and the investment guarantee by the Multilateral Investment Guarantee Agency is designed to supply peaking power to northern India. According to the provision of the eighth amended agreement, the financial deal must be concluded by December 31, 2007 by SMEC. The total cost of the project is US$ 1.2 billion.

From the view of the developer, it is usual to take much time for finalising the environmental, financial, technical and other studies and making all the arrangements for a project of this size.

From the perspective of Nepal, however, the waiting has been too long to develop this project, with eight amendments made in favour of the company but unfavourable to Nepal. And recent news that the Chinese Bank will not be investing in the power project is a matter of concern for the project and also for Nepal.

What's more, Clause 2.4 of the amended agreement says that SMEC will pay royalty to Nepal only if it has sufficient funds after paying off its debt to the participants and bearing the operating costs. This news in a daily was confirmed by the present Minister of State for Water resources. This, however, was again contradicted by the minister who said that Nepal would get 75 MW of power from SMEC. The Finance Minister was quoted as saying that Nepal would renegotiate with SMEC to provide hydro-electricity instead of cash.

To date, no government authority has ever raised the question of the water to be augmented by the project and its price. In fact, the price of water is more valuable than the price of electricity, and this will be a net benefit to India. Nepal should negotiate with India and strive to convince it to pay for that water, which will be the lifeblood for the farmers of India in increasing their agriculture productivity, particularly in the dry season.

One may raise the argument that we cannot waste further time by involving ourselves in such useless discussion because India will not agree to it. Such an argument is detrimental for the country, as it has been in the past. Such norms are adopted in the entire world, including India itself in its inter-state water disputes. Therefore, we must convince India and get the legitimate entitlement. This is the core issue in this sector.

There must be national consensus among the political parties on how to develop our water resources for the rapid development of Nepal. We must get a fair price for the downstream benefits from India, which could be in the form of flood control, irrigation, and miscellaneous benefits to be accrued from the works that are carried out in Nepal. India should pay for the water to be augmented by the West Seti hydropower project.

The Nepalese government must not be seen as taking a double standard in matters relating to government involvement in water resource projects. For example, the Finance Minister has ruled out government investment in the Upper Tama Koshi Project whereas the government has directly invested in the West Seti project. Therefore, it is high time to act quickly, prudently and fairly for the greater benefit of Nepal and not for any other nation, company or individual. Such a fair, transparent and necessary attitude will bring in other projects as well.

Versions
There are two versions of the argument on how to develop hydro-electricity and water resources in Nepal. One view has emphasised separating electricity from water by departing from the past nationalist ideology, while the other view holds the argument that both should be considered in one issue and dealt with accordingly. Unless we have a water policy, we are likely to see the demise of the West Seti and SMEC plan.
12/27/2007