West Seti hydro-power development

West Seti hydro-power development
ekantipur, 25-Jul-08
By Dr Trilochan Upreti

After the withdrawal of the World Bank from the Arun III hydropower project and its subsequent demise, power sector development has got a major blow in Nepal, which was considered a betrayal by that institution upon a tiny, vulnerable and least developed country. Some people inside Nepal have blamed a political party for such a disastrous and detrimental consequence owing to the mishandling of the issues in an immature manner. This was also considered as a fall of public sector investment in the hydropower sector opening the gate for the private sector or public-private partnership.

Pursuant to the policy of involving the private sector, the government has invited the private sector into the power market. Snowy Mountains Engineering Corporation (SMEC) showing its interest in the West Seti concluded an MOU with the government on Asad 24, 2051, in which SMEC has promised to provide at least 10 percent of the total hydro-electricity to be produced and exported to India from the project. SMEC, however, has not bothered to commission the project to date except for the renewal of the survey license numerous times by amending the conditions of the project eight times.

The initial agreement of providing at least 10 percent of the produced electricity, that is to say, 75 of the 750 MW capacity of the project, was amended at a later stage pretending that there is no connection of the national grid and also technical advice of an expert from the Asian Development Bank arguing that monetary reimbursement in lieu of power could be higher than the 75 MW of hydropower. The then cabinet, pursuant to the proposal submitted by the Ministry of Water resources, decided on Kartik 14, 2055 to provide the project to SMEC for a period of 30 years, prescribing the royalty of 0.05 percent to be paid to Nepal instead of providing 75 MW of hydro-electricity.

In fact, it was a manipulation detrimental to the nation and beneficial to the decision maker and the producer. A high level meeting of the then water resources ministry headed by Minister Deepak Gyawali had decided to get 10 percent of hydro-electricity from SMEC, instead of the 0.05 percent royalty, asking the company to develop a separate 122 MW capacity Upper Seti project that was decided on Aswin12, 2059.

SMEC has managed the fund for the project by negotiating with Chinese and Indian investment banks and world financial markets, negotiating for power purchase arrangement with India's Power Trading Corporation, 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, it is too long to wait, providing more beneficial conditions to the producer to the detriment of Nepal and to agree to more and more demands for benefits by the company after these long years. The concerned ministers have been providing every concession and comfort to the company in an inconsistent manner thereby causing harm to Nepal and penalizing ourselves for the omission of the developer. However, the cloud of distrust between the political leaders and the people are increasingly surfacing, which is not a good indication. The total cost of the project is one billion and two hundred million US dollars.

From the view of the developer, it would be usual to take that much time for finalizing the environmental, financial, technical and other studies and arrangements for a project of this size. From Nepal's perspective, the waiting for so long for a company to develop this project, making eight amendments in favor of the company but unfavorable to Nepal is not a good initiation at all. What is 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 brought out by The Kathmandu Post was confirmed by the present State Minister for Water resources. This was again contradicted by himself by saying that Nepal will get 75 MW of hydro-electric power from SMEC when he was signing an agreement for its 15 percent equity participation in the project through ADB loan. The Finance Minister was quoted as saying that the above matter is true and that they will renegotiate with SMEC compelling it to provide hydro-electricity instead of cash royalty.

To date, no government authority has even raised the question of the augmented water of 90 cubic meter 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 India for the payment of that water, which will be the life-blood to the farmers of India to increase their agriculture productivity particularly during dry season. One may argue insisting that we cannot waste further time by involving in such useless points because India will not agree to it. Such an argument is detrimental to the country, as it was in the past. Such norms have been 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.

The price of 90 cubic meter of augmented water from the West Seti hydropower project should be paid by India, which will be a net profit to Nepal from the Seti project. The government must not be seen as taking a double standard in the matter of government involvement in a water resources project. For example, the finance minister has ruled out government investment in the Upper Tama Koshi Project whereas the government has directly invested 15 percent equity share in the West Seti project. There are two versions of the argument on how to develop hydro-electricity and water resources in Nepal. One view has emphasized to separate 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. Otherwise, we will see another demise and disastrous effect on the West Seti and SMEC plan, because it is very hard to make a project but very easy to break it within a short span of time.