The NEA and the consultant—joint-venture of Germany’s Lahmeyer International and Canada’s Manitoba Hydro—were at loggerheads over an income tax wawiver. The consultant has been demanding a tax break, but the NEA has turned it down.

According to the Asian Development Bank (ADB), the consultant is set to hold negotiations with the NEA on April 20. However, uncertainty still looms over the positive outcomes.

Last week, the state-owned power utility had issued a 15-day ultimatum to the project consultant, making it clear that offering an income tax waiver was beyond their jurisdistion.

While the two sides have already agreed on most of the matters, the tax break has been the only roadblock in the negotiation progress.

The NEA said the country’s tax policy does not allow it offer tax break to anyone. The Finance Ministry also rejected the demand.  As the consultant remained firm on its demand, the government resorted to a strong position and issued the ultimatum, asking the consultant to clear its position on continuing the project, the NEA said.  “Both the parties should review the initial request for proposal (RFP). Negotiations should be held on the tax provision based on the RFP,” said ADB Country Director Kenichi Yokoyama. “Since the consultant is ready for negotiation, we are hopeful that the present deadlock will be resolved soon.”

Yokoyama said that it is the responsibility of the consultant to ask the government on how it plans to handle the financing and what kinds of taxes need to be levied. “On our side, we feel that this issue is related with the consultant and the government. And we welcome their move to resolve the issue,” he said.

NEA Managing Director Mukesh Kafle said on Thursday that they had not heard anything from the consultant about further rounds of negotiations.  “We are serious about the ultimatum given to the consultant,” Kafle said, warning that the NEA would go for a legal remedy if the negotiation fails to come up with positive results.

“Apart from the tax issue, there is no other complication for us to sign the contract with the consultant.”

Even though the financial closure of the project has already been completed, its progress has remained dismal. The row over consultant hiring had earlier caused construction delay.  The project will work on the technical specifications and come up with a concrete work plan once the consultant is mobilised.  According to Yokoyama, there are chances that the project could be completed within five years. “As a lot of time has been consumed, we can reduce the construction period from six to five years,” he said. In January, the Cabinet had ended the deadlock over the selection of project consultant. The ministry had scrapped the consultant appointment process after the ADB selected the German-Canadian joint venture company as consultant, resulting in a tussle between the project’s main donor and the Energy Ministry.