The Upper Madi Hydroelectric Project began commercial generation of power on Friday after Energy Minister Janardan Sharma inaugurated the 25 megawatt plant located at Sildujure in Kaski district.

The cost of the project developed by Madi Power Pvt Ltd increased to nearly Rs7 billion from the initial estimate of Rs5.80 billion. The project took four years to complete.

The China International Water & Electric Co (CWE) bankrolled the project under the build-operate-transfer model. The company has an 80 percent stake while Project Director Bijay Babu Malla holds the remaining 20 percent shares.

“It’s a model project. The power purchase agreement (PPA) for the project having a foreign investor was signed in the Nepali currency,” said Malla.

On the occasion, Minister Sharma said the project’s contribution would be huge at a time when the country is reeling under a power shortage. “Without energy we cannot imagine the development of industry, tourism, agriculture and other facilities,” he said. “We are committed to taking the private sector on board to develop projects in Nepal.”

He underscored the need for allocating 30 percent shares of any power project to the locals as it would increase their ownership and make the project sustainable.

In order to transmit the electricity generated to the substation located 10km away at Lekhnath, 32 transmission towers have been erected, with cables installed on 27 of them.

The earthquakes last year, the subsequent Indian blockade and floods in the Madi River had delayed the construction works.

As per the PPA signed with the Nepal Electricity Authority on September 6, 2009, the project will sell electricity for Rs4 per unit during the wet season and Rs7 per unit in the dry season.

However, Malla requested the government to review the rates citing increased costs. “The increased cost of building materials and additional use of explosives increased the project cost,” said Malla. “Initially, we had estimated the cost at Rs230 million per megawatt. But it has jumped to Rs320 million.”

Five workers lost their lives during construction. The tunnel caved in when the earthquake triggered a landslide. The river water is diverted to the powerhouse via a 4,200 metre long tunnel. Testing of the project began on December 20.