The Indian developer of the Arun-3 Hydropower Project has claimed compensation from the government for failing to abide by its commitment to give continuity to the laws that existed when the project development agreement (PDA) was signed.

SJVN Arun-3 Power Development Company (SAPDC), the developer of the 900 MW project, has demanded compensation under the ‘change in law’ provision in the PDA after the government failed to provide forest land required to develop the scheme. 

The project needs to lease 125 hectares of forest land to build an access road and implement the civil works of the hydropower project. 

As per the laws prevailing at the time the PDA was signed, the project developer has to pay lease fees to the government and plant double the number of trees that are cut down at the leased land. 

After the Forest Ministry asked the SAPDC to buy an equivalent amount of land and create a forest on it, the developer refused. The ministry’s demand is based on an upcoming guideline governing the acquisition of forest land for infrastructure development.  

Instead of complying with the ministry’s demand, SAPDC dispatched a letter to the Investment Board Nepal (IBN) seeking compensation invoking the ‘change in law’ clause in the PDA.  

“Our company believes that the government has introduced a new law which is totally different from what was prevailing while signing the PDA,” said Hari Ram Subedi, resident representative of SAPDC. “So, our company has the right mandated by the PDA to seek compensation from the government.”

The IBN has acknowledged receiving the letter from the project developer asking for compensation, but refused to make any official comments on it. “We have received such a letter from the developer, and the board will issue a statement to the media only after consultation with its lawyers,” said Madhu Prasad Bhetuwal, joint secretary at the IBN. 

According to reliable sources at the IBN, the board will first try to resolve the dispute with the developer through consultation and discussion. However, if the dispute is not resolved, the developer might go to the Singapore International Arbitration Centre to resolve it through arbitration. 

Since the argument put forward by the developer is well backed by the PDA, they have a very strong case, and the Nepal government might have to pay a hefty sum in compensation as well as the arbitration fee.  

“It would be in the best interest of everyone if the Forest Ministry postpones the introduction of the new guideline and allows the developer to acquire the forest land under the old law,” said the source. 

“Otherwise, the ministry should simplify the land acquisition process as directed by a joint meeting of the parliamentary Agriculture and Water Resources and Development committees on April 3, 2016.” 

They had instructed the Forest Ministry to put in place a legal provision within a month under which infrastructure projects can acquire forest land by paying a certain fee. According to the directive, the amount, which will be determined by the ministry, will be used to develop a new forest equivalent in size to the deforested area. 

However, the ministry ignored the joint directive issued by the House panels and is planning to introduce a guideline based on the directive issued by the Natural Resources Committee under the previous Parliament. It directs the government to put in place a legal provision barring forest land from being used for other purposes. If forest land has to be used for any other purpose, the acquirer must return an equivalent forest area to the government.