The Nepal Electricity Authority has told China Three Gorges Corporation (CTGC), its joint venture partner on the West Seti Hydroelectric Project, that it does not need a guarantor to borrow money to implement the scheme.

The Chinese company had recently written to the NEA via Investment Board Nepal (IBN), the project implementing authority, asking it if it could assure a corporate guarantee from a second party or the NEA itself for a loan for the project.

State-owned power utility NEA has said that no corporate guarantee is required to secure the loan, as the project itself will be pledged as collateral. When IBN signed the memorandum of understanding (MoU) with the Chinese developer, there was an understanding that the project would get a loan under the non-recourse financing model.

Under this model, the lender receives repayment from the profits generated by the project. This means the borrower will not be obliged to provide a corporate guarantee for the credit obtained by the project, and neither will the lender be allowed to compel the borrower to divert proceeds generated by other assets. “The Chinese developer’s demand at this moment is irrelevant and unnecessary. Therefore, we have clearly written that we will not address it,” said NEA Managing Director Kulman Ghising. “In fact, when they signed the MoU with the government, they had promised to arrange credit for the NEA to enable it to make an equity investment in the joint venture company.”

In August 2012, IBN and CWE Investment Corporation, a subsidiary of CTGC, signed an MoU to construct the 750 MW hydropower project located in the country’s Far Western Region. As per the MoU, the Chinese company will have a 75 percent stake in the joint venture company while the NEA will hold the rest of the shares.  

CWE will allot 10 percent out of its 75 percent equity to locals residing around the project site. CWE also holds the right to float shares to the public in Nepal. However, it must keep at least 51 percent of the company’s shares, according to the joint venture agreement.

More than four years later on January 17, NEA Chief Ghising and the CTGC vice-president initialled a joint venture agreement which had to be ratified by the boards of the respective organizations. The NEA board immediately approved the agreement, but the Chinese developer has been dillydallying by repeatedly putting forward new demands.

The reservoir-type West Seti project, which will be spread over Baitadi, Bajhang, Dadeldhura and Doti districts, is being built at an estimated cost of $1.6 billion.

Although the original installed capacity of the project is 750 MW, the Chinese developer has proposed a downward revision to 600 MW citing decreased water levels in the river. After the NEA rejected CTGC’s proposal, the Chinese developer sent a high level team of hydrological experts to the project site to record the water level in the Seti River where the proposed plant will be built.