The Energy Ministry has been mulling to scrap the contract signed between the Nepal Electricity Authority (NEA) and China Three Gorges Corporation (CTGC) for the development of the West Seti Hydropower Project after the Chinese company threatened to pull out from the deal unless the state-owned power utility revised the power purchase rate.

Last December, CTGC wrote to Investment Board Nepal (IBN) saying that it would drop the project if the NEA didn’t revise its guideline for the power purchase rate.

The Chinese company has said that the rate offered by the guideline doesn’t make the project bankable. According to the guideline, reservoir-type projects like the West Seti will get Rs12.40 per unit during the dry season which lasts from December to May, and Rs7.10 per unit during the wet season which lasts from June to November.

IBN wrote back to CTGC asking it to share the study report which says the project will be not be bankable at the rates mentioned in the power purchase guideline issued by the NEA. According to the IBN source, the Chinese company has not done so or responded to the board’s letter.

The Energy Ministry has been consulting with political leaders and government offices like IBN and the NEA over the issue. According to a highly placed source at the ministry, Energy Secretary Anup Kumar Upadhyay and IBN CEO Maha Prasad Adhikari met with Prime Minister Sher Bahadur Deuba last week to brief him about the current status of the project.

During the meeting, Prime Minister Deuba advised them to scrap the contract with the Chinese developer if it disagreed with the power purchase rate.

Energy Ministry officials are also not in a mood to revise the power purchase rate and are for scrapping the agreement and exploring other options to build the project.

Less than three months ago, CTGC and the NEA had signed a joint venture

agreement to form a joint venture company and implement the project. As per the pact, the Chinese company will have a 75 percent stake in the joint venture company while the NEA will hold the rest of the shares.

The two partners were supposed to invest in the project through their proposed joint venture company, West Seti Hydropower Project Development Limited. The scheme will cost $1.8 billion including interest charges incurred during the construction period and $1.4 billion excluding interest charges, according to the NEA.

The 750 MW West Seti Hydropower Project will extend across Baitadi, Bajhang, Dadeldhura and Doti districts and is expected to generate 2.8 billion units of electricity per year. The estimated construction time of the project, which will have a 207-metre tall dam, is six and a half years.