The Nepal Electricity Authority (NEA) signed a draft power purchase agreement (PPA) with Tanahu Hydropower Limited on Friday to buy the electricity generated by the Tanahu Hydropower Project. The deal needs to be endorsed by the board of directors of the state-owned power utility.

Pradip Kumar Thike, managing director of Tanahu Hydropower Limited, a wholly owned subsidiary of the NEA, said the accord would become a legally binding contract after it is approved by a meeting of the NEA board slated to be held soon.

The 140 MW Tanahu Hydropower Project is a storage type plant planned to be built on the Seti River in Tanahu district in central Nepal.

As per the power purchase guidelines issued by the Energy Ministry and approved by the NEA board, storage projects like Tanahu Hydropower will be paid 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.

The guidelines also state that if the energy output during the dry season drops below 50 percent of the installed capacity, the payment rate during the wet season will be reduced by the percentage point of the decline.

For example, if electricity generation during the dry season falls to 36 percent of capacity, or a drop of 14 percentage points below the threshold, the NEA will pay 14 percent less for the power produced during the wet season. This means the purchase rate for the energy produced during the wet season will be Rs6.10, which is 14 percent less than the fixed rate of Rs7.10.

Tanahu Hydropower Limited has sealed a power purchase deal with the NEA, but the construction of the power station is in limbo due to delays in appointing contractors. The company has signed a memorandum of understanding with Sinohydro Corporation to implement the hydro and electromechanical works of the Tanahu Hydroelectric Project, but it is yet to sign the actual contract.

Likewise, there has been no progress in appointing a contractor for the first package of the project which includes the preparation of a detailed design and the construction of the headworks. Tanahu Hydropower Limited has forwarded the proposals submitted by two companies to the Asian Development Bank (ADB), which is one of the financiers of the project, for its approval.

The ADB has not given its go-ahead. Tanahu Hydropower Limited had planned to appoint both contractors for the project by October 2017 and start construction by December 2017, but it did not happen due to delays in the procurement process.

The Tanahu Hydroelectric Project will be one of the biggest reservoir projects in the country with an estimated annual energy generation capacity of 587.7 GWh in the first 10 years of operation. The project can generate energy for six hours daily during the dry season. The project is being built using a credit facility extended jointly by the ADB, the Japan International Cooperation Agency (Jica) and European Investment Bank (EIB).