The $550 million Tanahu Hydropower Project sank deeper into limbo with one of the contractors refusing to expedite the construction work until it receives the advance amount.

Tanahu Hydropower Limited, the developer of the 140 MW storage-type project located in central Nepal, issued the commencement date on January 16 and directed the contractors—CMC Ravenna of Italy and Sinohydro Corporation of China—to mobilise workers for the project within 28 days, but the Italian contractor ignored the instruction.

Tanahu Hydropower is a subsidiary of state-owned Nepal Electricity Authority. According to Tanahu Hydropower, Sinohydro, the contractor for the hydro-mechanical and electro-mechanical works under the second package of the project, has started work. But CMC Ravenna, contracted to prepare a detailed design and construct the headworks under the first package, said it would not mobilise workers until the developer releases the advance payment.

Read more: Fate of Tanahu Hydropower Project uncertain

Tanahu Hydropower said it would not issue the advance payment until the Italian company produces a bank guarantee. “We released the advance payment to the Chinese contractor as it came up with the complete bank guarantee,” said Pradeep Kumar Thike, managing director of Tanahu Hydropower. “But the Italian contractor is yet to come up with the complete bank guarantee.” CMC Ravenna has submitted only a partial bank guarantee, according to Tanahu Hydropower.

The Italian contractor’s refusal to start work is likely to push back the completion date of the project. As the tasks of the two contractors are interrelated, the construction of the entire project will be hit if both of them do not mobilise workers at the project site.  

CMC Ravenna got into serious liquidity problems after Tanahu Hydropower signed a contract with the Italian and Chinese firms for the two packages of the hydropower project respectively last October.

Tanahu Hydropower is doubtful CMC Ravenna will successfully execute the job, but it can’t fire the Italian company as it is bound by the contract. But if CMC Ravenna doesn’t mobilise workers within 28 days, Tanahu Hydropower plans to initiate the process to terminate the contract with the Italian company.   

The Tanahu Hydropower Project will be one of the biggest reservoir-type projects in the country, with an estimated annual energy generation capacity of 587.7 gigawatt hours in the first 10 years of operation. The project can generate energy for six hours daily during the dry season.

Tanahu Hydropower is developing the project using a credit facility extended jointly by the Asian Development Bank, Japan International Cooperation Agency and European Investment Bank. The project is estimated to cost $550 million.