In a surprising move that could have a far-reaching consequence on foreign policy initiatives of Nepal, the government has entered into an agreement with Three Gorges Corporation (TGC) of China for the construction of the 750 MW West Seti Hydro Electricity Project. The proposed project is to be built at a cost of US $1.6 billion. As per the agreement, TGC will have 75 percent of the total investment while the Nepal Electricity Authority (NEA) will bear the remaining 25 percent.
It is said that NEA will get necessary funds from the Chinese power company in concessional loan. All work is to be contracted out in July 2014 and the entire project will be completed by 2019. The authorities concerned have argued that this bilateral agreement is exclusive in nature and is tremendously beneficial to Nepal. They contend that since the agreement has been made for domestic consumption, no comparison can be drawn between West Seti and other hydro-projects of Nepal. They also say that immediate benefits from the project were not sought since that would have invited a Power Purchase Agreement at a higher cost.
Energy Minister Post Bahadur Bogati has said that the project was pushed with China in order to "save time" as against competitive bidding.
These arguments look hypothetical at best. Let’s look at the nature of the project first. West Seti project, which is located in Nepal’s Far Western Region, was initially conceptualised as a run-of river special project to supply energy to India at peak hour with plans to export 90 percent of the electricity to India through a 180-km transmission line (TL).
For 16 years, the proposed dam construction was stalled for multiple environmental, political and social reasons. The project could not kick off mainly because of objections from environmentalists who claim the proposed dam threatens the region’s rich natural resources and will have an adverse impact on the local communities. It also suffered heavily due to political instability at home and inability of foreign players to attract and hold on to sufficient investment. This led to the license cancelation of the Australian multinational Snowy Mountain Engineering Corporation last year. In 2010 the Asian Development Bank pulled out of the project for its failure to comply with its own environmental policies.
This means that the success of the project will invariably depend on a good resettlement plan. An estimated 2,322 hectares of land would have been acquired for the project and 678 hectares for the TL. A total of about 1,575 households would be displaced by the project. 13,000 people would be directly impacted: 7,870 would be resettled outside the project area, and 1,200 would relocate locally. But even with a decade of bad experience, the government has yet not looked at the resettlement issue.
This is aided by a total absence of local participation. West Seti is a case of sheer irresponsibility on the part of the state and also a result of the interplay of vested interests.
Secondly, with an accumulated loss of NRs 27,534.01 million at the end of the fiscal year 2010/11, the NEA is in no position to finance any TL project. NEA incurred a net loss of NRs 6,511.65 million in 2010/11. It is estimated that the unit cost of total energy generated and transmitted to Bharatpur is about 3.0USc/KWh, which is 520km from the project site. Since the total energy to be generated from West Seti is 3330 GWh, the cost would then be around $100 till Bharatpur. From Bharatpur to Kathmandu is another 100km to be transmitted through a 220 kV line.
The energy ministry has said that these projects will be funded on soft loan from Exim bank of China, which will also help Nepal generate funds to take care of 25 percent of the cost. In addition, West Seti is a peaking energy generating project. It was conceived as such to minimise all losses to Nepal and all corresponding studies were thus export-oriented because of close distance with India. It is a simple logic that more the distance the more will be power loss. The new agreement is thus against the very nature of this project.
On the other hand, the manner in which the MoU was signed, behind closed doors, invites speculations. Water is a crucial issue to Nepal and bureaucrats alone cannot conclude such a large-scale project arbitrarily. It is unfortunate that we have proved incapable of generating debate on matters of national concerns like this one. It must remembered that there is still the absence of the much-needed people’s consent on West Seti.
The geo-political implications of this agreement also cannot be ignored. Although the TGC could have the capacity to fund and implement the project, it will place China at a strategic location in Nepal.
Climate and sustainability experts in Delhi like Samir Saran speak of recent developments as "logical outcomes" of the "need" for such projects in Nepal and the capacity of China to fund such initiatives in Nepal.
But they are quick to underline the political nature of such collaboration too, citing that India would be wary. According to such experts, the biggest challenge to this project would be the perception of China and experience of Chinese companies in the region which have had to face protests and hurdles.
Many in Delhi now feel a need to put in place a trilateral agreement on West Seti. MK Venu, Managing Editor of Financial Express, for example, believes that it "makes sense" for Nepal to make the project trilateral as it would "create goodwill" for Nepal with both India and China.
Otherwise, the new deal may even backfire on Indo-Nepal power trade negotiations. Since Nepal can export power only to India, we cannot afford to lose out on power trade.
Moreover, this is not about India and China alone, this is more about our own capability and what is in the best interest of the country. India and China may be emerging super-powers, but their regional rivalry stays.
The government has thus treaded a dangerous road.
(Akanshya Shah is an Associate Fellow at Observer Research Foundation)
Courtesy: The Kathmandu Post
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