Local developers forced to accept 'take and pay' provision, Upper Trishuli-1 offered soveriegn guarantee
KATHMANDU, Dec 26: The government has decided to pay price of electricity to a foreign developer, even if Nepal Electricity Authority (NEA) fails to do so, giving preferential treatment to projects with foreign direct investment.
The Project Development Agreement (PDA) document of Upper Trishuli-1 Hydro Electric Project approved by the cabinet provides 'sovereign guarantee' to the developer which means that the government will pay the developer if NEA is not in a position to make payment, according to Gokarna Raj Pantha, deputy spokesperson for the Ministry of Energy.
NEA has inserted 'take and pay' provision in the Power Purchase Agreement (PPA) that it has signed with domestic developer and investors. It means NEA can deny purchase of electricity from such developers if it does not need, making projects unbankable.
Though the government announced to resume 'take or pay' clause in PPAs in February, it is still to come into implementation.
“This is a serious case of discrimination. Such act discourages local investors," Kumar Pandey, general secretary of Independent power producers Association, Nepal, told Republica.
Several projects having combined installed capacity of around 600 MW have signed PPA with NEA. But the developers do not know whether or not NEA purchases their electricity, lamented Pandey.
The government repeated its commitment to sign unconditional PPA with hydropower developers during the Power Summit held in Kathmandu last week.
The PDA document of Upper Trishuli-1 has been prepared after negotiations of around four years.
But NEA has not signed PPA with the developer yet as per the suggestion of the Ministry of Law, according to the energy ministry officials.
It is said that the government has made commitment to pay the developer in US dollar. But the PDA is being signed without fixing price.
With estimated cost of US$ 583 million, Upper Trishuli-1 has become one of the most expensive projects and its power purchase rate is set to be one of the highest.
The government had offered the price of 6 cent per unit in 2015. But the developer had denied the offer and demanded increment in PPA rate.
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PDA with Upper Trishuli-1 soon
The government is preparing to sign Project Development Agreement (PDA) with the developer of Upper Trishuli-1 Hydro Electric Project very soon.
The PDA document was approved by the cabinet meeting last week.
The Upper Trishuli-1 Hydro Electric Project (216 MW) is being developed by a consortium led by a South Korean government undertaking.
Joint secretary of the Ministry of Energy Dinesh Ghimire and a representative of Nepal Water and Energy Development Company (NWEDC) were scheduled to sign the PDA on Friday. But it was postponed stating that the energy ministry officials are out of the country.
All conditions and facilities in the PDA are similar to the ones in PDAs that the government signed with GMR and Satluj Jalvidhyut Nigam Limited (SJVNL) to develop Upper Karnali and Arun III, respectively, in 2014.
Deputy Spokesperson of the Ministry of Energy Gokarna R Pantha informed that the developer has to sign PPA within three months according to the PDA document.
Korean companies -- KOSEP (50 percent), DAELIM (15 percent) and KYERONG (10 percent) - are in the consortium. Similarly, International Finance Corporation (IFC) holds 15 percent stake in the company while Nepali investors own the remaining 10 percent.
