Construction of 140-megawatt Tanahun Hydropower Project is likely to be delayed as Abu Dhabi Fund for Development (ADFD) has denied signing an agreement with government on co-financing project by placing various conditions.
The ADFD had earlier pledged to contribute around $30 million (approximately Rs three billion) to build the $505-million reservoir-type project, which is also known as Upper Seti project.
Other financiers of the project are the Asian Development Bank (ADB), which has pledged to contribute around $150 million, the Japan International Cooperation Agency (JICA), which has promised to chip in around $184 million, the European Investment Bank (EIB), which has pledged to contribute 55 million euros, and the government itself, which is contributing around $71 million.
The government already has signed co-financing agreements with the ADB, JICA, and EIB. “However, due to a delay in signing the agreement with ADFD, we have not been able to use funds pledged by ADB, as the agreement with the Asian Development Bank clearly says the loan would be effective only after the government signs agreements with all financiers,” a high-ranking official of the Ministry of Finance (MoF) said on condition of anonymity.
The problem stemmed from the ADFD’s proposal to get the financial agreement reached with it ‘ratified’. “In technical terms, ratification means we have to pass the agreement through the Parliament. This is not possible here as the law has given the authority to the Cabinet to endorse such agreements,” another MoF official said on condition of anonymity.
As the ADFD started insisting that Nepal ‘ratify’ the agreement, MoF then told ADFD officials that government would rather drop ADFD’s name as co-financier of the project than agree to their demands.
“We had sent an e-mail mentioning this because agreeing to their terms could have propelled other donor agencies to place such conditions in the future, thus, complicating the process,” the MoF official said.
Following this, the ADFD responded saying it wanted to look into similar agreements signed with other donor agencies. “This is also not that easy as we cannot show agreements signed with one donor agency to the other,” the official said. “But we are looking into other possibilities and if we don’t find any we will have to start talking to another donor agency to co-finance the project.”
Tanahun Hydropower Project is being developed in the Seti River in Tanahun district, about 150 km west of Kathmandu. The project has three main components: a hydropower plant of 140 MW with significant water storage facilities and associated transmission lines to evacuate the generated power; rural electrification and community development in the project area; and a reform and restructuring plan for the national utility, the Nepal Electricity Authority, according to the ADB’s website.
If things go according to plan, the project should be complete within seven years of the launch of the construction process, which includes about 1.5 years for project site development and the execution of safeguard plans. “But if ADFD continues to place new conditions to sign the agreement, we may not be able to complete the project on time,” the MoF official said.
The project is essential for Nepal as it is a reservoir-type project, meaning it will continue to generate electricity even during the dry season when power cuts can reach 12 hours per day or more.
