Nepal approves PDA for 900MW Upper Karnali project

After much deliberations and delay Nepal has finally approved the project development agreement (PDA) of the 900 MW Upper Karnali project to be developed by India’s GMR Group.

The final draft of the agreement was approved on Wednesday evening by Investment Board of Nepal (IBN). Nepal’s cabinet is expected to endorse the document on Friday.

To be constructed at an estimated cost of NRs 140 billion (Rs 87.5 billion), the project will be one of the largest hydro power projects in Nepal and the one with the biggest foreign investment till date.

“This could be a milestone for the development of the hydro-power sector and to attract foreign investment,” finance minister Ram Sharan Mahat told The Himalayan Times.

The project has been in pipeline for several years and during Prime Minister Narendra Modi’s Nepal visit last month both countries had agreed to sign the PDA within 45 days.

As per the agreement, IBN has agreed to pay GMR, NRs 5 million (Rs 3.12 million) per MW as value added tax (VAT) exemption. This move was being opposed by ruling coalition partner Communist Part of Nepal (Unified Marxist Leninist) and several experts in Nepal.

Located in Surkhet, Accham and Dailekh districts of Nepal, the project was awarded to GMR in 2008 after a global bid. It was agreed that GMR would provide 12% free electricity and 27% free equity to Nepal government.

As per the agreement, GMR will hand over the project and the transmission lines to Nepal government 25 years after power generation begins. The project is expected to be completed by 2022-23.

According to estimates, Nepal has a hydro-power potential of nearly 83,000 MW, but the country generates less than 1000 MW and there is nearly 16-18 hours of load shedding during winter.

Like Upper Karnali, several other major hydro-power projects in the country are in limbo due to political differences and opposition by some groups citing national interest.

In May 2011, three office buildings belonging to GMR at the project site were burnt down by Maoist cadres and two people severely beaten up. They alleged that the project was against Nepal’s interests.