CTGC to sign pact after share issue is clarified
- BIBEK SUBEDI, Kathmandu
Sep 14, 2017-China Three Gorges Corporation (CTGC), the developer of the West Seti Hydropower Project, has said it will sign a joint venture agreement with the Nepal Electricity Authority (NEA) only after the modality of issuing shares to locals is clarified. Locals affected by the 750 MW project located in far western Nepal have been promised 10 percent of the shares in the joint venture company that will be formed to construct the scheme.
CTGC recently wrote to Investment Board Nepal (IBN) seeking clarity about the mechanism that the Nepal government will follow while distributing the shares. The CTGC board of directors has endorsed the joint venture agreement initialed with the NEA, but the signing of the deal has repeatedly snagged on myriad issues and delayed the construction project.
According to IBN, the Chinese company is concerned that the proposed joint venture company will automatically become a public limited company if shares are issued to the general public, and this means greater disclosures and compliance will be required. “We are trying to convince CTGC officials that a proper mechanism will be developed before the company is formed so that it will not have to go public,” said the IBN source.
Similarly, CTGC has sought a guarantee from the government that it will buy the electricity generated by the project if its joint venture partner the NEA does not.
The Chinese company has also asked IBN for a corporate guarantee from the NEA or a second party to borrow funds to implement the project. However, the NEA has said that no corporate guarantee will be required to secure a loan as the project itself will be pledged as collateral.
In August 2012, IBN and CWE Investment Corporation, a subsidiary of CTGC, signed a memorandum of understanding to construct the West Seti Hydropower Project. As per the pact, the Chinese company will have a 75 percent stake in the joint venture company while the NEA will hold the rest of the shares.
More than four years later, NEA Chief Kulman Ghising and the CTGC vice-president initialed a joint venture agreement which had to be ratified by the boards of their respective organizations. The NEA board immediately approved the agreement, but the Chinese developer took around eight months to make conditional endorsement.
The reservoir-type West Seti project, which will be spread over Baitadi, Bajhang, Dadeldhura and Doti districts, is being built at an estimated cost of $1.6 billion. Although the original installed capacity of the project is 750 MW, the Chinese developer has proposed a downward revision to 600 MW citing decreased water levels in the river. After the NEA rejected CTGC’s proposal, the Chinese developer hired consultants to make a further assessment, the results of which have not been published.