SN Power forms PDA negotiation team

SN Power, a Norwegian power involved in the development of Tamakoshi III (650 MW) hydropower project, has formed a six-member project development agreement (PDA) negotiation team.
The formation of PDA negotiation team right after SN Power signed project negotiation agreement (PNA) with the Investment Board Nepal (IBN) indicates that the Norwegian form is serious about developing the project.
"SN Power has sent a letter to IBN including details of the members in the PDA negotiation team,” a source privy to the issue told Republica.
The team includes Dr Sandeep Shah, vice president and country director of SN Power; Stale Rustad, project director for Asia of SN Power; Daniel Seeger, legal counsel; Christian Knoph, director, project finance; Ronald Storhammar, finance director; and Apar Neupane, business manager.
"We will be supported by Sinha Verma Law Concern´s senior advocate Anil Kumar Sinha and Rajeshwor Shrestha in the negotiations," reads the letter sent by SN Power to IBN. "We may add other resources in the team as per the requirement."
Confirming the development, Radhes Pant, CEO of IBN, said SN Power has sent the details of its PDA negotiation team.
According to the source, the first round of negotiations will take place on May 27.
IBN has already formed PDA negotiation team on its part. The team includes Pant, Mukunda Prasad Paudel, joint secretary at IBN; Anup Kumar Upadhyay, director general at the Department of Electricity Development (DoED); Baikuntha Aryal, joint secretary at the Ministry of Finance; and Keshab Dhoj Adhikari, joint secretary at the Ministry of Energy.
IBN and SN Power had signed PNA couple of weeks ago. As per the PNA, the developer should complete PDA negotiation within the 18 months of the signing of PNA.
SN Power had got survey license for the project in 2007.
According to the letter sent by SN Power, Shah and Rustad will be leading the negotiation from their side. Pant will lead the government side in the negotiation.
The development will get generation license after the PDA is signed.
Environment Impact Assessment (EIA) of the project, which is estimated to cost Rs 120 billion, has already been done.

Sutlej asks for access road, policy consistency before PDA

The government and Sutlej Jal Vidyut Nigam, which is developing 900 MW-Arun III hydropower project, held discussion on a slew of issues such as completion of access road and policy consistency on project development agreement (PDA), among others, on Wednesday.
"Sutlej asked us to build access road to the project site and increase the concession period--the period for which a developer retains project ownership--in the meeting," a government official who took part in the discussion told Republica.
The government can give a maximum of 35 years of concession period to a developer as per the existing Build-Own-Operate-Transfer (BOOT) Act. However, the government has given only 25 years of concession period to Sutlej.
The government, which is responsible to build access road to the project site, has just completed opening tracks.
According to the official, the meeting between Sutlej--state owned Indian power developer--and the Nepal Investment Board (NIB) mainly focused on laws and their consistency. "Sutlej has asked Nepal government whether it can import required construction materials from India," the official said on condition of anonymity.
A team of officials from the New Delhi based head office of Sutlej, led by R K Agrawal, managing director of the Business Development and Management Service, Sutlej, visited Nepal aiming to finalize the deal towards inking on PDA.
"The PDA with Sutlej for Arun III will be completed by next two months if the negotiations continue on the same pace," the official further said.
Additionally, Sutlej has sought strong commitment from the government on different policies such as income tax, excise duty on the export of produced power, value added tax and allocation of amount for forestry development from the total income of the project.
"The officials from Sutlej enquired whether the government can ensure consistency of the existing income tax policy during the entire project period," said the official close to the developments.
According to the official, Sutlej officials made it clear that they wouldn´t be able to spend five percent of their total income on the forestry sector. The government had introduced a law recently that requiring hydropower producers to spend five percent of their total income on the forestry development.
"That´s not practical for us," the official quoted Sutlej team.
Arun III is a run-of-the-river project based in Sankhuwasabha district.
Sutlej was selected to prepare a detailed project report (DPR) through a global bidding in 2008. As of now, Sutlej is on the verge of completing survey license.

Sutlej, GMR, SN Power oppose new PDA template

GMR, Sutlej Jal Vidyut Nigam Ltd (SJVN) and SN Power, three international power producers which are working on three hydropower projects with collective generation capacity of 2400 MW, have opposed the government´s new Project Development Agreement (PDA) template, saying that it does not guarantee policy consistency.
They have also raised concerns over the force majeure clause, arguing that it should be applicable not just in case of natural calamities, as provisioned in the template, but also in case of political instability and bureaucratic hassles.
The Investment Board (IB) had unveiled the template of the PDA in June as its basis for negotiations with international power developers.
However, the three developers said they have strong ´reservations´ about the PDA template. "Its provisions are weak and unacceptable," an informed source quoted the senior officials of the three firms as saying during their meetings with IB officials.
During the meetings, they even asked the IB not to apply the template during their PDA negotiations. "Their argument is: their engagement in the country had begun long before the template was developed, and hence, the template´s provisions should not be imposed on them," stated the source.
Radhesh Pant, IB CEO confirmed the dissatisfaction of GMR, Sutlej and SN Power. "Yes, they have expressed concerns over the PDA template. But we have asked them to submit their concerns in detail and in writing so that we could discuss them officially," Pant told Republica.
However, he denied divulging any further details.
The source, however, said the developers have asked IB to categorically cite a provision warranting consistency of policies.
"The PDA template must assure that income tax and bonus provisions, among other things, would remain the same for us throughout the project period. It must guarantee that in case of any change in the rules, it would not apply to us," the source quoted developers´ representatives as saying during the meeting.
The developers have even asked IB to extend the concession period, which is their span of ownership of the projects to be developed under build-own-operate-and transfer (BOOT), to 35 years from 30 years.
"Thirty years would be inadequate to recover the project cost," the developers have told the IB, according to the source.
So much so, SN Power has even warned that it could withdraw from Nepal if IB did not agree to its ´request´. Sandeep Shah, country director of SN Power, could not be contacted for comments.
SN Power, Norwegian power producer that developed Khimti I (60 MW), is working on the project concept of Tamakoshi III (estimated 600 MW) in cooperation with Indian developer TATA Power.
Sutlej, India´s state-owned power producer, which has got approval from the government to invest Rs 82.5 billion for the development of Arun III (900 MW), too has said that it wouldn´t be able to work under the provisions of the PDA template.
"We have already invested so much in the project. The government can´t impose new provisions on us now," the source quoted Sutlej officials as saying.
GMR, another Indian power developer, is working to develop Upper Karnali (900 MW).
IB entrusted to implement hydropower projects of 500 MW and above, had even invited a three-member team of Herbert Smith, British consultant that drafted the PDA template, to Nepal from London last week to convince the developers that the template is in line with the country´s law and international practices, and hence, is ´bankable´.
However, the source said IB´s effort did not pay off. Officials from GMR and Sutlej could not be reached for comment.

Govt clears PDA template for big hydro projects

In a major development, the Investment Board (IB) on Thursday approved a format for power development agreements (PDA) that it is to adopt while awarding hydroelectricity projects of above 500 MW capacity to international investors.

The format, which will be applied while developing Tamakoshi III (650 MW), Upper Karnali (900 MW), Upper Marsyangdi (600 MW) and Arun III (900 MW) under build-own-operate-transfer (BOOT) arrangements, assures a 30 year concession period for the developers. It also sets the condition that the projects developed should last 100 years.

What this means is, the developers will be allowed to own and operate mega hydropower projects for 30 years, and once the contract ends, the government will reclaim the ownership. But developers will still be able to operate the projects for the next 70 years. "This will protect the interests of both the people of Nepal and the power developers," said a senior IB official.

The PDA template equips the government with guidelines for negotiating sound hydropower deals. It aims to ensure maximum benefits in terms of revenue, spending, industrial employment benefits and electricity.

"The PDA ensures fair returns to the developers, enabling them to get financing at competitive costs. This agreement is bankable," said Radesh Pant, CEO of IB.

Among other things, the PDA template commmits to putting in place a timely mechanism for approval from the government and also promises that the government will fulfill its commitments. It seeks developers to follow the best-practice international environmental and social standards, ensures packages that benefit local communities and commits itself to fair resettlement and rehabilitation, Pant told Republica after the board endorsed the template on Thursday.

Prime Minister Dr Babu Ram Bhattarai, who chairs the IB, stated that the government will assure investors work on their projects will proceed unhindered.

The PDA is just an agreement template though. The IB will negotiate and tailor individual agreements for different projects based on project circumstances and economics, local community needs and aspirations.

The template clearly cites the roles and obligations of the government and power developers. In the event of disagreements, it assures impartial processes for quick resolutions.

It also deals at length with dam safety, appropriate design and maintenance and handover provisions. "Issues such as protection against basin silting are also covered so that these hydro assets continue to benefit the country for many decades after the investors hand them back to the government," Pant told Republica.

The PDA template furthermore provisions for full financial disclosure so that the government understands how it will benefit from projects. "Shareholder agreements -- yet to be drafted -- will ensure profit and dividends and other policies and procedures to protect the government´s equity interest over the 30 year term," reads the template.