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 seeks survey term extension

Sutlej Jal Vidyut Nigam, Indian state-owned hydropower developer, has applied for the renewal of survey license of the 900 MW Arun III hydroelectricity project. The Indian firm had secured survey license in March 2008 on condition to complete the survey within five years.
"Sutlej has applied for the renewal of survey license for another one year to the Investment Board of Nepal (IBN)," a source privy to the issue told Republica. The validity of the survey license issued to Sutlej will expire on November 19.
According to the source, Sutlej, which has submitted the environmental impact assessment (EIA) report to the Ministry of Environment, Science and Technology (MoEST) for approval, has to get its survey license renewed.
Sutlej which had disclosed Rs 82.5 billion worth of financial investment for the project in last September, has just six more months to go as per the memorandum of understanding (MoU) with the government signed in 2008.
"Indian developer has applied for renewal by another one year. The IBN is mulling over whether to extend the survey license term as per the demands of the company or not,” said the source.
The government provides survey license to any power developer for five years as per the Electricity Regulation 1993.
The run-of-the-river project is based in Sankhuwasava district. Sutlej was picked through global bidding to develop the project preparing its detailed project report (DPR).
"The developer has to apply for generation license once it completes the process of survey," the source disclosed.
Meantime, Sutlej which is opposing the government´s newly introduced template of project development agreement (PDA) has been waiting to get approval for its EIA.
"The IBN has requested MoEST to speed up the process of approving EIA of Arun III," a source close to Office of the Prime Minister and Council of Ministers (OPMCM) said. Additionally, Sutlej has already disclosed financial plan in September on how it is going to invest Rs 81 billion as fixed capital and Rs 1.5 billion for variable cost.
It had also presented its plan for laying transmission lines to connect project with the national power grid. The Indian power developer, has agreed to supply just 21 percent of its total production to the Nepal Electricity Authority.

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.