Five years after the World Bank abruptly pulled out of the US$1 billion Arun III hydroelectric project, the controversial scheme is back. This time, the private sector will take the lead and it will generate twice as much electricity.
The government has decided to let the Los Angeles-based EurOrient Investment Banking Group to build the project. The EurOrient\'s managing director Ron Nechemia company had applied for three licenses on the Arun River in eastern Nepal last year: for the 402MW Arun III, the Upper Arun (335MW) and a feasibility study of the Lower Arun (308MW).
EuroOrient will now be allowed to build the Arun III, and the government says decision on the Upper Arun bid will depend on its performance. ASTQ Holdings Company from Canada and Susasun Power Company Private Ltd, a Nepali company, had also bid for Arun III. Sustained opposition in Nepal and abroad to the 201MW version of Arun III (called Baby Arun) in the early 1990\'s led the Bank to pull out in 1995. But the Bank did so saying Nepal was incapable of building it, and glossed over its own role in mothering its favourite mega-project from inception to detailed design. In Nepal itself, Arun III became a political hot potato with the Nepali Congress blaming the United Marxists-Leninists (UML) for sabotaging the project. By then, there were internal divisions within the Bank about its economics, and a new boss James Wolfensohn decided to opt out.
Bigger, Better ?
The new Arun III is 402MW, and is to be built by private investors and not funded through soft loans and tied bilateral grants. The 201MW Baby Arun would have cost over US$ 1 billion, or about $5,000 per kilowatt.
Even though the new plant will be twice as powerful, even if were to have a tab of $1 billion it will cost half-only $2,500kw. (A 1995 estimate of the bigger project was $859m). Most of the power is for export to India.
EurOrient\'s managing director Ron Nechemia is due in Kathmandu later this week to finalise the deal.
"We hope the entire process will be completed in a month," says Binaya Amatya, representative of EurOrient in Kathmandu. "Should everything go according to our schedule, we hope to complete the project in 6-7 years."
Amatya says EurOrient has talked to possible power buyers in India, Nepal\'s main market, and it will now start detailed discussions. The power deficit in northern India has now reached 9,600MW, and is expected to grow to 14,999MW by 2005 and 20,800MW by 2010.
Although EurOrient\'s proposal to the Electricity Development Centre shows that it has experience in building power projects, most of them have been thermal plants. The company, incorporated in 1988, says it is presently building four BOOT (Build, Own, Operate and Transfer) projects ranging from 650MW-3000MW in China and a S3b telecom project in Turkey.
The Arun III is to be built at the end of a new, 129-km road in Sankhuawasabha District in eastern Nepal. The road alone is expected to cost more than 5400m. Since the highway from Hile near Dhankuta to the project site at Num will have almost no returns for the investor, it is unlikely that the company would go ahead without assurances of getting to do other projects on the same river. Another critical question for the government is who is going to pay for the roughly $15m worth of studies it has already done on the Arun schemes.
In September Nepal invited proposals from companies interested to develop 11 Category A projects and conduct feasibility studies on another 11 Category B hydro-investments. Twenty-seven companies had applied for licenses, including nine from Nepal, four from India and one from China. In early June EurOrient\'s Ron Nechemia wrote to the government pointing out the delay in evaluating the bids. He also hinted that the $1.84 billion EuroOrient had allocated for the project would not be available if the delays continued. The minister then decided on the project on June 28.
Suddenly, private sector participation in Arun III has changed the entire tenor of the debate on the project. Activists who six years ago had questioned the project\'s economics and the World Bank\'s role have also changed their focus.
Gopal Siwakoti Chintan of the human rights group, INHURED, was among a group of firebrand activists who came to be known as "The Arun Slayers". "Earlier the battle was against the World Bank and its aid conditionalities, not on the technical aspects of the project," says Chintan. "Today, with the private sector our efforts will be to ensure that the project does not become an expensive Khimti-negotiated and implemented with minimum transparency."
Chintan and other activists say they will have to carefully examine the terms of the license and if the recommendations of the Bank\'s inspection panel are complied with.
The earlier debate had centred on funding tied to bilateral aid, the high cost and vulnerability of the site to glacial outburst floods.
"We had said let\'s do Arun III after ten years," says Bikas Pandav, an electrical engineer, another Arun Slayer. "Our concern was the risk the government was taking by going for a single project that was too expensive, which could also have blocked other development."
New hydro policy
NEPAL\'S new hydropower policy proposes specific efforts to correct some of the lapses in the existing one prepared eight years ago when Arun-3 was high on the government\'s development agenda.
The draft- 10th Kha in the series-of the new policy was discussed this month by the Parliament\'s Natural Resource and Means Committee, which recommended that the government finalise it within a month and also prepare a new law to go with it as soon as possible. Water resources experts and former and present officials of the Ministry of Water Resources were invited to the discussions.
Its mention of developing electricity as and exportable product is a clear departure from the existing policy that was hurriedly prepared in 1992.
The proposed charge for plants built for domestic consumption is Rs 100 per kilowatt of installed capacity, and the royalty is two percent of the energy sales for the first 15 years. This rate is applicable to projects of 1 ~10 MW capacity. The changes thereafter would be Rsl700/kw of installed capacity and 10 percent of energy charges.
For export, projects above 10MW will be required to pay Rs800/kw of installed capacity and three percent of energy sales for the first 15 years, and Rs 1,700/kw and 10 percent thereafter.