Under pressure to get the Kali Gandaki hydroelectric plant inaugurated by King Gyanendra by next month, Nepal Electricity Authority (NEA) is trying to hush up controversy over a shady transfer of cost overruns in Nepal's biggest power project.

The NEA board initially wanted an explanation about the unauthorised payment of $30 million to the project's Italian civil contractor without its approval. But management has watered down the inquiry, and only asked for reasons for the cost overrun.

"The entire issue has been hushed up," a senior NEA official told us. "The board did discuss whether action should be initiated against the culprits, but management is helping them get away." NEA has maintained the overruns were legitimate billings due to delays caused by political upheavals and geological complications during construction, but declined to comment on allegations that it is trying to sweep the matter under the carpet. Independent analysts see the Kali Gandaki controversy as a text-book case of why large foreign-funded and foreign-built projects turn out to be so expensive.

NEA insiders say both the government and the authorities are under pressure from the project's major creditor, the Asian Development Bank (ADB), to have the 144MW plant inaugurated by King Gyanendra as soon as possible.

"NEA and the Water Resources Ministry are already working for the inauguration and we are in regular consultation with the ADB over the issue of Kali Gandaki and other projects," says Finance Secretary Bhanu Prasad Acharya. ADB itself has refused to get involved in the dispute, saying it is a matter between the contractor and NEA, but it is also in a hurry to close the project. "We are supposed to close the loan file between three to six months after the project is completed," says ADB's Peter Logan. "We have been reminding the government about the difficulties of keeping the project file open indefinitely."

NEA had approved a $130 million bid by the Italian Impregilo SpA for an open-ended bill of quantities contract. By the end of the project, Impregilo and the American engineering consultant Morrison Knudsen International Inc (MKI) racked up a total of $180 million. The extra $50 million was paid by NEA officials over a period of five years, between 1997-2002, without informing the board. NEA's Managing Director was allowed to hand out only up to 20 percent ($26 million) in excess of the agreed $130 million cost on his own discretion. "The consultant supported the contractor and the bank backed the consultant," recalls an NEA official.

The ADB believes the $180 million amount spent on civil works was still below the initial estimate of $236 million. "That overestimation was the excuse the contractor used to escalate costs," says the NEA official who requested anonymity in an extensive interview. The $428 million Kali Gandaki A has already begun generation from its three units, but Impreglio is still pressing for another $5 million it says NEA owes it for delays in the project.