White gold- Nepali Times

KIRAN PANDAY

PRETTY USEFUL: A monsoon waterfall above the Marsyangdi two weeks ago.

Nepal's peace dividend may be elusive, development sluggish, and reconstruction slow, but one area where the government has been moving with uncharacteristic speed in the past year is in licensing new hydropower projects.

As if to make up for lost time, the Ministry of Water Resources is about to unleash a flashflood of new investments in large and medium-size hydropower schemes. Past controversy over India-Nepal water projects and public perception of New Delhi arm-twisting had made river harnessing a hot potato that no politician wanted to touch.

But given India's role in chaperoning Nepal's peace process, some say it is not a coincidence that most of the prospective new investors in Nepal's rivers are private Indian companies. New Delhi now sees the political situation in Nepal to be much more conducive, and it is also driven by a projected domestic demand in the north Indian grid which is facing a 12 percent peak hour deficit.

Proximity of Himalayan rivers, especially in western Nepal, to India's load centres make hydro-investments in Nepal an attractive proposition for Indian business. Indeed, Prime Minister Girija Koirala's policies and program speech in parliament on Tuesday marks out hydropower development through "multi-purpose projects in the national interest" as a priority.

The scrapping of the 1990 constitution, which stipulated a two-thirds approval by parliament of any cross-border river deal, has made it easier to steer joint water projects through Kathmandu's decision-making circles. However, parliament's Natural Resources and Means Committee is still extremely sensitive about Nepal being shortchanged in future investment contracts.

India's Bangalore-based GMR Infrastructure appears to be ahead in the race with bids for four major projects including Upper Karnali (300 MW) and Arun 3 (402 MW) in which it has come first. But it is the Upper Marsyangdi 2 and 3 (246 MW) for which GMR looks like is it about to get a green light on a domestic-plus-export deal.

As a sweetener, the Indian government has offered to build the 250 MW Naumure Dam in Piuthan to meet peak power needs for Nepal's domestic grid as well as irrigation in Kapilbastu. It will be the largest Indian aid project of its kind in the country.

The long-awaited Nepal-Australia joint venture West Seti (750 MW) in western Nepal is set to begin construction later this year once financing is sorted out with its Chinese partners. Norwegian SN Power, which is partnering with Butwal Power Company, has already got licenses for the export-oriented Upper Tama Kosi 2 and 3 (482 MW).

It's hydropower, stupid

KUNDA DIXIT

RESERVOIR DOGGED: Kulekhani is the only reservoir-type hydropower plant in Nepal today. In the next ten years there could be ten projects much bigger than this one on snow-fed rivers. How do both India and Nepal benefit?
Past mistrust still cloud efforts to make a big push on Indo-Nepal joint ventures

There have been no new major investments in hydropower in the past four years, demand has outstripped supply, and Nepalis are suffering crippling blackouts.
Since the power plants being negotiated now will take at least seven more years to build, these cuts will only get worse. This is why there is a new urgency to launch new projects.

The government also thinks the political climate is now ideal for negotiating export schemes to sell electricity to the power-starved north Indian grid, which already has a shortfall of 5,000 MW at peak periods.

After an initial spurt in private power producers exploiting the newly-deregulated market in the early 1990s through projects like Khimti and Bhote Kosi, political squabbling and the conflict turned off other investors. Regime change in April 2006 was a watershed in bringing investors back.

Indian companies\' interest in Nepal picked up after the Power Summit in September 2006, which brought together developers, contractors, creditors and insurance companies (\'Power sharing\', #314). Some 14,000 MW worth of projects have been put on offer exclusively for export to India. Eleven foreign companies, most of them Indian, are in various stages of the bidding process.

While GMR's bid for Upper Marsyangdi 2 and 3 seems to be closest to being finalised, the Indian company is likely to also get Upper Karnali and Arun 3. The parliamentary committee is said to not be satisfied with the 30 percent free equity and the 7.5 percent free power it is to get from the projects and wants more. Indian officials say these issues could be negotiated, but that reopening the bids would send the wrong signal to potential investors.

Because joint river projects have become so politically sensitive in Nepal, India is trying to get private firms involved. Says Jawed Ashraf, the Indian Embassy's Commercial Counsellor in Kathmandu: "Upper Karnali and Arun 3, for example, couldn't have been done as government-to-government projects. But it is urgent for Upper Karnali and Arun 3 to be awarded quickly to sustain the momentum and investor interest."

However, Maoist MP Lokendra Bista who sits on parliament's Natural Resources and Means Committee says not enough homework has been done. "We will not let these projects go ahead," he told us, and warned, "if they do, we will take whatever steps are necessary, and local people in project sites will not let construction begin."

This kind of talk makes investors jittery. But others say it is just the Maoist way of bargaining so they get choice jobs when the projects begin. The critical points that the parliamentary committee is looking at while examining each of the projects are issues of royalty, free electricity, free equity as well as handover period. Members are under pressure to probe if Nepal is selling itself short out of desperation.

There is also a clear difference between the positions of Maoist and non-Maoist MPs about okaying the large projects. NC MP Ananda Dhungana says: "We are not against the projects per se, but we want the government to be transparent and there should be no compromising on the national interest."

Indian and Nepali utilities are also getting together to set up joint venture transmission companies in each other's countries not just so future power can be traded, but also to import power from India until the new projects being planned today come online.

With additional reporting by John Narayan Parajuli

Boost for midwest Nepal

eglected for so long, Nepal's midwestern Seti-Mahakali region is expected to benefit from two large dams being planned there.

The Upper Karnali which will need a 150m dam at Asare in Surkhet-Dailekh is relatively accessible, and is nearest to Indian markets. In adjoining Doti, the $1.2 billion West Seti is the prototype export project with Australia's SMEC as a partner.

West Seti is the only one among the new projects besides Norway's SN Power which is not Indian. It is this dominance that is raising misgivings about India getting regulated water from power projects in Nepal for free. It is also said to be side-stepping a constitutional provision (Article 156) that requires 50 percent house ratification.

Water Resource Minister Gyanendra Bahadur Karki argues that electricity is not a "resource" and that regulated water also benefits Nepal. "There is no resource sharing across borders," he told us. This is hotly contested by former minister and water expert Dipak Gyawali, who says: "When regulated water crosses an international boundary, there is resource-sharing."

After nearly 11 years of often-tortuous negotiations, West Seti is now set to go ahead with investments from SMEC (26 percent), the Asian Development Bank (15 percent), Nepal government (15 percent), India's ILFC (15 percent) and Nepali investors. Negotiations are underway with two Chinese banks for the loan component. The other complication left to iron out is an original deal on 10 percent free power that West Seti was supposed to give to Nepal, but which was later negotiated to four percent of profit.

MPs have raised the issue of resettlement of the approximately 1,700 families that will be affected. "We want to make sure the government looks at the national interest and also the welfare of those affected by the project," says Siddhi Raj Ojha, NC MP from Doti. The Maoists have more fundamental objections, but Minister Karki says: "West Seti has already been endorsed by cabinet and we need to remember that there are also Maoists in this cabinet, which means that they endorsed it as well."

SMEC's Himalaya Pande is confident that his project is finally taking shape: "When everyone else was fleeing the country, we stayed, we never gave up, and now we can finally begin work on a project that will benefit the country and the people of an impoverished region."

John Narayan Parajuli