Eight months ago, the World Bank approved a $75 million assistance package for the Power Development Project (PDP). The money was promised to Nepal after it pulled out of the Arun III in 1995, and would be used for other hydropower projects.
But a dispute between the government and a board formed to manage the fund has meant that not a single cent of that money has trickled through. Some members of the five-member board have decided not to endorse an earlier decision by the government on the appointment of an administrator to manage a $35 million component of the project to finance private investors called the Power Development Fund (PDF).
A negotiation committee of the government had selected Nepal Bangladesh Bank (NBB) as the fund administrator through a bidding process, fixing the fee at a little over $2.5 million. That was when the World Bank was supposed to provide $70 million assistance for the PDF alone. That assistance was slashed by half to $35 million because of country non-performance, but the administrator's fee was cut by only 25 percent to $2 million.
"That decision has kept board members from endorsing the government's decision," a board member told us. "How can we take the responsibility for mistakes made by the government negotiating team?" The majority of the board members are said to be in favour of re-negotiating with all three banks that bid to administer the fund: Himalayan Bank, Nabil Bank and Nepal Bangladesh Bank.
"There is no consensus yet," an official with the Department of Electricity said . "Apart from the fee dispute, there are many other issues that have to be settled." He did not elaborate, but another board member told us the government had placed the cart before the horse by making decisions before a board had been convened. "We are questioning the transparency of the entire process because we know if we endorse the idea, we will be held responsible."
Water Ministry officials admit the board has full authority to make all decisions. "The board has even been authorised to appoint the fund administrator on the basis of the negotiations the government has done in the past," said one official. PDF rules state that the board has the authority to make the appointment. But without board endorsement, NBB's appointment as administrator is not valid, and without that the World Bank cannot release the money. If the PDF is stuck, the Power Development Project itself grinds to a halt.
The deadlock means other components of the projects, including the $31 million to strengthen Nepal Electricity Authority and a $5.5 million allocation for micro-hydro village electrification are also in limbo. There are fears the bank may cancel the assistance that is a combination of a loan and a grant. "The beginning of the project can be extended till 18 months after its approval," the bank's senior external affairs specialist Rajib Upadhya told us. "If it doesn't happen by then, the assistance will be cancelled."