UPPER TAMAKOSHI : Nepal’s Largest HEP Nears Completion

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UPPER TAMAKOSHI : Nepal’s Largest HEP Nears Completion

After facing various hurdles that led to delays and cost overruns, the 456-MW hydropower project is expected to come into full-fledged operation from August. Once the project comes online, the government will have another challenge - finding a market for the electricity.

Christian Ulhar, an Austrian native, first identified the Upper Tamakoshi hydropower project in 1990 while he was studying Nepal’s mountain region. His pre-feasibility study concluded that the 120-MW project could be built at a very cheap price of 2 paisa per unit.

Two years later in 2003, the state-owned Nepal Electricity Authority carried out a first detailed feasibility study which showed that the project of 250-MW capacity could be built at a cost of USD 1,100 per megawatt.

Concluding that the project could be constructed at a cheap price, another detailed feasibility study was conducted with the financial assistance of the Norwegian government. This study found that the project would have an installed capacity of 309 MW and estimated that the project would cost Rs 30 billion.

Following the detailed feasibility study by a Norwegian consultant, the NEA set up Upper Tamakoshi Hydropower Ltd in March 2007 to develop the 309 MW project. In 2009, the company concluded that the project’s capacity could be increased to 456 MW if an additional Rs 3 billion was invested to scale up features and structures of the project. The construction of the project kicked off in 2011 with a target to complete it in six years at an estimated cost of Rs 35 billion. NEA, Nepal Doorsanchar Company Ltd (Nepal Telecom), Citizens Investment Trust and Rastriya Beema Sansthan are the promoters of UTKHPL which is developing the project while thousands of people have made investments in the company through its public offering.

However, the project not only became a victim of political problems and weak management but also faced adverse impact from earthquakes in 2015. The project’s structures, particularly its dam and access road, were severely damaged by the earthquake. At a time when the project was already battered by the earthquake, the unofficial trade blockade imposed by India on Nepal amid political unrest in the Terai after the promulgation of the new constitution brought all construction work at the Upper Tamakoshi Hydropower Project to a complete halt.

Due to the blockade, the project faced a long delay in the supply of various equipment and machineries that it was importing either from India or via Indian territory.

Like other projects, the Upper Tamakoshi Hydropower Project could not become an exception to frequent obstructions from locals which are also blamed for the delay in the completion of the project. Another reason cited for the sluggish progress of the project is lack of efficient contract management. The deadline of the project had to be pushed back due to the poor performance of a contractor responsible for hydro-mechanical works.  

One of the most challenging aspects during the construction of the project was to install a penstock pipe in the tunnel. However, the contractor responsible for installation of the penstock pipe could not execute this task on time. The project manager should have been able to immediately take action against the contractor who could not fulfill its obligation under the contract. However, that could not happen. The contractor’s weak performance further delayed the project which led to cost and time overruns.

Another factor driving up the cost of the project is the appreciation of the US Dollar. However, that would not have made a significant impact on the cost if the project was completed on time. Though the project’s estimated cost was Rs 35 billion with a target to complete it in 2017, the delay of the project by over three years has doubled the cost to nearly Rs 76 billion. The company’s daily interest expenses stand at Rs 15 million while a delay in bringing the project into operation results in a loss of income amounting to nearly Rs 10 billion a year. For investors, particularly public shareholders, the delay means a huge loss.

The government has listed Upper Tamakoshi as a national pride project. With the construction reaching its final stage, the run-of-the river project built on Tamakoshi River in Dolakha district is now expected to come into full-fledged operation by August, according to project officials. Officials are now preparing to test electricity generation after completing most of the work including the tunnel, transmission and substation, among others.

 

This project is being developed under Nepali management by mobilising domestic financial resources. The Upper Tamakoshi Hydropower Project has become an example in Nepal’s hydropower sector that a project can be developed from domestic resources without relying on foreign investment. However, the prolonged delay to complete the project also highlights the weak performance of the government mechanism to implement a mega project. If it's taking over 10 years to complete a 456 MW project, the government mechanism’s capacity to build a hydropower project is not more than 45 MW per year. This means that the country still has to depend on the private sector or foreign investors for projects with higher capacity.  

The national pride project also offers some lessons to the government. Contract management has become one of the major weaknesses in the government-run project. If the government does not address this problem, large-scale projects are always at risk of failure.

This project has also raised a serious question over the share allocation policy. Shares were allocated not only to the employees of the promoter companies but also to the staff of institutions who have lent money to develop the project. While the general public as well as project affected locals were struggling to get 50 units of primary shares, many experts say the allotment of stocks to the employees of the promoter companies and lenders who are mobilising the fund of the public poses a conflict of interest.

Similarly, the NEA’s relationship with the Upper Tamakoshi Hydropower Project as both investor and buyer has stirred up some controversy, as there are suspicions it could have influenced the process of determining the installed capacity. While the NEA has signed a power purchase agreement (PPA) with Upper Tamakoshi requiring it to operate 116 days in full swing, other hydropower projects developed by the private sector must run 166 days annually at full capacity. Private investors complain that there are other discriminatory provisions in the PPA. The Electricity Regulatory Commission should step in to ensure transparency, enforcement of regulation, protection of interest of investors and consumers as well as a competitive environment.

After the Upper Tamakoshi Hydropower Project comes into full-fledged operation, electricity is expected to be in surplus in the country. Management of the surplus energy is going to be a big challenge for the government.

The Upper Tamakoshi Hydropower Project could become a national pride project for the country in a true sense if the government manages to find the market for the surplus electricity after the project comes online.

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