WEST SETI HYDROELECTRIC PROJECT : New Approach Needed to End the Decades-long Uncertainty

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WEST SETI HYDROELECTRIC PROJECT : New Approach Needed to End the Decades-long Uncertainty

After years of uncertainty, a faint glimmer of hope that the development of the West Seti Hydroelectric Project will move ahead has been seen with a three-member team comprising of National Planning Commission Vice Chairman Dr Bishwo Poudel, Investment Board Nepal (IBN) CEO Shushil Bhatta and Energy Secretary Devendra Karki visited the dam site of the proposed project situated in Doti district on the third week of September. Before the visit, a meeting of the committee formed by the 47th IBN board meeting to study and recommend project structuring, development and investment modality of the West Seti+SR6 Joint Storage Hydroelectric Project was held at IBN office on September 13. The 750MW West Seti project was modeled as the 1,200 MW West Seti+SR6 (750MW West Seti and 450MW SR6) by IBN before the Nepal Investment Summit 2019.

It was in 1981 the West Seti was identified as the reservoir-based hydel project. Since the 1990s, there have been many attempts to move ahead with the development of the project, but to no avail. The years of failure to develop this project have led to a situation where the West Seti Hydropower Project is regarded as an example of Nepal's directionless energy sector development. Touted for years as the project which will transform the country's Far-western region, West Seti has fallen into a state of despair. No one knows when this project will be built and who will build it.

The powerhouse of this storage-type project will be constructed 63 kilometers above the confluence of the Karnali River and the Seti River. The structures of the project will be constructed in Doti and Dadeldhura districts while the 20.6 sq km reservoir created by the dam will cover parts of Doti, Baitadi, Bajhang and Dadeldhura districts. The proposed dam site is located about 33 kilometers upstream of Seti Bridge at Dipayal Bazaar, and 186 kilometers away from Dhangadhi.

The detailed study and construction of the project were entrusted to the Australian developer Snowy Mountain Engineering Corporation (SMEC) in 1997. But in June 2011, the government scrapped the construction license after SMEC stopped working on the project. The contractor's decision came after the two principal financers -- the Asian Development Bank (ADB) and the China National Machinery and Equipment Import and Export Corporation (CMEC)-- pulled out of the West Seti citing the lack of any progress related to the development of the project. In August 2011, the project was handed over to the China Three Gorges Corporation (CTGC). The Nepal Electricity Authority (NEA) was also part of the new arrangement and the state-owned power utility would invest 25 percent in the project. In 2017, CTGC and NEA signed a joint venture agreement for the development of the project. It was agreed that the China EXIM Bank would provide the funding for the construction of the project.

Nevertheless, in early 2018 CTGC began to put forth new conditions asking for a change in the electricity tariff policy and capitalisation of money that was invested by the company for the study of the project. In August 2018, CTCG withdrew from the USD 1.6 billion project stating it as 'not fit for investment'. During the negotiations to salvage the agreement to develop the West Seti project, IBN even agreed to cut down the capacity of the project and sign the power purchase agreement (PPA) in US dollars, but to no avail.

After the failure of the second attempt to develop the project, the government said that it would build the project with its own investment. IBN remodeled the project as the West Seti+SR6 Joint Storage Project and showcased it at the Nepal Investment Summit 2019. IBN has informed that it has received the letter of intent (LOI) from foreign investors to invest in this project, but nothing concrete has moved forward in this respect.

Over the years, much has been said about the economic benefits of the West Seti project. But the withdrawal of the internationally renowned financial institutions and developers from the project has cast a big shadow of doubt over its future and the government has not been able to give anything more than empty assurances to the people of the project area. So, it has become necessary to find out the reasons behind the repeated failure of attempts to construct this project. After CTGC left the project, the then IBN CEO Maha Prasad Adhikari, who is now the Governor of Nepal Rastra Bank, said that Nepal still has a lot to learn to implement large projects. This is necessary for infrastructural development in our country. We need to find answers to why Nepal has not been able to attract foreign investments in reservoir-based hydel projects despite the general agreement that such projects are indispensable for the country's economic development. Therefore, there are lessons to be learned from the withdrawal of investors from the West Seti project. In the case of CTGC, the Chinese state-owned infrastructure giant realised various risks in the implementation of this project. As long as there are risks that investors do not want to bear, they avoid investing in projects. So, it is necessary to analyse and address the perceived risks.

For a country like Nepal, constructing reservoir-based hydropower projects is a costly affair. It has become clear that the government will not be able to manage the investment for West Seti from its resources as even the investment for the government's financing of the project has to be arranged by other institutions. So, it should be made easier to attract foreign investment in storage-type hydel projects. So, flexibility must be exercised to address the geniune concerns of foreign investors.

Nepal needs big hydropower projects to ensure the regular generation of electricity. The surplus power can be traded with India. But both domestic and foreign markets should be arranged by the Nepal government and not by the promoter of the projects. Investment in big projects won't come unless the market is guaranteed. Similarly, initiatives should be taken to reduce the negative impacts of large hydropower projects on the environment and residents of the project areas. It wouldn't be wise to render the resources useless in the name of protecting the environment and society.

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