Investment Board Nepal (IBN) CEO Radhesh Pant and RV Seshan, president of Hydro Energy Business Unit of GMR, signed the agreement that opens a door for the Indian company to move ahead for financial close and project construction.

Prime Minister Sushil Koirala, his cabinet colleagues, senior government officials, Indian Home Minister Rajnath Singh and Indian Ambassador to Nepal Ranjit Rae were present at the signing ceremony held in Singha Durbar, Kathmandu.

Deputy Prime Minister and Home Minister Bam Dev Gautam said the agreement has opened the door for developing other large hydropower projects in Nepal. “The agreement will be implemented with immediate effect,” said Gautam.

Indian minister Singh termed the moment as ‘historic’ and that the Indian government was happy at it. “I believe this is the single biggest foreign investment in the history of Nepal. India is really happy with this agreement,” said Singh. “I expect timely completion of the project by GMR group so that no one can question the credibility of GMR or India.”

It took more than a year to sign the final agreement after the IBN started PDA negotiations with the GMR in June 2013. “Serious negotiations actually began in September, 2013,” said an IBN official.

The PDA agreement, according to IBN CEO Pant, is the outcome of several rounds of discussions with stakeholders and has addressed issues raised by them. “We have prepared the PDA document complying with the international norms and standards and good practices,” said Pant.

Talking to media after the event, Seshan said GMR Group will mobilise 25 percent equity capital while the remaining 75 percent will be raised from international lenders such as International Finance Corporation. “We do not foresee any problem in raising prerequisite equity and debt capital to execute the project,” said Seshan.

He added that the GMR was confident of completing the financial close within two years as mentioned in the PDA. On whether the GMR would build a re-regulating dam by itself if necessary, Seshan said, “The decision will be made based on the consultation with Nepal government once the joint study team submits its report,” said Seshan. As per the PDA, the Indian developer will have to build the re-regulating dam on its own if the study report shows Upper Karnali will impact water flow for downstream irrigation projects.

As per the PDA, Nepal will get 27 percent free equity and 12 percent free electricity from the project. The equity is equivalent to Rs 145 billion while 12 percent free energy amounts to 108 MW.

GMR will have to hand over the project, along with the 100 km transmission line, to the government after 25 years of operation.

GMR has prioritised India, Bangladesh and Nepal as the possible market for the remaining 88 percent energy from the 900 MW project. “The energy price will be based on the final project cost and the situation of demand and supply in the market on completion of the project,” he said.

GMR will construct a 2 MW project that will supply electricity round the year to locals residing in affected areas. More than 2,000 people are expected to get employment opportunity from the project estimated to cost Rs 140 billion, while the rest will benefit from the construction of roadways, hospital, technical school and bridge, among others.

The government on Thursday formed a high-level task force headed by National Planning Commission Vice-chairman Govinda Pokhrel for the implementation of the project. The panel will address the problems arising during project development.