Developer GMR India requests for more timeGMR India, the developer of the Upper Karnali Hydropower Project, has asked for one more year to conclude the financial closure.
GMR India, the developer of the Upper Karnali Hydropower Project, has asked for one more year to conclude the financial closure.
The developer wrote to Investment Board Nepal (IBN) last month requesting an extension of the deadline which runs out in five months. GMR India asked for the extension immediately after more than half a dozen prospective lenders visited Kathmandu to make an appraisal of the 900 MW project.
GMR said it needed more time as supplies were disrupted by the Tarai unrest and the subsequent April earthquake which seriously affected the project’s work schedule. “They have mentioned in the letter that the last eight to nine months were unfavourable to conduct regular work at the project,” said Radhes Pant, CEO of IBN. “They have said that fuel shortages and supply disruptions of essential commodities had affected work.”
IBN is currently studying whether the earthquake and supply disruptions had made it difficult for GMR to mobilise funding for the project.
“Currently, we are assessing their concerns and carrying out discussions with our lawyers to decide whether we should extend the time limit or not,” said Pant.
The government and GMR signed a project development agreement (PDA) in September 2014 for the construction of the project. As per the pact, GMR needs to complete the financial closure by September 2016. However, the company had to call off a meeting with the project’s potential bank rollers scheduled for May 2015 due to the earthquake in April.
Last month, a tri-party meeting was held in Kathmandu between IBN, GMR and a project appraisal team of the Asian Development Bank (ADB), International Finance Corporation (IFC), International Bank for Reconstruction and Development (IBRD), Commonwealth Development Corporation (CDC), DEG a subsidiary of German Development Bank, Japan International Cooperation Agency (JICA) and OPEC Fund for International Development (OFID).
A green signal from these multilateral lenders is crucial for GMR to complete the financial closure. Although multiple sources have confirmed that they have given expressions of interest (EOI) to pledge a loan of more than $1 billion to finance the project, the actual decision to release the funds may take some time.
Another IBN source said that the board would grant a deadline extension to GMR if it can sign a ‘term-sheet’ with the lenders. The term-sheet in commercial lending is a non-binding document where a lender commits to provide a loan under certain conditions.
Similarly, the developer needs to complete the land acquisition before the financial closure. According to IBN, a resettlement agreement has been reached with the locals who will be displaced by the hydro project and the land acquisition process is almost over.
The Upper Karnali Hydropower Project, spread over Surkhet, Dailekh and Achham districts in western Nepal, will be the largest hydroelectric power station in the country when complete.
The developer will give 27 percent of the shares to the government and the country will also receive 12 percent (108 MW) of the total energy produced for free.
Similarly, the project is expected to provide 2,000 jobs and the government is projected to earn Rs300 billion in financial benefits. The project will be acquiring 48.85 hectares of private land and 207.75 hectares of government-owned land. It will affect an estimated 239 households.