With the deadline for the financial closure of the Upper Karnali Hydropower Project fast approaching, Investment Board Nepal (IBN) appears to be reluctant to agree to the developer’s request for more time.

The 900 MW project’s Indian developer GMR has asked for a one-year extension of the deadline to complete the financial closure. GMR has written to the board saying that supply disruptions due to the Tarai agitation and Gorkha Earthquake seriously affected the project’s work schedule.

However, a highly placed source at IBN told the Post that it was in no mood to extend the deadline by one year. “As GMR has asked for a one-year extension under political force majeure, the board appears reluctant to do so,” said the source. 

As per the project development agreement (PDA) signed between GMR and IBN in September 2014, the Indian company has to complete the financial closure by September 18, 2016.

According to IBN sources, there is no need for a deadline extension as the PDA itself has given the developer a cushion of one year to complete the financial closure in case it fails to do so within two years after signing the PDA.

“The PDA signed between the board and GMR clearly states that if the developer fails to complete the financial closure by the prescheduled time limit of two years, an extra year is automatically granted,” said the source. “Therefore, it is unnecessary to provide an extension as demanded by the developer.”

IBN sources said that if the board gives a one-year extension, GMR will effectively get two extra years, that is, till September 2018, to complete the financial closure. “GMR could say that the PDA automatically gives a one-year extension till September 2017, and a one-year extension means the deadline will be pushed back till September 2018,” said the source.

IBN CEO Maha Prasad Adhikari, however, said that the board had made no decision on GMR’s request for an extension. “Currently, we are holding internal discussions on the issue,” said Adhikari. “We are evaluating whether the earthquake and supply disruptions caused difficulties for GMR to conduct the financial closure by the stated date.”

Also, the board has asked the developer to provide adequate evidence regarding the disturbances that prevented it from completing the closure, he added.

Another IBN source said that the board would grant a deadline extension if GMR manages to sign a ‘term-sheet’ with its lenders. The term-sheet in commercial lending is a non-binding document where the lender commits to provide a loan under certain conditions.

The project developer requested the extension immediately after a team of more than half a dozen prospective lenders visited Kathmandu to conduct an appraisal of the project. In April, the 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 the German Development Bank, Japan International Cooperation Agency (JICA) and OPEC Fund for International Development (OFID) held a trilateral meeting with IBN and GMR in Kathmandu.

A green signal from these multilateral lenders is crucial for GMR to complete the financial closure. Although multiple sources have confirmed that the group of aforementioned lenders have already given expressions of interest (EOI) to provide loans totalling more than $1 billion to finance the project, the actual decision to award the loans may take some time.

Similarly, the developer needs to complete the land acquisition process before the financial closure. The land acquisition process, however, has hit a snag after the developer and locals failed to agree on the compensation amount for privately owned land to be acquired by the project.

The project affected people have demanded Rs1 million for a ropani of land while the project developer has offered Rs760,000 per ropani.

The project is spread over three districts—Surkhet, Dailekh and Achham. 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 jobs to more than 2,000 people 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.