The government has sealed a major deal with a Chinese company for development of a mega hydroelectric project, which could resolve perennial power crisis in the country and lay the groundwork to establish Nepal as an electricity exporter.

The Ministry of Energy on Sunday signed a memorandum of understanding (MoU) with China Gezhouba Group Corporation (CGGC) for the development of much-touted 1,200MW Budhigandaki Hydroelectric Project, the biggest hydro project set to be built in the country. 

The agreement was signed by Energy Minister Janardan Sharma and CGGC President Lv Zexiang on behalf of their organisations.

The agreement was signed at the prime minister’s residence, in presence of Premier Puspa Kamal Dahal and Chinese Ambassador to Nepal Yu Hong. 

The signing of MoU has formalised the Cabinet’s recent decision to award the project to the Chinese developer without conducting international bidding. 

As per the agreement, the storage project would be built under engineering, procurement, construction and finance (EPCF) model. Under this model, CGGC will help arrange funds required to develop the project.

The funds will be mobilised in the form of soft loan or commercial loan from Chinese financial institutions on terms and conditions acceptable to the Nepal government. CGGC will also undertake the overall responsibility of executing the project. 

The Chinese developer, according to the MoU, will also conduct additional studies and investigations on the project if required. 

The MoU has given one year’s period to the Chinese developer to conduct assessment of the hydropower project and arrange necessary funds for its development.

This understanding, according to Energy Ministry officials, will not bind the government legally or financially to hand over the project to the Chinese company for construction, as the final agreement is yet to be signed.

“We will enter into a separate agreement if the financial proposal presented by the Chinese developer is agreeable to us,” said the source. 

The EPCF model of project development, under which the contracting firm makes all the arrangements including mobilisation of financial resources to build the project, is considered to be one of the most effective and efficient models for development of huge infrastructure projects.

According to a highly placed source at the Energy Ministry, the Chinese government was very keen on having a Chinese company develop the project, and had inquired about it with PM Dahal during his recent visit to China.

Chinese officials had even pledged to provide a soft loan via the Export Import Bank of China to the Chinese company to build the project if it was awarded the contract, the source added.

Subsequently, PM Dahal initiated the process to engage CGGC in development of the Budhigandaki Hydroelectric Project, one the most strategic hydropower projects in the country.  

CGGC is currently building 30MW Chameliya Hydropower Project in the far west and 60MW Upper Trishuli 3A Hydropower Project in the central region. 

The Budhigandaki Project has been touted as a key project to resolve the perennial power crisis in the country.

The government has allocated a budget of Rs5.33 billion for the project’s development in the current fiscal year. The government has been raising infrastructure tax of Rs5 from sales of every litre of petrol, diesel and aviation fuel to collect funds to build the project. 

The project is presently acquiring land from locals of Dhading and Gorkha districts. The district administration offices of Dhading and Gorkha—the project affected districts—are currently extending compensation to owners of the land required for the construction of the project.