China Three Gorges Corporation (CTGC), the potential builder of the West Seti Hydropower Project, has threatened to pull out if Nepal doesn’t revise its guidelines regarding the power purchase rate.

The rate offered by the guideline doesn’t make the project bankable, said the Chinese company in a letter to Investment Board Nepal (IBN) about the 750 MW reservoir type scheme located in far west Nepal.

“The development of the project is very challenging from the technological and economic point of view. But we understand the importance of the project for Nepal, and being a good friend of Nepal, we have tried our best to make the project technically feasible and economically viable,” the company said.

“But as Nepal doesn’t like to revise its power purchase rate policy, the project will not be financially viable, and it is not necessary to consider any next plan or action.”

CTGC had requested that the power purchase rate be revised during a meeting with IBN and its joint venture partner the Nepal Electricity Authority (NEA) last November. However, the NEA said that it couldn’t be done. The state-owned power utility and CTGC have agreed to form a joint venture company to develop the project.

As per the power purchase rate made public by the Energy Ministry in January 2017, reservoir type projects like the West Seti will get Rs12.40 per unit during the dry season which lasts from December to May, and Rs7.10 per unit during the wet season which lasts from June to November. According to a highly placed source at IBN, the board is planning to ask the Chinese developer to propose a rate which will make the project viable. “We will then decide our next step,” said the source.

CTGC and the NEA signed a joint venture agreement less than two months ago to implement the project. In August 2012, the government and CWE Investment Corporation, a subsidiary of CTGC, signed a memorandum of understanding (MoU) to construct the hydropower project.

As per the MoU, the Chinese company will have a 75 percent stake in the joint venture company while the NEA will hold the rest of the shares. But it took more than five years to establish the venture company.

The West Seti Hydropower Project will extend across Baitadi, Bajhang, Dadeldhura and Doti districts and is expected to generate 2.8 billion units of electricity per year. The estimated construction time of the project, which will have a 207-metre tall dam, is six and a half years.

The scheme will cost $1.8 billion including interest charges incurred during the construction period and $1.4 billion excluding interest charges, according to the NEA. The two partners will invest in the project through their proposed joint venture company, West Seti Hydropower Project Development Limited.