A government panel formed to decide the fate of the stalled West Seti Hydropower Project has recommended scrapping the pact signed with the potential developer China Three Gorges Corporation (CTGC) or providing it a second chance to build the plant by slashing its installed capacity.

The seven-member committee headed by the secretary of the Prime Minister’s Office will present the options to the board of directors of Investment Board Nepal (IBN) which will make the final decision.

The 750 MW reservoir-type project located in far western Nepal has been languishing in uncertainty after CTGC said it would not go ahead with the scheme if the power purchase rate was not increased. The board of directors of IBN formed the committee last March to suggest possible ways to break the stalemate.

The panel said the government should build the project on its own by coordinating with the provincial government if it scraps the deal with the Chinese company. The second option is to slash the installed capacity to 600 MW as proposed by CTGC more than a year ago, and allowing it to proceed with the project.

During a meeting last year, CTGC officials had proposed decreasing the installed capacity citing a drop in the water level in the river. However, the Nepal Electricity Authority (NEA), the venture partner of the Chinese company in the project, rejected the plan.

A few months ago, CTGC asked IBN to guarantee a rate of return of 17 percent on the project saying it would not be bankable at the power purchase rate fixed by the government. 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. IBN then decided to take the matter to the board.

West Seti has been in limbo since CTGC subsidiary CWE Investment Corporation and IBN signed a memorandum of understanding to construct the hydropower project in August 2012. It took more than five years to sign a joint venture agreement between CTGC and NEA, the state-owned power utility.

As per the pact, the Chinese company will have a 75 percent stake in the joint venture company while the NEA will hold the rest of the shares. 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.