MCC-funded power line uncertain as bidders quote high pricesMinimum bids 66 percent higher than the estimated cost.
Questions were raised from various quarters after the date for the MCC Compact’s entry-into-force was fixed for August-end even as land acquisition has yet to begin for the transmission line project to be implemented under the US programme.
Acquiring land has been a persistent challenge for infrastructure projects, particularly transmission line projects. The compact entering into force on August 30 means the projects should be completed within five years from that date and doubts have been raised whether meeting the project deadline would be possible given the difficulty in acquiring land for development projects in Nepal.
But hardly anyone was talking about the potential delay in implementing the 315-km transmission line project due to the issues in selecting contractors under the MCC compact.
That’s exactly what happened after all five technically qualified bidders quoted prices much higher than the estimated cost for construction of the transmission line. The tender was invited by splitting the transmission line into different packages.
According to the Millennium Challenge Account, Nepal (MCA-Nepal), a special purpose vehicle established to implement the MCC Compact, an estimated budget of $220.60 million covering all 3 lots was made public during the bidding process.
But the combined quoted lowest price for three packages by bidders stands at $365.93 million, according to the details made available by the MCA Nepal. The combined lowest quote amount is nearly 66 percent of the estimated budget for all three packages.
“It was not assumed,” said the MCA Nepal in a written response to the Post when asked about whether they had anticipated such a disparity between the estimated cost and price quoted by the contractors when tender was invited.
Officials at MCA-Nepal and other government agencies said that the high quotations by bidders has put them in a difficult position whether to select from among the existing bidders or issue a new tender by scrapping the current one.
Starting a fresh tender process will mean the project’s implementation time will be reduced. The compact implementation time spans exactly five years from the day from its commencement, after which the projects will be handed over to Nepal, according to MCA-Nepal. “After five years, the money stops flowing from the MCC for the implementation of the projects,” an MCA-Nepal official told the Post earlier.
It means, after five years, Nepal will be solely responsible for financing the projects if they are not completed within the deadline. That’s why, many had raised questions whether the date of entry of force was set prematurely.
The MCA-Nepal is yet to take any decision on whether to move ahead by accepting the current lowest bids or scrap the current bidding process and invite a new one.
When the Post asked about it, the MCA-Nepal said, “As the biddings are still under the evaluation process, we cannot divulge further information.”
As per section 36 of the Public Procurement Act-2007, the procurement proceedings should be cancelled if the cost offered by the selected bidder is substantially more than the cost estimate and available budget. But the MCA-Nepal said that Nepal’s Public Procurement Act does not apply in implementation of MCC projects.
When the Post asked Finance Secretary Krishna Hari Pushkar, who is also ex-officio board chair of the MCA-Nepal, he said he was not aware of the latest development. “As I was given the responsibility of finance secretary a few days ago, I have been receiving briefings on the activities being carried out by various departments of the ministry,” he said.
However, an MCA-Nepal official told the Post that he was in favour of scrapping the existing bidding process and inviting new bids.
“If the bidders agree to lower their quoted prices to match the estimated cost, contractors can be selected through the existing bidding process,” said the official. “Otherwise, I don’t think there will be an alternative to calling new bids,” the official said.
The official said that even though Nepal’s Procurement Act will not apply to MCC projects, the government’s role as co-financer of the projects restricts its ability to ignore the Act.
The MCC will be injecting $500 million to construct the transmission line and improving the part of East-West Highway while the government will be investing as much as $197 million.
With MCC already clarifying that there is a fixed budget approved by the US Congress to implement the MCC projects, the Nepal government will be responsible for any additional cost. The MCA-Nepal has not taken any decision about its next step.
“The next board meeting may take a decision in this regard. But the board has not met since complexity about the selection process surfaced,” a board member of the MCC told the Post.
MCA-Nepal sources said that a more worrying fact is that there is also no guarantee whether the new bidders will be willing to adjust their quotes to match the estimated cost if fresh bids are invited.
If the agency decides to invite fresh bids, it will take a few more months to select the contractors. The current bidding process was started in November last year and has yet to conclude.
“Obviously, time to implement the transmission line project will be reduced if a new tender is issued,” the board member said. “As we are still in the early stage of project implementation with land acquisition yet to begin. So, there is the option to start a new bidding process and work on land acquisition simultaneously.”
While the contractor selection process hit a snag, the MCA-Nepal has continued to be concerned about possible obstacles in the land acquisition process and clearing rights of way.
In an earlier written response, the MCA-Nepal stated it expected four types of challenges—landowners demanding higher compensation; disturbance in forest clearance from user groups; local governments bargaining for their interests; and fixing the compensation rate for the land required for right of way.
“It will not be surprising if the MCA-Nepal faces challenges in the process of land acquisition, based on the experiences of similar other projects,” the MCA-Nepal had said in a written reply recently.
While these are the possible obstacles, the problem arising in the contractor selection process has also worried the Nepal Electricity Authority (NEA).
“Early completion of the transmission line project is very important for us to supply power from east to west and vice versa as well as enabling the country to export power in the Indian market on a large scale,” said Dirghayu Kumar Shrestha, chief of transmission directorate of the NEA.
“Completion of the construction of the section spanning the New Butwal substation and Nepal-India border is even more urgent because the India section of New Butwal-Gorakhpur Cross Border Transmission Line is set to be completed by early 2025.”
In fact, the NEA had urged the MCA-Nepal to complete this section by the end of 2024 so that it will be ready when the India section is completed.
“As power generation is growing rapidly in the next five years, completion of the transmission lines under the MCC is very important to prevent spillage of power,” said Shrestha.