Investment Board Nepal (IBN) has refuted Finance Ministry’s claims that the government would build the West Seti Hydropower Project with internal resources as stated in the recently released budget statement for fiscal 2018-19.

There has been no decision to scrap the pact signed with China Three Gorges Corporation (CTGC)—the potential developer of the 750MW reservoir-type project, the IBN said in a statement on Wednesday.

“Recent media reports suggesting that the accord signed with the Chinese developer will be scrapped and the government will build the project on its own have drawn our attention,” the statement reads. “No such decision has been made by the government.”

The board is reviewing the recommendations made by a government panel on taking the project forward, and it is yet to reach a decision on the issue, the IBN added.

Presenting the federal budget for the next fiscal year on May 29, Finance Minister Yubaraj Khatiwada had said the construction work on West Seti would be commenced by mobilising internal resources.

Highly-placed government sources said the IBN statement has come as damage control after the Chinese side expressed concern over the budget statement. “There was concern from the Chinese side after the budget statement talked about building the West Seti through internal resources,” said a source, adding that there was a meeting at the Prime Minister’s Office over this issue.

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

The panel has suggested to the government either to scrap the agreement signed with the CTCG or provide it a second chance to build the scheme by scaling down the installed capacity.  

“There was confusion after the budget speech from stakeholders including the developer. The issue of West Seti construction with the CTGC has not reached to the logical conclusion. That’s why we’ve issued the press statement to clarify the issue,” said Maha Prasad Adhikary, CEO of the IBN.

According to the IBN, the committee 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 600MW as proposed by the 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 arguing that it would not be bankable at the power purchase rate fixed by the government. When asked about the West Seti, Chinese Foreign Ministry Spokesperson Hua Chunying said information about Nepal government scrapping the West Seti deal is not true. “According to the information I have, this report is not true. The relevant project is a commercial one. The Chinese firm involved is in talks with the Nepali side on this project’s economic feasibility and other matters,” she said on Wednesday in a regular press meet in Beijing.

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. The IBN then decided to take the matter to the board.

The West Seti has been in limbo since CTGC subsidiary CWE Investment Corporation and the 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 the 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.