The fate of the West Seti Hydroelectric Project, which has been in limbo since 2012, hangs in the balance as an all-important meeting on the project began in Kathmandu on Tuesday.

Outcome of the two-day meeting between Investment Board Nepal (IBN) and the China Three Gorges International is being closely watched in Kathmandu as it will decide whether the Chinese company will develop the project or the Nepal government will have to scrap the deal and invite fresh bids.

The meeting is in line with the decision of the Investment Board, which in the third week of July served a two-month deadline to the energy and finance ministries to negotiate with the Chinese developer and reach a consensus on developing the project.

While both sides are tight-lipped on the details, high-level government sources told the Post the talks centred on power purchase agreement (PPA) and a downward revision of the project capacity.

Maha Prasad Adhikari, the IBN CEO, told the Post that both sides discussed revising the installed capacity from 750 megawatts and US dollar PPA. “We will try to conclude the talks tomorrow on a positive note,” he said.

The PPA rate, which the Chinese company wants on the higher side, has remained the central issue of decision on the project. Earlier, the Three Gorges had said it would not go ahead with the project if the PPA rate was not increased. It had asked the board to guarantee a rate for 17 percent return on the project, arguing that it would not be bankable at the rate fixed by the government.

As per the government’s rate, reservoir-type projects like the West Seti will get Rs12.40 per unit during the dry season and Rs7.10 during the wet season.

With the Chinese company adamant on its PPA rate, the Investment Board formed a committee last March to suggest a way out. The committee suggested that Nepal either scrap the deal or allow the Chinese company to build the project by slashing the project capacity to 600MW, as demanded by the CTGC during a meeting more than a year ago.

The board doesn’t have any reservations about the capacity revision, government sources said. Additionally, Nepal Electricity Authority (NEA), the state-owned power utility and the Chinese company’s venture partner on the project, has also suggested that the board allow the Chinese developer to lower the installed capacity to make the project bankable.

“We’re still negotiating,” Adhikari said, adding, they’re hopeful about concluding the meeting on a positive note.

Representatives of the IBN and the Three Gorges will sit down with the finance and energy ministers on Wednesday afternoon. The Chinese delegation is led by the company’s president, Zhao Jianqiang, who arrived in Kathmandu on Monday. The Nepali team includes Adhikari, NEA Managing Director Kulman Ghising, and joint-secretaries from finance and energy ministries.

The Chinese company signed a memorandum of understanding with the Investment Board in August 2012. It took more than five years for a joint venture agreement to be signed between the Three Gorges and the NEA.

According to the deal, the Chinese company will have a 75 percent stake in the venture, while the NEA will hold the rest of the shares.

West Seti will cover parts of Baitadi, Bajhang, Dadeldhura, and Doti districts, and is expected to generate 2.8 billion units of power per year.