The Millennium Challenge Account Nepal (MCA-Nepal) has cancelled all the bids it received for the construction of a 315-km 400kV transmission line, marking a major setback in implementing the Millennium Challenge Corporation (MCC) Compact. It was compelled to take the decision after all the bidders quoted prices higher than the estimated cost of the project.

MCA-Nepal, a special purpose vehicle set up for implementing the US- funded programme, said in a notice on Friday that all the bids were rejected.

“The bids received were evaluated as per the clauses … of the Millennium Challenge Corporation Programme Procurement Guidelines. All bids have been rejected since they were substantially higher than the original estimate,” the notice states.

The bidding process that started almost a year ago, in November 2022, had to be cancelled in under two months after the MCC Compact’s entry into force (EIF) on August 30.

The EIF of the compact means its implementation spans exactly five years from the day it begins and then the projects will be handed over to Nepal, according to the MCA-Nepal. “After five years, the money stops flowing from the MCC for the implementation of the compact-related projects,” an MCA-Nepal official earlier told the Post.

The bids’ cancellation on Friday means MCA-Nepal will have to restart the bidding process, which could take several months, adding more challenges for the project’s timely completion.

“As we are in early stages, we can still make up for the time lost due to the cancellation of the bids,” a board member of MCA-Nepal told the Post. The body is yet to take a decision on re-bidding.

When the Post inquired about this, it said in a written response, “The MCA-Nepal has worked with the MCC after receiving feedback from the market to define the next steps to successfully complete this critical procurement. MCA-Nepal, in coordination with the Government of Nepal, MCC, and technical experts, will implement a plan to facilitate a successful future procurement.”

When asked whether the cost estimate would be revised in a re-bidding, the reply was that it would be decided only after MCA-Nepal outlines the next steps to successfully complete this critical procurement.

However, a source close to MCA-Nepal told the Post that they are mulling revising the design of the transmission pylons in order to reduce the cost.

MCA-Nepal had not expected a big difference between the estimated cost and the bids.

On November 28, 2022, it issued a tender notice for the procurement of Plant Design, Supply, Delivery, Installation, Testing and Commissioning of transmission lines. The tender was issued in three separate lots.

The first lot was for the construction of the Lapsephedi-Ratmate-New Hetauda section, and the second for the Ratmate-New Damauli section. Likewise, the third lot consisted of the New Damauli-New Butwal section as well as the New Butwal-Nepal/India border section.

According to MCA-Nepal, an estimated budget of $220.60 million covering all three lots was made public during the bidding process.

But the lowest combined price quoted for the three packages by the bidders stood at $365.93 million, which is nearly 66 percent more than the estimate, according to the details made available by MCA-Nepal.

Some experts pointed out flaws in the Environmental Impact Assessment (EIA) that contributed to the high bid prices. According to the EIA report, MCA-Nepal will not build an access road. The report says porters, helicopters and animals would be used in order to fell fewer trees and to create local employment.

It also said the number of transmission pylons would be reduced by 20 percent while their average height and the length of the transmission line increased to reduce the project’s impact.

Some experts attributed these changes to the higher bid prices.

“If you erect a taller pylon with a smaller base, which we call a ‘low base tower,’ the strength of such a pylon should be improved. This requires more steel and the cost goes up accordingly,” an NEA official said. “Also, the cost of designing taller pylons with smaller bases will be higher compared to wide-based pylons.”

But the cost of land acquisitions is low while constructing pylons with smaller bases, the NEA official said. The official, however, said that use of horses and helicopters for carrying construction materials in remote places is a normal practice.

MCA-Nepal also has not ruled out these factors contributed to the higher bid prices.

But there are various other factors behind the higher bids that cannot be disclosed, an MCA-Nepal official told the Post.

As per the MCC Program Procurement Guidelines, MCA-Nepal was not obliged to automatically reject the bids solely due to their exceeding the budgeted cost.

The major requirement concerning the price to be awarded is its compliance with the principle of price reasonableness analysis, which considers the received competitive prices, historical prices, obtaining prices and other methods for assessment, according to MCA-Nepal said. “The budget estimate is one of the tools used under MCC guidelines to assess price reasonableness.”

The guidelines also mention that MCA-Nepal, with MCC’s prior approval, can negotiate with the lowest evaluated bidder to try to secure a satisfactory contract by reducing the scope and reallocating risks and responsibilities.

But MCA-Nepal said that it didn’t enter into negotiation with the lowest bidders. “The bid evaluation process didn't enter the negotiation phase as the bids received far exceeded the current budget,” it said.

This setback in the compact’s implementation, however, has left the NEA, the state-owned power utility body, worried. “It is the transmission line that connects with high-voltage transmission lines of the eastern and western regions, enabling us to transmit power from the east to the west and vice versa,” said Dirghyu Kumar Shrestha, chief of transmission directorate at the NEA.

Even more concerning for the NEA is whether the 20-km Nepal section of the New Butwal-Gorakhpur Cross Border Transmission Line, expected to be built under the MCC Compact, will be completed on time as the Indian section is expected to be ready by early 2025.

“We have booked this cross border transmission line for power export and import and we will have to pay a wheeling charge without using it if we fail to complete the Nepal section on time,” said Shrestha.