While a number of hydropower projects have been struggling to conclude their financial closure, a government committee has recommended canceling the power purchase agreement (PPA) of all types of hydropower projects above 100 MW that have failed to find financial resources for the past three years.

A study report on the ‘policy arrangement regarding electricity purchase and sale agreement’ has recommended the government to annul the PPA of all such projects failing to maintain financial closure in the stipulated time interval. Six months ago, the government had formed the committee led by Sandeep Kumar Dev, joint secretary of the Ministry of Energy, Water Resources and Irrigation.

At a time when a number of hydropower projects are held by Indian companies for years, without making any progress, the government seems to be rigid towards the domestic power developers. In a similar case, the government a few months ago extended the deadline for Indian company GMR, the promoter of the Upper Karnali Hydropower Project that had received the government’s favor a number of times earlier.

The report has recommended delegating authority to the Nepal Electricity Authority (NEA) to cancel the PPA if the financial closure of all the projects above 100 MW is not completed within three years from the date of completion of the PPA. In the case of projects with a capacity of less than 100 MW, the deadline has been fixed at a maximum of two years.

Along with the cancellation of the PPA, the government panel has also recommended to confiscate the bank guarantee maintained by such a project. Likewise, the hydropower developers concerned will also face cancellation of survey/production permits issued for such projects.

According to the panel report, out of 7,757 MW hydropower projects that had signed the PPA, 33.94 percent have failed to finalize the financial closure. The committee has also recommended giving priority to the PPA of hydropower projects promoted by the Government of Nepal, subsidiaries of the NEA and companies owned by the government.

The private sector power producers on the other hand have demanded the government to be flexible for the hydropower projects that have so far failed to finalize the financial closure after they signed the PPA. Organizing a press meet on Sunday, the Independent Power Producers’ Association, Nepal (IPPAN) demanded the government grant a special extension period of one year for projects that could not achieve financial closure till date.

IPPAN President Ganesh Karki said a total of 2,632 MW projects could not do their financial closure as of now. According to him, the project developers failed to abide by the time frame due to the prolonged shortfall in liquidity seen in the banking sector last year.

The IPPAN has also expressed its dissatisfaction over giving priority to the government and NEA led projects while signing the PPA. According to the private energy producers, private sector companies with potential to produce over 12,000 MW electricity have been waiting for their turn to sign the PPA with the state-owned power utility.

The association has also sought the government to allow a financial closure deadline of three years for a power project of up to 100 MW, a four-year deadline for the energy project between 100-500 MW and a five-year deadline for the projects of more than 500 MW.

The IPPAN has welcomed the recommendation for talks on opening the PPA for private developers which was put on hold for a long time period. Likewise, the association hailed proposals of maintaining a minimum two hours peaking reservoir and revision on the mandatory provision of a minimum 30 percent energy production during off season for the semi-reservoir projects.