The government has extended the deadline for the 900 MW Upper Karnali Hydropower Project, which was awarded construction permission to the Indian company GMR (Gandhi Mallikarjun Rao), by 186 days. The Cabinet meeting on July 25 decided to grant only the 186 days lost due to an interim order issued by the Supreme Court after a case was filed regarding the financial management of Upper Karnali.

The Investment Board has stated that since the Supreme Court has already directed not to extend the deadline further, if GMR fails to secure financial resources within six months, the government will make a decision regarding GMR, and the outcome will be in accordance with that decision.

The government had last extended the deadline for the financial management of the project by two years on July 15, 2022. A case was filed in the Supreme Court challenging that decision. On November 3, 2022, the Supreme Court, during the hearing of the petition, issued an interim order not to implement the deadline extension. Later, on May 7, 2023 BS, the Constitutional Bench of the Supreme Court issued a directive to the Cabinet not to extend the deadline further in response to the petition filed by Ratan Bhandari and others. Although the Supreme Court validated the previously extended deadline, it has since halted any further extensions.

In compliance with the court’s order, the government granted GMR an additional 186 days to compensate for the time lost due to the interim order. The Investment Board already informed GMR of this adjusted deadline on August 11. The spokesperson of the Investment Board, Pradyumna Upadhyay, confirmed that the company has been notified about the time adjustment, and the new deadline has already started. He stated, “Now, it’s a matter of whether the developer will secure the financial management within the specified period. Since the court has already instructed not to extend the deadline further, the developer is expected to complete it within this timeframe. They are also under pressure and have intensified their efforts.

The board’s Joint Secretary, Baburaj Adhikari, mentioned that it would be difficult if additional time is requested for financial management. He stated, “If the financial management is not completed within this period, it will be challenging to extend the deadline further.” Previously, the company had been granted multiple extensions after failing to secure financial resources.

The Supreme Court’s order noted that GMR had already been given 10 years to secure financial resources for the Upper Karnali project, deeming this time sufficient and stating that no further extensions were necessary. The court’s order stated, “Considering that the developer company has failed to secure financial management for nearly 10 years since the agreement for the development of the Upper Karnali Hydropower Project, the project should not be left in its current state. After the most recent extension, no further extensions should be granted. The project must be advanced, and as GMR has been given enough time, the work on the project should be completed promptly without granting any additional time for financial management, except for the period lost due to the interim order.”

Under the agreement with GMR, among the responsibilities the government must fulfill before financial management, most tasks related to land acquisition and purchase have been completed. However, some hectares of land in the Achham district remain unacquired due to a shortage of land records, and the court has issued a directive for the Nepalese government to urgently create the necessary records and facilitate the land acquisition process.

On January 24, 2008, the government and GMR signed a memorandum of understanding for the survey and construction of a 300 MW Upper Karnali Hydropower Project. The government had given GMR the project under the Build, Own, Operate, and Transfer (BOOT) model. On December 20, 2009 BS, GMR applied to the Department of Electricity Development to increase the capacity from 300 MW to 900 MW. Similarly, on September 19, 2014, the Investment Board and GMR signed a Project Development Agreement (PDA).

GMR has been associated with the Upper Karnali project for 16 years. In international bidding for the project construction, GMR’s proposal was considered outstanding, leading to a memorandum of understanding (MOU) for the project between the then government and GMR in (2008 AD). After the establishment of the Investment Board in 2011, the project was brought under the jurisdiction of the Investment Board office in accordance with the provisions of the Investment Board Act, 2011.

In September 2014, a Project Development Agreement (PDA) was signed between the Investment Board and GMR. Nepal was to receive 12% of the electricity and 27% of the shares, while the company committed to securing financial management within two years. However, despite repeated extensions, over a decade has passed without achieving financial management. Although the financial resources were supposed to be secured within two years of the PDA, the deadline was extended by one year in December 2016 after failing to secure the resources. When financial resources were still not secured within the extended year, the board granted another one-year extension in November 2027. After GMR failed to secure the resources during the additional two years granted by the board, the Cabinet decided on July 15, 2022, to extend the deadline by another two years.

According to the PDA, GMR was supposed to secure investment by September 2016. However, after the company failed to secure the resources, the Investment Board’s office extended the deadline twice, each time by one year. Since September 2018 AD, no additional time had been granted for financial management. Meanwhile, it was anticipated that financial management would become easier after GMR made an initial agreement to sell the electricity from Upper Karnali to Bangladesh.

The Investment Board’s office also sought further clarity on the project by requesting GMR’s business plan. According to the business plan submitted to the Investment Board’s office by GMR in January 2021, the plan was to secure the investment within 18 months.

In the Build-Own-Operate-Transfer (BOOT) model, this project will come under the ownership of the Nepalese government 25 years after the start of production. The PDA also specifies that the ratio of debt to equity for such a project will be 75:25. This means that GMR is committed to seeking 75% of the total investment as debt and providing 25% as equity. Additionally, for selling the produced electricity, GMR has agreed to a minimal tax rate of only 0.005%.

In April 2017, during a visit to New Delhi by the then Prime Minister of Bangladesh, Sheikh Hasina, an agreement was signed with India’s NTPC Electric Power Trading Company (NBE) for importing electricity from the Upper Karnali project via India. In 2020, Bangladesh issued a letter of intent to purchase 500 MW of electricity from the project. An agreement was also reached between GMR Energy and Bangladeshi authorities for the purchase of electricity at a rate of 7.71 cents per unit for 25 years. However, the final agreement has not yet been completed.

On October 9, 2021, the 48th meeting of the Investment Board formed a task force under the chairmanship of Paudel. The task force was initially required to submit its report within 45 days of the first meeting but requested an additional one and a half months to prepare the report. The report presented two options. It proposed either terminating the agreement due to the developer company’s failure to meet its obligations or extending the deadline for financial management by specifying previous conditions/stage goals.

When the deadline was extended for the third time in 2022, the Cabinet, rather than the board, added new conditions to the PDA along with the extension. The new conditions specified in Clause 1.1.1 required the Power Sale Agreement to be signed and submitted to the Investment Board within six months from July 15, 2022. Clause 1.1.2 required a financial agreement with lenders to be completed and submitted to the Investment Board within 23 months. Clause 1.1.3 required the submission of financial management details to the Investment Board within 24 months. The most recent extension by the Cabinet was based on these new conditions, as noted in the court’s order.

After GMR’s failure to secure investment, recent claims indicate that India’s Satluj Jal Vidyut Nigam (SJVN) and Indian Renewable Energy Development Agency (IREDA) are set to invest in the Upper Karnali Hydropower Project. A July 17 report in the Economic Times mentioned that IREDA’s governing body had granted in-principle approval for equity investment. According to Indian media, the government-owned IREDA has announced an investment of 2.9 billion Indian Rupees in the Upper Karnali project.

IREDA will hold a 10% share in the Upper Karnali project. IREDA, in collaboration with SJVN Limited, aims to develop the 900 MW Upper Karnali Hydropower Project. Indian media also mention that approval from the Indian government and other regulatory bodies is still pending. The Investment Board has stated that they have not yet received formal information about Satluj and IREDA coming on board as new investors. According to the board, the total estimated cost of the Upper Karnali project is 162.49 billion Nepali Rupees. As of December 2023, GMR has already invested 28.2 billion Rupees, as reported by the board.

What happened when?

- 2008 : MOU between the Nepalese government and GMR

- 2014 : PDA agreement

- 2016: First extension of deadline for financial management

- 2017: Second extension of deadline for financial management

- 2018 (October): No further extension for financial management

- 2020 (Janaury): GMR requests 18 months for financial management, with a business plan, submitted to the Investment Board

- 2021(October) : Government forms a task force with recommendations

- 2021 (March): Task force suggests cancellation of the PDA and an 18-month extension for financial management

- 2022 (July): Cabinet extends the deadline for financial management by 2 years

- 2022 (November): Interim order issued to not implement the extended deadline

- 2023 (May): Supreme Court validates the extension of the deadline, directs the Cabinet to extend only the time lost due to the interim order, and not grant any additional time beyond that

- 2024 (August): Extension of 186 days granted for time lost due to the interim order

- 2024 (August 11): Investment Board sends a letter to GMR Upper Karnali Company

Source: Kantipur