Wandering China

An East/West pulse of China's fourth rise from down under.

Big power deal gives Chinese a foothold in Nepal [Straits Times]


China makes headway into water-rich Nepal over India with a US$1.6billion (S$2billion) agreement to develop the West Seti Project hydropower plant.

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Big power deal gives Chinese a foothold in Nepal
It marks Beijing’s entry into sector that’s dominated by India
By Yubaraj Ghimire
Source – The Straits Times, published March 10, 2012

KATHMANDU: The power play between China and India for influence in the strategic Himalayan state of Nepal has just got electric.

China has signed a US$1.6billion (S$2billion) agreement to develop the 760MW West Seti Project hydropower plant in Nepal.

The deal marks the Asian giant’s entry into a sector in the Himalayan nation – water and power – that has been dominated by India for years.

It comes as several other major hydropower projects, mainly developed with Indian investment, have stalled for various reasons, including protests by Maoists against the awarding of deals to foreign companies.

Water-rich Nepal has an estimated 83,000MW of hydropower potential, but actual production is only 1 to 2 per cent of that. Power sales to India would potentially add billions to Nepal’s strained budget resources, while helping the energy-short South Asian giant power up factories required to provide jobs for the burgeoning numbers of its young.

Next door, Bhutan has one of the highest per capita incomes in South Asia, partly because of electricity sales to India. However, with Indian partnerships in Nepal hardly moving, experts say China’s entry into the sector will ensure the efficient and timely completion of projects.

China’s interest in the sector also comes as the two Asian powers jostle for influence in the country.

The West Seti Project will be purely for domestic consumption, and ‘as such we need not go for a power-purchasing agreement with India, Nepal’s only assured market at the moment’, said an official with the Nepal Electricity Authority (NEA).

The NEA has a 25 per cent equity stake in the project.

Official projections suggest that by 2019 – the agreed timeline for completion of the West Seti Project – Nepal will have an assured supply of more than 17,000MW against total demand of 2,000MW.

‘That will save Nepal from looking to India for peak-time purchase,’ the official said.

The government authorities have discounted criticism that the decision not to hold open bidding meant China received preferential treatment.

‘It would have taken time and Nepal would have lost one more opportunity to involve a credible company of international repute,’ said Energy Minister Post Bahadur Bogati.

In fact, the West Seti contract was awarded to an Australian company, Snowy Mountain Engineering Corporation, way back in June 1997, but that project never got off the ground because of squabbles over the cost and start date.

The government finally terminated that contract last year.

The Three Gorges Corporation (TGC) has pledged to arrange for a soft loan, apparently from China’s Exim Bank, for the NEA part of the investment for West Seti.

Government records show that out of licences worth 15,000MW awarded to various hydropower companies in the past 19 years, only two projects – Khimti (60MW) and Bhotekoshi (36MW) – are complete.

There are Indian companies and individuals that control around 10,000MW in projects directly or indirectly, ‘and the cost of opportunities and deadlines missed has been huge for Nepal’, the NEA official told The Straits Times.

He added that this was why ‘we considered TGC’s interest to develop the West Seti Project positively’.

Apart from proven credentials – it handled the 22,500MW project in China’s Three Gorges – TGC has been China’s mascot in the international power market. It agreed to generate 10,000MW by augmenting a solar, wind and hydropower project in Pakistan through a bilateral agreement last October.

Aside from TGC, China Huadian Corporation opened a 180MW hydropower plant in 2010 in Asahan, in Indonesia’s North Sumatra province. Chinese hydropower companies are also involved in the Cambodian government’s plan to increase power generation.

However, China does not enjoy a reputation for timely completion of its projects in infrastructure, tourism and other sectors. So what makes Nepal so confident that the West Seti project will be completed on time?

‘We have given the contract management for timely completion to the Three Gorges, unlike in other projects in which it becomes the responsibility of the host country,’ said Dr Arjun Karki, joint secretary of the energy ministry, who signed the agreement with TGC vice-president Wang Shaofeng last week.

That means it will be TGC’s responsibility to have the project ready on time – though no details were disclosed of what penalties there could be if it does not finish the project by the deadline.

India made its debut in Nepal’s hydropower market 47 years ago in a government-to-government deal. Now, many of its private companies are working on major power projects in Nepal.

Maoist activists accuse India of getting an ‘unfair share’ of hydropower projects in Nepal. A few months ago, they burned the project office of the Upper Karnali Project (900MW).

Energy experts, however, believe China’s entry into this sector will result in fair competition, and the timely future implementation of projects in Nepal.

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Filed under: Beijing Consensus, Charm Offensive, Chinese Model, Economics, Finance, Influence, International Relations, Resources, Soft Power, Straits Times

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