Saga of 240/300/900 MW Upper Karnali (KR1A)4,180 MW Upper Karnali Storage Project (KR1B) to be Sacrificed

For the sake of the 900 MW Upper Karnali, KR1A, the 4,180 MW Storage Project, KR1B, must not be made 'Bali ko Boka!'As it is, because of the governments' sins of omissions and commissions, the inhabitants of Karnali River Basin are unfortunately at t

Aug. 29, 2014, 5:45 p.m. Published in Magazine Issue: Vol: 08 No. -5 August. 15- 2014 (Sharawan 30, 2071

Joint Press Release: India's newly elected Prime Minister, Narendra Modi, landed on a two day official visit of Nepal on 3rd of August 2014. In typical 'Veni, vidi, vici' style(1), Prime Minister Modi enthralled the Nepalese from the Members of Parliament down to those on the streets. After the two day whirlwind visit, the two Prime Ministers (Koirala and Modi) issued the following Joint Press Release on 4th August 2014:

The two Prime Ministers directed the concerned authorities to conclude negotiations within 45 days on the Project Development Agreement (PDA) between the Investment Board of Nepal and GMR Group of India for the development of Upper Karnali hydropower project. They also directed the concerned authorities to conclude negotiations on the agreement on trade in power sector within 45 days. They expressed desire for early conclusion of other three PDAs namely Arun III, Upper Marsyangdi and Tamakoshi III. They emphasized that development of projects of this size will be a major catalyst for the development of Nepal's enormous hydropower potential.

One distinctly notices that the Joint Press Release, crafted by experienced hands, has accorded the coveted first class status to Upper Karnali PDA. While the 'agreement on trade in power sector' gets the second class status, projects like Arun III, Upper Marsyangdi and Tamakoshi III, despite being in the same Upper Karnali category, have unfortunately been accorded the third Vaishya status. The same Joint Press Release emphasizes the development of these projects as ' a major catalyst for the development of Nepal's enormous hydropower potential.' Yet, our policy/decision makers are totally oblivious of the fact that the implementation of this 'catalytic' 900 MW Upper Karnali could exclude and smother the development of 4,180 MW Upper Karnali Storage. It is most unfortunate that this Upper Karnali Storage, one of 'Nepal's enormous hydropower potential' site, has been relegated to the fourth Sudhra class!

4,180 MW Upper Karnali Storage Project, KR1B:It appears that this 4,180 MW Upper Karnali Storage Project was consigned to oblivion out of ignorance. Hydropower technocrats have been claiming publicly that there are no storage projects above the Upper Karnali Bend scheme, identified as Project KR1A, in the Karnali Basin Master Plan Study. Technically, these technocrats cannot be faulted as the Master Plan indicates none. However, Dr. Ananda Bahadur Thapa, 'godfather' of Upper Karnali Storage, has consistently stated that the 4,180 MW storage scheme, identified as Project KR1B, does exist in the December 1989 Prefeasibility Study of Upper Karnali Hydroelectric Project (Karnali Bend Site KR1A). In 1986, the Himalayan Power Consultants was carrying out the World Bank funded Feasibility Study of (10,800 MW) Karnali Chisapani Multipurpose Project for the Government of Nepal. In parallel with the study on Karnali Chisapani Multipurpose Project, the Himalayan Power Consultants was also tasked to carry out the Prefeasibility Study of Upper Karnali Bend Project identified as KR1A for Nepal Electricity Authority.

Bearing in mind Nepal's then internal demands, the 1989 pre-feasibility report of Upper Karnali recommended a 240 MW power plant. At the same time, the report also recommended an alternative development of Upper Karnali through construction of a 260 meter high storage dam at the site KR1B (slightly upstream of KR1A dam) whose backwater would extend as far back as Tila River. The pre-feasibility report stated '… the most economical way of developing the full power potential of Karnali Bend will result from construction of a large storage dam…….any development at Karnali Bend should include consideration of a major storage project as being part of the ultimate power development of this site.' The single stage version envisioned a 4,180 MW powerhouse at the 240 MW site. The staged development version had three powerhouses: a 408 MW powerhouse at the toe of the dam releasing water for the already commissioned 240 MW powerhouse downstream and the 3,532 MW powerhouse, next to the 240 MW one, receiving water straight from the high dam.

The Jewel in the Crown:After the 1995 scuttling of Arun-III, the screening and ranking process carried out at NEA identified Upper Karnali with a 300 MW capacity along with five other do-able projects: 30MW Kabeli (2), 51MW Likhu IV, 301MW Dudhkoshi, 27MW Rahughat and 24MW Budhi Ganga. Upper Karnali, with a design flow of 236 cubic meters per second and a mere 2.2 km headrace tunnel to obtain a head of 141 meters, had an average annual generation of 1,915 GWh. The double circuit 220 kV transmission line from the power house to the Indo-Nepal border is 115 km. With such short tunnel to gain such good head with such good flows, the Canadian consultant aptly termed Upper Karnali 'the jewel in the crown'.

Quest for the 300 MW Jewel: Initially, the World Bank, with its rival, ADB, going full steam ahead with the 144 MW Kali Gandaki, did toy with the concept of market testing this ' jewel in the crown' in the private sector. However, with the ugly hydra-headed coalition governments reveling merrily in every scams (3) imaginable and skirmishing half-heartedly with the Maoists' 'rag-tag Peoples' army', this market testing remained in concept only. There were a number of quests for this '300 MW Jewel' by various developers like Canada's SNC-Lavalin, and even India's National Hydroelectric Power Corporation (NHPC) that agreed to develop the project jointly with NEA. As export was the target, NHPC optimized the plant capacity at 480 MW from 300 MW. But this NHPC/NEA joint venture surprisingly failed to materialize as the Government of India itself informed the Government of Nepal in 1997 that NHPC would be withdrawing from the project.

The most unforgettable quest was the 'fast track committee '(4) approved Elysee Frontiere that offered NEA the magical 30% free equity. The then government signed an MOU with a Singapore based Delta Pacific Consortium Pt. Ltd. in August 2000 to implement Upper Karnali under the Humanitarian Financing Plan. Immediately in October 2000 Elysee Frontiere, a Hong Kong registered company, signed a joint venture agreement with NEA to establish the Elysee-NEA Upper Karnali Hydro Electric Power Company that was to purchase all the generated energy at NRs. 2.90 per unit at the 1998 price with an annual escalation of 4% till 2013. In fact, 50% of the power generated during the wet season was priced at NRs.1.45 per unit for the first five years. Though many believed this to be a murky deal, GMR Energy surprisingly has offered more free equity - 33%. The deal failed and it is time that the Nepalese demand to be enlightened where and how the nation's highest powered 'fast track committee' blundered.

Bid for the 300 MW Jewel: In December 2006 (Poush 2063) Water Resources Minister, Gyanendra Bahadur Karki, facing 48 hours of load shedding per week and with more to come in the years ahead, decided to put 300 MW Upper Karnali, 402 MW Arun-III and 600 MW Budhi Gandaki for global competitive biddings. Minister Karki argued that 'as the country cannot consume this amount of power, the developers themselves would have to find the market.' In other words, Minister Karki destined these projects for export terming such export-oriented decision 'a necessity.' The run-of-river Upper Karnali had 14 bidders (11 from India (5), 2 from China and 1 from Netherlands), the run-of-river Arun-III had 9 bidders (7 from India and 2 from China - the same bidders for Upper Karnali) and 2 bidders (1 Indian and 1 Chinese - the same bidders for Upper Karnali and Arun-III) for the storage, Budhi Gandaki.

300 MW Jewel in GMR Hands:Despite the recommendation (6) of the Bhanu Acharya-led committee (7) to award both Upper Karnali and Arun-III to GMR Energy, the Parliament's subcommittee on Natural Resources and Means directed that only one project be awarded to one developer. The anti-Arun III activists' logic of the government putting 'all eggs in one basket' appears to have wizened the Parliament's subcommittee. GMR Energy, despite protesting that it was capable of implementing both projects, chose Upper Karnali thus leaving the World Bank aborted Arun-III (8) fortuitously to the next best evaluated bidder, Satluj Jal Vidyut Nigam - a Government of India undertaking. On the storage Budhi Gandaki, the Bhanu Acharya committee evaluated the two bidders, Maytas from India and Sinohydro from China, unqualified.

As the subcommittee on Natural Resources and Means prioritized free energy over free equity, the Anup Upadhaya committee (9) negotiated with GMR Energy to increase the free energy component from 7.5% to 12% by backing down on the offered 33% free equity to 27%. This magical figure of 12% free energy was linked to Jindal Steel & Power Ltd that, despite being the fifth best evaluated bidder, had the highest 12% free energy bid for Upper Karnali. Anil Ambani's Reliance Energy, ranked third best evaluated bidder, had also proposed 7.5% free energy but only for the first 15 years with a 15% free equity. As per the directives of the parliamentary subcommittee to ensure genuineness of the bidders, the Anup Upadhaya committee negotiated with GMR Energy the payment of, at the time of issuing survey license, a non-refundable fee of Rs. one lakh per Megawatt. GMR Energy also agreed to pay Rs. 8 crore for the costs incurred during project studies and deposit, at the time of issuing generation license, a bank guarantee of Rs. five lakhs per Megawatt. The survey license is for 30 months and commercial operation has to occur after 54 months (10) . The generation license under the Build, Own, Operate and Transfer (BOOT) is for a 30 year period.

'Sacrificial Goat/Bali ko Boka?':Though the Survey license issued to GMR was for 30 months from January 2008, as of August 2014 after the lapse of 80 long months the following Prime Ministerial Joint Press Release of August 4, 2014 speaks by itself:

The two Prime Ministers directed the concerned authorities to conclude negotiations within 45 days on the Project Development Agreement (PDA) between the Investment Board of Nepal and GMR Group of India for the development of Upper Karnali hydropower project.

Similarly, Nepal's Parliamentary Agriculture and Water Resource Committee (AWRC) has recently (August 21, 2014) directed the government to sign the Power Development Agreement (PDA) for Upper Karnali Hydropower Project with India's GMR-ITD consortium within the stipulated time. It is reported that the Committee led by NPC Vice-Chairman, Dr. Govinda Pokharel, is studying the PDA document on issues like GMR balance sheet, exemption of taxes for export projects, ensuring fair rate of return on Nepal's 27% free equity, mitigation of impact on irrigation downstream etc. etc. to create the so-called 'fair win-win situation'. There is, however, not a single word on what impact the 900 (11) MW Upper Karnali will have on the upstream 4,180 MW Storage Project,KR1B. In the nation's interest, it is imperative that both the Parliamentary Agriculture and Water Resource Committee and the Committee headed by the NPC Vice-Chairman examine this issue immediately and seriously. For the sake of the 900 MW Upper Karnali, KR1A, the 4,180 MW Storage Project,KR1B, must not be made 'Bali ko Boka!'As it is, because of the governments' sins of omissions and commissions, the inhabitants of Karnali River Basin are unfortunately at the bottom rung of the nation's ladder. In the name of half-baked development, let us not tamper with Karnali Basin's resources and compromise their future further!

1. Julius Caesar, after defeating Pharnaces of Pontus in 47 BC at the battle of Zela (in present day north-eastern Turkey), sent these three famous Latin words 'Veni, vidi, vici - I came, I saw, I conquered' to his Senators in Rome.

2. 30MW Kabeli is being implemented by the Butwal Power Group, 51MW Likhu IV has been licensed to an Indian developer, 301MW Dudhkoshi storage ?, 27MW Rahughat is being implemented by NEA through Indian EXIM Bank loan and 24MW Budhi Ganga is going to be implemented by DOED with Saudi and Kuwaiti loans.

3.From duty free expensive Pajeros for MPs to 'sick leave' escapades to Bangkok/Singapore and Lauda scams etc.

4. This fast track committee was indeed a high-powered one chaired by the Prime Minister himself with Minister of Water Resources, Minister of Finance and Vice-Chairman/NPC as members.

5. The more familiar bidders were: National Hydroelectric Power Corporation (NHPC), Jaiprakash Associates Limited (Jaypee), Larsen & Toubro Limited (L&T) and Reliance Energy Limited (REL).


7. As per the Ministerial decision of 2063/7/12 other members under Bhanu Prasad Acharya/ex-Finance Secretary were Lekhman Sing Bhandari/NEA Board member and ex-DG/DOED, Rajendra Kishore Chetri/Executive Director-WECS, Krishna Hari Banskota/Joint Secretary-MOF, Arjun Kumar Karki/MD-NEA, Sunil Bahadur Malla/SE-DOED and Anup Kumar Upadhaya/Joint Secreatary-MOWR.

8. Kantipur Magh 11, 2064 (March 3, 2008). World Bank aborted Arun-III was 201 MW with another 201 MW in second stage. However, the government's bid was for the single stage 402 MW now upgraded to 900 MW.

9. The other members under Joint Secretary Anup Kumar Upadhaya were: Rajendra Kishore Chetri/Joint Secretary-WECS, Sunil Bahadur Malla/DDG-DOI and Uttar Kumar Shrestha/DMD-NEA.

10. Kantipur Magh 11, 2064 (January 25, 2008).

11. Analysts point out that actually it was the 300 MW Upper Karnali that was awarded to GMR after international bidding. If GMR's 900 MW Upper Karnali kills the 4,180 MW Upper Karnali Storage site, then GMR should be made to revert back to 300 MW capacity. It is believed Arun III's upgrading to 900 MW has no impact on the proposed 336 MW Upper Arun.

Pun is a former MD of NEA (August 2014 /Bhadra 2071) n

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