Four years after GMR Group, the India-based multinational infrastructure enterprise, signed a Memorandum of Understanding (MoU) with the government to develop the Upper Karnali Hydroelectric project, the two sides are close to finalizing the Power Development Agreement (PDA). The Ministry of Energy has prepared a first draft of the PDA template and is currently in the process of incorporating the recommendations of a technical committee. The ministry is expected to send the draft to GMR Upper Karnali Hydropower Limited by March.
Though the PDA was long overdue, given past opposition to the project by the Maoist party which currently leads the government, the completion of the first draft is, in itself, good progress. But the real test begins now. Will the PDA actually be signed, clearing the way for commencement of the construction work?
Signing of the Upper Karnali PDA is a test case as much for the Maoist party, which obstructed the project for so long, as it is for the government. Other potential foreign investors in Nepal’s hydropower sector are keenly watching how Upper Karnali plays out to evaluate how the government treats foreign investors and how swiftly or slowly it moves things. The PDA on the Upper Karnali will prove our seriousness in promoting foreign investment in hydropower and also our ability to keep our promises.
Failure to conclude the PDA would send a wrong message to potential investors: It’s still not quite possible to do business with the Nepali state. The choice of what kind of message we wish to send out is entirely ours. We do hope the Maoist government, having muddled over the issue for so long, will take the right decision now.
We have heard the argument, mainly from a section of the Maoists and some others, that it’s not in the best interest of the country to allow foreign companies to develop major energy projects like Upper Karnali. In principle, we agree that it’s in Nepal’s interest to harness our hydropower on our own and use that power to foster manufacturing and other enterprises within the country. Exporting power will not make the country rich; exporting manufactured goods will do that because there is significant value addition in the process. But the question here is, do we have the indigenous resources or can we borrow from foreign investors to invest in power development.
The answer, unfortunately, is no. Moreover, we have already invited foreign investors through competitive international biding to invest in some projects, such as Upper Karnali and Arun III, and we have to honor that commitment. So we wish to recommend a pragmatic approach: Let’s allow in GMR and Sutluj to develop Upper Karnali and Arun III respectively, but make sure to include a clause in the PDAs whereby they will be legally bound to sell us power if we want to buy from them and they can only export surplus power. Using the earnings from such projects and what we learn from them, we can think of better ways to develop other projects on our own.