China Eximbank pledges $1.6 billion in concessional and commercial debt for 750MW West Seti Dam Construction Project

China Eximbank pledges $1.6 billion in concessional and commercial debt for 750MW West Seti Dam Construction Project The West Seti Dam is a proposed 750 MW hydroelectric dam on the Seti River in the Far-Western Development Region of Nepal. If constructed, the 195 meter-long dam would have an annual average generating capacity of 3.33 billion kwh.

The power station would be located approximately 63 kilometers (39 miles) upstream of the Seti River confluence with the Karnali River, with the dam site located a further 19.2 kilometers (11.9 miles) upstream.

All project sites, excluding the reservoir area and transmission line corridor, are located in either Doti and/or Dadeldhura Districts. The reservoir area is located in Doti, Dadeldhura, Baitadi and Bajhang Districts. The transmission line corridor is located in Doti, Dadeldhura, Kailali and Kanchanpur district.

The dam was originally going to be built by Australia’s Snowy Mountain Engineering Corporation (SMEC) through a special purpose vehicle called West Seti Hydropower Company Limited (WSHPL).

However, in June 2011 the Government of Nepal terminated the construction license with SMEC after it failed to construct the project.

In 2010, the Asian Development Bank and China National Machinery and Equipment Import and Export Corporation also withdrew their support for the project after a campaign was launch by organizations that opposed the project on environmental and involuntary resettlement grounds. In May 2011, China Three Gorges Corporation (CTGC) expressed its interest in developing the project.

Then, on August 29, 2012, CWE Investment Corporation — a subsidiary of China Three Gorges Corporation (CTGC) — and Nepal’s Ministry of Energy (MoE) of Nepal signed a Memorandum of Understanding (MoU) to memorialize their shared interest in constructing the West Seti Dam according to a Public-Private Partnership (PPP) model.

Per the the terms of the MoU, CTGC would have a 75% ownership stake and the Nepal Electricity Authority (NEA) would have a 25% ownership stake in a joint venture company called West Seti Hydropower Project Development Limited that would be established to finance, design, implement, and maintain the West Seti dam.

Then, in 2014, NEA requested a $400 million concessional loan from the Chinese government in order to fund its 25% equity share in West Seti Hydropower Project Development Limited. However, this loan was never finalized.

In 2015, the Investment Board Nepal (IBN) got final approval from CWE Investment Corporation for the West Seti Hydropower Project.

The project was forecast to reach completion by 2021-22 and officials said at the time that the generated power would be given to locals for free and 90% of the electricity would be exported to India through a 230-kilometer transmission line.

China Eximbank reportedly agreed in principle to provide $1.6 billion in commercial and concessional debt financing for the $1.6 billion the project, and one source at the time suggested that half of China Eximbank’s financing would be provided as a concessional loan at a less than 2 percent interest rate and the other half as a commercial loan with an interest rate no higher than 7 percent.

However, in 2017 and 2018, CGTC signaled to NEA that the power purchase rate (the rate at which NEA would purchase electricity from West Seti Hydropower Project Development Limited) for the project was too low. In August 2018, CTGC backed out of the project, claiming that it would be financially infeasible to implement.

The Government of Nepal then announced that the MOU with CWE Investment Corporation had been cancelled.

It is being supposed that the real reason behind the Chinese firm's cancellation was India's unwillingness to purchase the power from the project.

This was indicated in a joint statement in May 2018 wherein India and Nepal had agreed to enhance bilateral cooperation in power sector in line with the bilateral Power Trade Agreement. India was supposed to purchase 90% of the power from the West Seti Project.