Nepal lost Rs 22 billion in Mid-Marsyangdi

Nepal incurred a direct and indirect loss of a total of around Rs 22 billion due to the delay in completion of the 70-MW (megawatt) Middle Marsyangdi Hydroelectric Project (MMHP), said a government official at a meeting of a parliamentary sub-committee.“The facts show that there is an accumulative loss of Rs 22 billion, including the loss of revenue the government could have earned during the 48 months of project delay,” said Bhava Nath Dahal, chartered accountant of the Office of the Auditor General, at a meeting of sub-committee of the parliament’s Public Accounts Committee on Sunday.The parliamentary committee formed a sub-committee to study the reasons behind the delay in completion of the project and its cost overruns.The total amount also includes the interest amount of Rs 4.36 billion the project bore due to delay in its completion.The run-of-river type project with an installed capacity of 70 megawatts and an average annual energy generation of 398 gigawatt hours, was inaugurated by Prime Minister Pushpa Kamal Dahal on Dec. 14, 2008, four years behind the original schedule.Upon completion, the cost of the project stood at over Rs 28 billion against the original estimate of Rs 13.65 billion. Construction work started in June, 2001, with a target of completion by December 2004.The project official said Maoist insurgency, frequent termination of contracts and the strengthening of the Euro against Nepali currency led to the delay and cost overruns.It was also said that the contractors frequently suspended works at the site citing security reasons, frequent strikes, curfews, transport strikes, the people’s movement and local agitations.The contractor was awarded the contract for its lowest bid of 9 million Euro, however the amount later increased up to 47 million Euro. Reasons given for the increase were strikes, security and various other issues.“It shows that there is a racket of international companies, including the consultants, contractors and other agencies who deliberately wanted to prolong the project because it proved beneficial to them,” said Dr. Prakash Chandra Lohani, coordinator of the committee.Constituent Assembly (CA) members in the committee expressed their objections when they were briefed by the project official that an international security advisor agency was appointed upon the request of the consultants and contractors to make security assessments at the project site which also led cost overrun. Britain-based private company Rubicon International Services Ltd. was appointed security advisor. “If it is said that laws of Nepal will apply, then why is there a need for an international security advisor. We have to further study whether it is a justified demand,” said Lohani. The CA members said the intention to prolong project construction duration could be clearly felt.Executive Director of the Nepal Electricity Authority (NEA) Uttar Kumar Shrestha, who was also present at the meeting, argued that they accepted the consultant’s condition of appointment of the security agency as it had been agreed in the memorandum of understanding signed earlier.CA members demanded further clarification from the NEA and project officials about the details about appointment of consultants, variations in design and selection of the contractor through bids.The sub-committee will meet again on Tuesday to study the agreement documents between the government of Nepal, Fichtner Joint Venture (FJV), responsible for carrying out the detailed design and construction supervision of the project, and German state bank KfW. The project was funded by KfW, the government of Nepal and the NEA.Project Director Sunil Dhungel said the additional costs went on increasing as the detail design of the project was simultaneously prepared, while the construction of the project had already started. “It was the same with the 144-MW Kali Gandaki hydro project. It happens in India and in other countries as well,” Dhungel claimed, when Lohani asked the reasons behind the additional cost.“Preparing a detail design before inception of the construction work at the site is a mammoth task as well. Again it needs huge investment,” Dhungel argued.A case has been filed at the International Court of Arbitration over disputes in the project.