KATHMANDU, NOV 07 - The Nepal Electricity Authority (NEA), a government owned power utility, has agreed for Power Purchase Agreement (PPA) with a Chinese company for the commissioning of the 50-MW Upper Marsyangdi Hydro Electricity Project (UMHEP) located in Lamjung district.

This is the first Chinese investment in hydro project in Nepal.

According to Diwakar Poudel, deputy acting director of the Finance Department of the NEA, a memorandum of understanding for PPA was signed among Chinese company Sino Hydro and Nepali company Sagarmatha Power Company and the NEA on Friday. 

The NEA signed the MoU with the Nepal-China joint venture company at a proposed rate of 5.995 cent (Rs 4.5 approximately) per unit of power. The government issues generation licence for the project after the parties concerned sign the PPA. 

Poudel said Sagarmatha Power Company that has 90 percent shares of Sino Hydro should sign PPA with the NEA within four months and deposit a bank guarantee of US $ 100,000 (Rs 7.5 million approximately) for project implementation.

According to Poudel, the NEA asked the Chinese company for bank guarantee after it failed to sign the PPA even after two preliminary agreements. Sino Hydro and the

NEA had earlier agreed on PPA at 5.73 cent (Rs 4.24) per unit. However,

the Chinese company requested the NEA to revise PPA rate citing various reasons, including hike in the

prices of construction materials and equipment.

UMHEP, which will start construction work this winter, is expected to complete in the next four years at an estimated cost of around US $ 138 million. “The UMHEP is an attractive project compared to other donor-funded hydro projects as it will generate 50 percent energy even during the dry season,” said Poudel.

Hydro projects like Khimti and Bhotekoshi generate around 20 and 30 percent of their installed capacity respectively during the dry season.

 Jivendra Jha, managing director at NEA said, “Despite differences between the government and the Chinese company regarding PPA rates, Sino Hydro has agreed to sign it at Rs 4.5 per unit.”

As per Friday's agreement, there would be three percent price increase in the proposed rate of Rs 4.5.  According to Electricity Act 1992,

the project developer is liable to hand over any project in good state to the government 30 years after it goes for commercial generation.

According to a study, the UMHEP will generate 321 million power units annually that will be transported through the 220 KV transmission lines being constructed at Marsyangdi corridor by the government recently.

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