The proposed West Seti Hydroelectric Project is a reservoir type project located in Doti, Baitadi, Dadeldhura and Bajhang districts in far west Nepal. The plan calls for a 195-m high dam and will generate 750 MW of electricity. Its estimated cost is US$ 1.2 billion. Australian based Snowy Mountains Engineering Corporation (SMEC) has received the license to operate the project. The electricity produced here is to be sold to India for which SMEC has already signed a power purchase agreement with the Power Trading Corporation of India. The ADB, CMEC-China, EI Bank of China, IC Bank of China, Bank of China and IL&FS of India are the main investors. The proposed West Seti Hydroelectric Project is a reservoir type project located in Doti, Baitadi, Dadeldhura and Bajhang districts in far west Nepal. The plan calls for a 195-m high dam and will generate 750 MW of electricity. Its estimated cost is US$ 1.2 billion. Australian based Snowy Mountains Engineering Corporation (SMEC) has received the license to operate the project. The electricity produced here is to be sold to India for which SMEC has already signed a power purchase agreement with the Power Trading Corporation of India. The ADB, CMEC-China, EI Bank of China, IC Bank of China, Bank of China and IL&FS of India are the main investors.

In the early 1990s, the government issued a license to SMEC to do a preliminary study on the West Seti project. Subsequently, a number of Australian promoters formed the West Seti Hydro Ltd (WSHL) under the Company Act of Nepal as a wholly owned subsidiary of SMEC. The WSHL then signed a project agreement with the government in June 1997. With this unequal contract, the government signed away one of the most important public resources to an international business giant in the name of national development.

The West Seti project has been in the spotlight since 1981 when a French company SOGREAH did a preliminary feasibility study for the first time. In 1994, SMEC did another study and recommended that the project have a capacity of 750 MW. Till date, eight amendments have been made to the agreement between the government and SMEC. The Australian company is saying that Chinese banks have also agreed to put money in the project in addition to the ADB’s 15 percent, SMEC’s 26 percent, Nepal government’s 15 percent and IL&F’s 15 percent investment. The government is investing its 15 percent by borrowing it from the ADB. According to Bimarsh weekly (November 16), the Chinese have pulled out and SMEC is trying to get some Indian companies and KFW Germany interested in the project.

The dam plan aims to supply power to India for which Nepal is to get a 10-percent royalty in addition to the export tax. However, Parliament’s natural resources committee has directed the government to negotiate with SMEC that Nepal should get 10 percent of the electricity at no cost.

The ADB has agreed to invest 15 percent of the equity, and it is also lending money to SMEC besides providing a US$ 4.5 million loan to the government. That is one suspicious deal between the government and the ADB. Why is the government investing in West Seti with borrowed money when it refuses to guarantee the investment of eager national investors? Evidently, a few leaders in power and the ADB have joined hands to forge this unequal agreement.

Currently, the country’s total power generation stands at 610 MW, which reaches only 20 percent of the urban population. The remaining 80 percent do not have access to electricity. The first duty of the government is to prioritize the national interest in terms of electrification and supply adequate power to as many people as possible. But it has chosen to ease India’s power shortage by diverting Nepal’s energy when it could have been used to light up the West Seti region at least. In 2003, the government had amended the agreement that Nepal would receive 10 percent of the electricity generated free of cost. But the pact was altered again providing Nepal a 10 percent royalty instead of power.

The people are suffering from frequent hikes in the price of petroleum products, and electricity would provide a good alternative. If Nepal were to shift to electric power from gasoline, the country would need to build 10-20 West Seti-type hydro projects. But the government says that Nepal does not need so much electricity, and that we should sell it to India to earn money. A terrible provision in the agreement is that the price of electricity from West Seti has been fixed at 3.8 cents per unit when the Nepal Electricity Authority is paying private operators and India more than 6 cents per unit for its purchases.

According to experts, West Seti can be constructed with multiple objectives for the same cost, but this provision is lacking in the agreement. The water released from the dam can be used to irrigate thousands of hectares of farmland. However, there is no such stipulation in the contract. And according to the EIA report, 12,914 people are going to be uprooted by the dam project. The rights of the displaced people to share the benefits have not been secured, and there are no plans for their compensation, rehabilitation and reparation.

The local people are the owners of the water resource. But the 10 percent royalty from the project will go into the central level budget. And it is obvious that no separate arrangement will be made particularly for this area. It is a good guess the region that is hosting this massive project will remain in darkness like the proverbial shadow below the lamp.

Nepal’s Interim Constitution has anticipated a federal system after the constituent assembly. Once a federal system is in place, the West Seti River would be under the jurisdiction of the local government. The central government would then have to pay or seek permission to exploit it depending on the law of that particular region. During the current transitional period, the central government cannot decide what should be done with the natural resources. That is for the coming provincial governments to decide. The local people of West Seti are upset that the power project is being constructed to supply electricity to India rather than for their benefit.

The West Seti Hydroelectric Project is thus against the interests of Nepal and the people. The consortium of international financial institutions that is investing in West Seti has revealed its desire to obtain unfair advantage from the project which is being constructed not for Nepal but for economic globalization. The Kathmandu Post, 29 December 2007

The writers are associated with the Water & Energy Users’ Federation-Nepal. http://www.kantipuronline.com/kolnews.php?&nid=132626