The LIKELIHOOD THAT THE LONG delayed 750MW West Seti hydro power project in Nepal will begin construction later this year received a major boost on 16 January 2002 when project developer, Snowy Mountains Engineering Corporation (SMEC), signed Thailand’s Italian Thai Development Company (ITD) as its engineering, procurement and construction (EPC) contractor.

Although the agreement is still only a Memorandum of Understanding, (MoU) to be ratified once SMEC concludes a PPA with the project’s major purchaser – India’s Power Trading Corporation (PTC) – that step is expected quite soon.

PTC, formed in 1999 as part of India’s power sector reform process, was formally named the country’s purchaser of Nepali power exports in July 2001. Since then, its success so far in developing power trading in India, as well as much greater attention to alleviating severe transmission and distribution (T&D) system deficits in northern India, mean that West Seti’s power is now marketable.

Expected to cost around US$1B (the EPC contract alone will be worth around US$480M) the project will comprise: • A 195m high concrete faced gravity fill dam with storage of at least 148Mm3.

• A 6.7km long, 10m diameter headrace tunnel.

• An underground powerhouse.

• 400kV transmission lines to the Indian grid.

Located in the extreme west of Nepal, it is expected to generate 169GWh of energy per month in the dry season rising to 366GWh a month in the wet season.

As potentially the single largest foreign investment in Nepal to date, and almost three times larger than any other Nepali hydro project so far, West Seti is seen as a bellwether for other large Himalayan schemes. Pressure for their implementation has been building, not just to provide foreign exchange for land-locked Nepal as well as much needed power for India, but to provide a realistic basis for much greater economic co-operation across South Asia.

West Seti project development has however been very slow. First mooted in 1992 when the Nepali government assigned SMEC exclusive rights to design, build and operate the project for 30 years, inclusive of a five-year construction period, it has had to pioneer many of the necessary procedures.

For example, with no local standards or expertise available, it has opted to follow World Bank guidelines on environmental issues including resettlement of several thousand people. SMEC claims the affected communities ‘were consulted extensively from the concept stage onwards and support the project’. The draft EIA was opened for public comment in Nepal in mid-2000 before submission to the government.

The main hurdle however has been to achieve credible PPAs with several essentially bankrupt northern Indian state electricity boards (SEBs) who would have bought West Seti’s power. This was infeasible until PTC became the intermediary and attention was focused on upgrading T&D grids.

A report on domestic sub-transmission and distribution system losses published on 2 January 2002 by India’s Central Electricity Authority (CEA), says that ‘over three-quarters of all T&D losses’ of up to 50% of dispatched power, as well as ‘the entire commercial loss’, take place at the distribution stage. Consequently overall loss could in principle be reduced to 15% quite quickly under the ongoing Accelerated Power Development Programme.

The next steps therefore are for ITD to undertake its own due diligence analysis of the estimated construction costs before signing a lump sum EPC contract with SMEC. By that point, SMEC hopes to have secured a PPA that will permit the project’s financial closure.