Death of Tamakoshi-3: How Nepal lost A$ 2.15 billion due to ‘unfriendly bureaucracy’ and Indian blockade

Ram KhatryBy Ram Khatry


Experts including Nepal’s award-winning former finance minister say Oli Government’s loss of credibility, a notoriously unfriendly bureaucracy and India’s blockade on the landlocked country are some key reasons that brought about the sudden death of Tamakoshi-3, a US$ 1.3 billion hydropower project.

Statkraft, Norway’s largest hydropower company which employs over 4000 people in 20 countries, announced this week that it was forced to kill off Tamakoshi-3 following a ‘thorough assessment of all aspects of the project, including commercial, technical and regulatory factors’.

What would it mean for an energy-starved, earthquake-battered, fledgling economy to lose A$ 2.15 billion? “A big loss” was a common answer from people the question was put to. That’s understandable too because Nepalese people currently put up with power outage extending up to 14 hours a day.

Ram Sharan Mahat
Best Finance Minister 2016: Nepal’s former FM Dr Ram Sharan Mahat

“It is definitely a loss. I think it is a question of credibility on the part of the current government. Although they (Statkraft) have cited earthquake risk saying that the location of the plant is in a seismic zone, I think the government may have failed to win their confidence,” Nepal’s former finance minister Dr Ram Sharan Mahat told southasia.com.au in a long-distance telephone conversation.

However, some fear that the discontinued hydro project portends western investors’ change of attitude towards Nepal as an investment destination. Bharat Raj Poudel, a development media analyst who recently concluded his PhD research at Queensland University of Technology, said Statkraft’s announcement indicates that the West looks at the ongoing political unrest in the country as the beginning of destabilisation.

Asked if the government knew about the possible discontinuation of the project, Dr Mahat said he did not want to comment on things he did not have the latest information on but assured there was absolutely no indication of a pull-out during the time of Nepali Congress government. “We never heard anything of the sort,” he told this scribe on Friday. According to the winner of the Best Finance Minister 2016, Statkraft officials were in fact ‘full of excitement’ until 4-5 months ago, “They appeared quite excited during their meetings with the investment promotion board.”

If the pull-out is indeed for seismological reasons then it is not a matter of concern but if it is for any other reason then the news is not good for his country, Dr Mahat rued.

He firmly believed that the Indian blockade on Nepal further created a sense of ‘risk’ in investors. No one wanted to invest in countries with risk factors, Dr Mahat said, suggesting that it is only natural for any potential investors to do so.

Gyanendra Lal Shrestha, the Chairman of Energy Committee at Federation of Nepalese Chambers of Commerce and Industry (FNCCI), however, holds Nepal’s opaque bureaucracy as the principal culprit behind the discontinuation of the Statkraft project, Tamakoshi-3.

“Our bureaucracy is not investment-friendly. Investment comes even to countries like Ethiopia, Singapore gets investment, why don’t we? It is because of the very nature of our bureaucracy. No investment can come to Nepal until our bureaucracy changes,” the hydro entrepreneur said.

Gyanendra Lal Shrestha
Gyanendra Lal Shrestha

Not only bureaucracy but Statkraft can also be morally implicated, Mr Shrestha pointed out.

“Statkraft’s decision to pull out (of Tamakoshi 3) because things are not in its favour but its continuation of Khimti Hydropower because it makes yearly US$ 30 million is not right,” he expressed his disbelief. Everyone knew how the Khimti agreement came into being, he said, and how much loss Nepal incurred. Nepal, nevertheless, gracefully accepted the loss but now Statkraft is pulling out of Tamakoshi 3 because it was not progressing the way it wanted, the leading business personality accused Statkraft.

Like Dr Mahat, he too lambasted the government, “Our government can neither make its bureaucracy investment-friendly nor it can develop an investment-conducive environment by winning the confidence of foreign investors.”

On its part, Statkraft has made public the ‘factors’ responsible for its discontinuation of the plant. “These factors include a lack of viable power offtake option, lower electricity price forecasts, insufficient transmission capacity for power evacuation and absence of necessary policies and regulatory framework for operationalizing power sales. It also reflects the increased bureaucratic hurdles for foreign investments, a fragile political situation and a geo-political situation leading to a non-conducive project development environment,” Dr. Sandip Shah, VP and Country Director for Statkraft Nepal said in a press release on Tuesday.

Khimti Hydropower Plant
Profitable: Another Statkraft operation, Khimti Hydropower Plant, completed 15 years in operation last July.

This, however, does not mean that Statkraft has grown completely sour on Nepal. The company has indicated it would continue to be interested in Nepal but only in projects that demonstrate potential for returns on investment, the exact reason Mr Shrestha said was selfish of the third largest energy company in the entire Nordic region.

Commenting on the development, Tima Utne Iyer, Statkraft’s Senior Vice President and Chairperson of Himal Power Ltd said, “As majority owner of Himal Power Ltd (HPL), Statkraft has a long-term commitment to Nepal as the license agreement for the 60 MW Khimti hydropower plant runs until 2045. Our decision is purely linked to the Tamakoshi-3 Project and does not influence our activities in South Asia.”

This loss of US$ 1.5 billion in the estimated cost of the plant is undoubtedly an immense blow to the Nepalese economy. A discontinued TA3 means the total loss of all the employment opportunities the project would have presented to local workforce.

Bharat Raj Poudel
Bharat Raj Poudel, development media expert

Mr Poudel remarked that it was a major setback for a small country like Nepal to lose a whopping US$1.3 billion on the back of a mere press release. “It is a humongous amount of money in the context of Nepal, an epic loss,” the QUT student, who is also affiliated with the editorial team of southasia.com.au, said.

He argued that Statkraft, being an European company, has no particular geopolitcal interests in Nepal the way India and China do. “Organisations from Norway generally are attached to greater integrity and transparency. Their investment would have been pure investment with no strings attached. Nepal should have done more to keep the company in the country,” he expressed his frustration.

Mr Poudel demanded that his country must work to win back Statkraft by rendering special treatment on the globally respected clean energy giant by framing ‘congenial legal and policy framework’.

The pull-out of the Norwegian company, Mr Poudel expressed his fear, could indicate that the West is beginning to look at the latest development in Nepal (the Terai and Tharu unrest following the promulgation of the constitution) as ‘the beginning of destabilisation’.

Statkraft had entered into an agreement with the Nepalese government in 2007 to develop the plant which, if completed, would have gone into Nepalese ownership 25 years from the date operations began. Another loss for the impoverished country.

The TA3 was aiming to produce 650 megawatts of electricity potentially to export to the Indian energy market or other South Asian countries.

The company had not yet commenced the construction proper but it is walking out of Nepal US $13 million short of cash – the money it had already spent on the Feasibility Study and ESIA (Environmental and Social Impact Assessment) of the project.

It is worth mentioning that the total power generation in Nepal does not exceed 800 megawatts which is apparently only 1.9 percent of the total energy the rolling alpine rivers of the country can produce. Nepal’s geographic locations make it conducive to build reservoirs and dams in order to produce hydropower – a potential so under-exploited.

With inputs from Sitaram Bilashi in Kathmandu, editor of corporatenepal.com

This news article has bee edited 16 January 2016 1222 Hrs AEST 

One thought on “Death of Tamakoshi-3: How Nepal lost A$ 2.15 billion due to ‘unfriendly bureaucracy’ and Indian blockade

  1. Nepal not only just a neighbouring state with India sharing a common long border extending over a thousand miles, has not just deep common Religious faiths and practices But as well share very similar cultural bonds besides somewhat similar Economic and Ecological Heritage for Himalayas.

    However it be better to revise the derived perception of Unfriendly Diplomacy accusing India for current Hydro Projects investments crisis for p Land Locked Nepal and view the entire scenario in light of the Fact
    that Emerging Geopolitical,Geostrategic and Security concerns and some unseen pressures must also have played a part. Reportedly China is already moving Ahead on Silk Route in its bid to have a straight reach to Afghanistan Iran and central Asia via POK and deep drillings and tunnelling work has already disturbed already precarious and fragile Himalayan Ecological balance to much levels. So, halt on Hydro Project might be a Blessing in disguise particularly when viewed in wake of just recent Massive Earth Quake.

    Ashok Sharma

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