West Seti is a world-class hydroelectric storage project that will transform Nepal into a major energy exporter to the South Asian region and provide an investment template for Nepal’s long-term development. 

Mr Bob Scott, Chairman of SMEC, the Australian project sponsor, noted today that “West Seti is a project that has been subject to particularly rigorous international analysis and review.  The team negotiating the project recognise the need to uphold the national interests of Nepal, and ensure appropriate consultation and representation of Nepali interests.”

West Seti is the largest project of its kind in the country, and based in Far Western Nepal, will generate 3,300 GWh per year of energy for export to India’s northern industrial region.  The project value is US$1.25 billion.

“West Seti will deliver substantial economic benefits to Nepal, with minimal social disruption.  The project provides a significant clean energy dividend to both Nepal and India, and enjoins both India and China in the development of major infrastructure in Nepal.” Mr Scott said.

The project enjoys significant support from the Governments of India and Nepal, as well as the Asian Development Bank.  The Chinese Government has expressed strong support for the project at a national level. 

West Seti will be the largest development project ever undertaken in Nepal.  This world-class project will provide a powerful flow on effect for several other hydropower projects in Nepal, many of which have been under evaluation for long periods (e.g. Karnali).  The Government of Nepal has identified several projects that it wishes to see executed as follow-ons to West Seti.

SMEC has been continuously engaged in the West Seti project since signing a Project Agreement with the Government of Nepal in June 1997.  SMEC continues to demonstrate its commitment to bring this major national project to completion with a team of committed international partners, applying the world’s highest engineering and environmental management standards.

Long lead times are common to major complex projects, like West Seti.  The Nam Theun 2 hydropower project in Laos, for example, has recently reached financial closure in 2005, after a project development period spanning from the late 1980s.

The involvement of the Asian Development Bank emphasises the importance of the project to Nepal’s economic and social development.

West Seti will provide a major contribution to reducing carbon emissions.  SMEC calculations using CDM protocols indicate that West Seti would equate to a highly significant CO2emission equivalent.

The Asian Development Bank EIA requirements and the Due Diligence procedures of the financing banks will dictate the project development programme to financial close.  SMEC is planning for construction work to start on site after the coming monsoon.

Background – West Seti Project  (provided for information on the project).

SMEC Developments Limited, a wholly owned subsidiary of SMEC Holdings Limited is the project sponsor for West Seti.

SMEC negotiated a Project Agreement (PA) with the Government of Nepal (GoN) in June 1997 which provides West Seti Hydro Ltd (WSH), the operating company, with a mandate for the development, ownership, construction and operation of the project, including generation and transmission licenses for 30 years.

The key players

• SMEC Developments – the project sponsor – through West Seti Hydro Limited.
• China National Machinery + Equipment Import and Export Corporation (CMEC) is an agency of the Chinese Government. CMEC has been awarded the PDB (Plan, Design, Build) contract for West Seti.
• The Power Trading Corporation of India (trading as PTC India Ltd), is engaged as the primary power off-taker.  PTC is an Indian Government Public-Private Partnership, whose primary focus is to develop a commercially viable power trading market in India.
• Infrastructure Leasing & Finance Systems of India(IL&FS), one of India's leading infrastructure development and finance companies is also planning to take a position in the project.
• WSH negotiated a Power Purchase Agreement (PPA) with PTC in October 2003, incorporating a take or pay tariff for power supply from West Seti for a 25 year period from the date of commercial operations.  Power would be supplied to India via a 230km transmission line from the project to the Bareilly distribution centre in Uttar Pradesh.
• The project is structured on a debt to equity ratio of 75:25.  It is proposed that finance will be provided by a group of banks including the Export-Import Bank of China, Industrial and Commercial Bank of Chin and the Bank of China. All of which are Chinese Government agencies.  In addition IL&FS of India has offered to provide debt financing.
• The Asian Development Bank (ADB) has indicated its intention to subscribe equity capital to the project.  The ADB’s involvement has been crucial in bringing the many complex project elements together.
• Political Risk Insurance (PRI) for the debt financing is being sought from ADB, the China Export and Credit Insurance Corporation (Sinosure) and other PRI underwriters including MIGA, the Multilateral Investment Guarantee Agency of the World Bank.

Equity structure

The equity structure for ultimate ownership of the project currently proposed is:

The remaining equity of 14% is currently being finalised.

Debt finance

Expressions of interest have been received from the following banks:

The banks are currently engaged in Due Diligence procedures

Environmental issues

The original Environmental Impact Assessment (EIA) was completed in 1998/99 and approved by the Government of Nepal in 2000. An update of the original study and the transmission line EIA is now almost finalised.  These studies have been conducted to International Best Practice standards, in accordance with Asian Development Bank and World Bank guidelines.

The environmental protocols which will apply to the West Seti project will set new standards for major projects in Nepal and provide a best- practice benchmark for subsequent hydro projects in Nepal of international significance.

Benefits for the stakeholders

Nepal

West Seti is a world class infrastructure project that will underpin economic development and support Nepal’s growing political stability at this critical time.  Of particular importance is that the project will ensure that Nepal enjoys a strong royalty stream from the project as well as subsequent dividends flowing from related equity investments.

Construction of the project (5.5 years) is estimated to inject US$225 million into the Nepal economy, and this will result in a strong flow through of expenditure in a number of sectors, as well as overall job creation and the training of a large number of key Nepali personnel.

The social development impact of the project has undergone rigorous international examination.  West Seti will create significant economic benefits for the local community. Population displacement as a result of the development has been assessed by independent parties as minimal - with the relocation of only about 1,650 families (~ 8,500 people) from the reservoir areas to the Terai.  A further 350 households within the transmission line easement will be affected, and some of these will require a minimal relocation to adjacent land.

India

India’s rapid growth has resulted in a widening of the energy gap.  The peaking power deficit in Northern India is estimated at 11- 12%.  India is moving rapidly to lift its energy supply through the construction of both thermal (gas and coal) as well as hydropower plants.

Northern India, specifically the heavily industrialised state of Uttar Pradesh, suffers a major gap between demand and supply that has impeded industrial growth.  Power rationing and blackouts are commonplace.

West Seti will deliver a competitive supply of energy to India’s industrialised north.

China

The financing and construction of the West Seti project by Chinese organisations will also deliver financial benefits to China.  More importantly from China’s overall perspective, it will raise the international profile of Chinese engineering and project management capability and China’s specific contribution to Nepal’s national development, as well as providing a strong demonstration of economic co-operation with India.  This is clearly important to the general economic advancement and strengthened political relationships within the region.

Asian Development Bank

The Asian Development Bank’s entry into the project in April 2006 injected a strong impetus to the project.  ADB staff are undertaking a rigorous analysis of the project and are in regular consultation with the various stakeholders.

The willingness and enthusiasm of the ADB to provide support in the form of loan facilities,  PRI guarantees, equity and technical assistance provides a persuasive demonstration of the development priority of the West Seti project.

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