China Eximbank provides $149.4 million government concessional loan for the 60MW Upper Trishuli 3A Hydroelectric Power Plant Construction Project (Linked to Record ID#38705, 71749, 104309)

Project narrative

The Government of Nepal requested a $120 million concessional loan from the Government of the People’s Republic of China for the 60 MW Upper Trishuli 3A Hydroelectric Power Plant Construction Project on July 31, 2006. Then, on October 11, 2009, Nepal Electricity Authority (NEA) selected China Gezhouba Group Company Ltd (CGGC) as the project’s EPC contractor with a bidding amount of $89,231,692 (exclusive of VAT). A Memorandum of Understanding (MoU) regarding the loan was signed by the Government of Nepal and the Export-Import Bank of China (China Eximbank) on November 4, 2009. The MOU referenced $200 million: $120 million for the 60MW Upper Trishuli 3A Hydroelectric Power Plant Construction Project and $80 million for other projects. An environmental impact assessment (EIA) report was approved by the Government of Nepal’s Ministry of Environment on August 26, 2010 and forwarded to China Eximbank on August 31, 2010. Then, on February 28, 2011, the Government of Nepal and China Eximbank signed a government concessional loan (GCL) agreement [CHINA EXIMBANK GCL NO. (2011) 9 TOTAL NO. (1399)] worth RMB 640 million (equivalent to approximately $90 million) for the 60 MW Upper Trishuli 3A Hydroelectric Power Plant Construction Project. The borrowing terms of the loan were as follows: a 1.75% interest rate, a 25-year maturity, and a 5-year grace period. The Government of Nepal used the proceeds of the loan to develop an on-lending arrangement (through a ‘Subsidiary Loan Agreement’) with NEA on April 15, 2011. The loan agreement went into effect on June 1, 2011. However, the scope of the project was subsequently expanded and the face value of the loan was increased to $149,378,539. The loan achieved a disbursement rate of at least 66.3% ($99,047,167 out of $149,378,539), with 58 disbursements taking place between June 2011 and June 2021. The loan's amount outstanding was RMB 537,862,139 ($83,124,966) as of July 15, 2021. NEA (the ultimate borrower) was expected to use the proceeds of the loan to finance a commercial (EPC) contract that it signed with China Gezhouba Group Co. Ltd. (CGGC) on May 31, 2010. The Upper Trishuli 3A hydroelectric power plant project involved the construction of a 60 MW run-of-river (ROR) plant with annual energy generation of 460 GWh. More specifically, it involved the installation of a 25 meter high diversion weir, intake, desander, 4.1 km headrace tunnel, surge shaft, inclined shaft, underground powerhouse, tailrace, switchyard, 48 km long 220 Kv transmission line, and a 4 circuit 1 km 220 Kv underground cabling and ancillary structure. The power plant is located near Simle village within Kispang Rural Municipality on the borders of the Rasuwa and Nuwakot districts. CGGC was the EPC contractor responsible for all civil, electro-mechanical, and hydro-mechanical works, including gradation of the 11.5 km long access road, construction of a steel bridge over Trishuli River, construction of temporary camp at headworks, and excavation of Adit no. 1 and head pond excavation. Northwest Engineering Corporation Limited (previously known as Northwest HydroConsulting Engineers) was selected as the contractor responsible for construction supervision. It was issued a supervision contract worth $4,443,926 on June 29, 2010. CGGC received a ‘Commencement of Work Order’ on June 1, 2011. The project was initiated on November 23, 2011 and it encountered various delays due to disputes over whether to build powerhouse underground or overground, disputes about whether to increase the capacity of the project, damages to the access roads leading to the project site (resulting from landslides that were triggered by an April 2015 earthquake), and a blockade imposed by India. On May 26, 2019, the first unit of the plant was successfully connected to the grid. The second unit was successfully connected to the grid later in 2019. The hydroelectric power plant was officially completed and inaugurated on November 18, 2019. The electricity that is now generated by the plant mainly serves people in Kathmandu and it reportedly fulfills seven percent of the country’s total electricity demand. There are multiple indications that the China Eximbank loan for the 60MW Upper Trishuli 3A Hydroelectric Power Plant Construction Project has financially underperformed vis-a-vis the original expectations of the lender. In 2017, China Eximbank agreed to extend the loan's original 5 year grace period by an additional 4.5 years (increasing the total grace period to 9.5 years). This debt rescheduling is captured via Record ID#71749. Then, in 2021, China Eximbank temporarily suspended the Government of Nepal's principal and interest repayment obligations under the loan agreement for the 60MW Upper Trishuli 3A Hydroelectric Power Plant Construction Project as part of the DSSI (as captured via Record ID#104309).