The Asian Development Bank (ADB) has offered the government to loan up $ 45 million and made a proposal for the latter's 15 percent equity participation in the 750-megawatt West Seti Hydro project.

According to Finance Secretary Bidhyadhar Mallik "This arrangement is being mulled to win the trust of Chinese investors," said Mallik. The project is being financed on a 75/25 debt/equity ratio, with most of the debt contribution sought from Chinese financial institutions, including Export Import Bank of China and Bank of China.

ADB will charge the London Interbank Offered Rate (LIBOR) on the loan plus minimum percentage points. "ADB is willing to provide maximum concession on the percentage points that it normally charges above the LIBOR rate," Mallik said. "The government is most likely to invest the money through Nepal Electricity Authority."

Madhav Prasad Ghimire, joint secretary at the ministry and chief of its Foreign Aid Division, said that a Memorandum of Understanding on this should be signed soon either by the Finance Minister or the cabinet, after which details will be worked out.

"This arrangement has become necessary to ensure that the project moves forward. However, the government will be free to withdraw its participation any time it wishes, by selling its equity share," Ghimire added. ADB will itself have separate equity participation worth 20 percent, through its private sector window, in the US $ 1.2 billion project, Mallik said.

The project will also have equity participation from Australia's Snowy Mountain Engineering Corp. (SMEC) that holds the project's generation licence, China National Machinery and Equipment Import and Export Corporation (CMEC) that will build the project, and some Indian agencies.

SMEC has an agreement for providing 10 percent royalty to the Nepal government, in the form of 75 megawatts of peaking power from the storage project.

SMEC, which obtained the license for the West Seti project in 1994, has a Power Purchase Agreement with PTC India Ltd. at around five cents per unit.

The West Seti project site lies in Doti district in far-western Nepal, some 865 kms from Kathmandu. The project's construction is estimated to take five-and-a-half years. All studies needed to be done before project construction have been completed.