Challenges to Chinese Involvement In Chameliya Hydropower Project In Nepal

The 30 MW Chamelia Hydropower Project constructed by China in Darchula
district of Nepal is one of the mostly costly projects executed. The run-of-the-river
project was initiated in 2010 and took 10 years to complete, against the target of three
years. Also, the cost of Chameliya, initially estimated at Nepali Rs 6 million escalated
to Nepali Rs 16 million. Of late, the Chinese company functioning as the civil contractor
for the project, China Gezhouba Group (CGGC) has raised a number of issues with
Nepal on the HPP.
Prior to looking at these issues, however, it is necessary to understand the challenges
faced by the Chameliya HPP, right from the start. This includes delays in execution
of the project, leading to huge cost overruns. The Nepal Electricity Authority (NEA)
had awarded the contract to CGGC in December 2006 at an estimated cost of NRs
7.5 billion, with an estimated cost increment of NRs. 2 billion. The Chinese company
began work only in January 2007 and took a good seven years, finishing it only in
August 2018, citing various reasons like delay in payments by the NEA, natural
disasters, protests and the like.
In 2014, the CGGC halted work for nearly 18 months and demanded an additional
NRs. 1.1 billion from the NEA on the ground that construction costs had increased due
to ‘squeezing’ of the tunnel. Truly, the Chinese know how to get their pound of flesh
from smaller neighbours! When CGGC completed the project in 2018, they inflated
the cost to NRs. 16 billion. Pertinently, even in terms of per MW cost, the Chameliya
HPP is very expensive. Private sector companies have been developing HPPs at the
cost of NRs. 180 million per MW, while CGGC has demanded three times more, i.e.,
NRs. 540 million per MW for Chameliya.
Turning our attention to the complaints raised by CGGC to Nepal, it is seen that these
relate to delayed payments by NEA, price reduction by NEA in its audit and asking
CGGC to return the excess funds and finally, non-release by NEA of the project
performance guarantee worth NRs. 312.62 million. The obvious challenge is that
Chinese investment in Nepal’s hydropower sector is fraught with such delays and
overruns. This aspect is visible is many such projects initiated by China in South and
South-East Asia.
In the case of Nepal, China has shown its keenness to invest in Nepal’s hydropower
sector. However, in some cases, China has had to back off due to financial nonavailability, like in the case of the West Seti HPP. While the USD 1.2 billion project
was meant to be developed by the state-owned Three Gorges International, failure to
work out the financial modality of the project resulted in its formal termination.
Similarly, in 2017, the then Nepalese government scrapped the agreement with
Gezhouba Group for the development of the Budh Gandaki HPP (USD 44.6 million).
The Budh Gandaki was however, restored to the Chinese firm in 2018 by the K.P. Oli
government, the objective was to woo Chinese investors to get involved in building
Nepal’s ailing infrastructure. Once criticism when the project was reverted to the
Chinese was that it should have been open to international bidding instead of being
entrusted to the Gezhouba Group. Notably, the project has affected nearly 40,000
people. Also Chinese investment in Nepal has often come under scrutiny and in some
cases protest by locals. Take the case of protests by locals against the China-
sponsored Damak Clean Industrial Park at Damak Municipality, which former PM K.P.
Oli’s constituency in January 2021.
The Chameliya HPP highlights in a very real way the adverse consequences of
Nepal’s dependence on Chinese companies, especially in the hydro sector. The fact
of the matter is that Chinese investments are not very large in Nepal; they amounted
to only under USD 1 billion between 2000 and 2017, but the risks of Nepal becoming
financially dependent on China is always there as has been seen by other countries
in South Asia, including Sri Lanka. There is a larger issue relating to the environment
that needs to be kept in mind when looking at Chinese investments in Nepal’s
hydropower sector.
China has invested heavily in dams in South and South East Asia. Many such projects
like the Mekong Dam for instance, have seen resulted in huge displacement of peoples
and loss of livelihood. With its dam-building on the Mekong, which has led to increased
power production from the Mekong itself, China has deprived the river system of its
natural flows and in effect killed the river and its ecosystem in downstream countries.
Nepal would thus be well advised to be cautious about large Chinese investments in
their hydropower sector, now and in the future.
Issues faced by the Chameliya hydropower project in Nepal are not a one-off case,
but part of a larger Chinese predatory lending mechanism to developing countries,
who unwittingly take untenably large loans, from China. Often fully unaware of the
consequences of biting the bait of easy Chinese loans, these countries subsequently
find themselves in a squid game like situation, where the costs of default are far
beyond what they might have conceived of are willing to pay.
Pertinently projects executed by China in Nepal are typical also of efforts by China to
tighten the economic grip over debt ridden low and middle income countries. Raising
one clause or the Chinese companies justify cost overruns ostensibly to increase
profits for their investors by pushing the host country to the wall to modify / rework
contracts to the former’s advantage. As per a study conducted by Aid Data, nearly
35% of Belt & Road Initiative (BRI), infrastructure projects have encountered
implementation problems including corruption scandals, labour violations, public
protests, environmental protests etc.
The case of Nepal and BRI is illustrative. Both China and Nepal signed a framework
agreement on BRI in May 2017. Four years later, not a single project under this
agreement has taken off. The other issue is that many Chinese projects, including
those under the BRI are facing resistance from the local population, as many see
Chinese promises on infrastructure harming Nepali interests and benefitting China