Korean Contractor Issues Pullout Warning to Chameliya Developers

Korea Hydro and Nuclear Company, the contractor of electro-mechanical and hydro-mechanical works as well as the construction of transmission lines of the 30 MW Chameliya Hydropower Project, has warned the Nepal Electricity Authority that it would walk out on the contract unless it is compensated for delay in civil works.

Civil works precede the electro-mechanic and hydro mechanical works and Chinese contractor China Gezhouba Water and Power (Group) has been working on civil works. The South Korean contractor has complained that the delay in civil works is holding them back from starting their share of works in the project.

A high-level official at the NEA said the company had also demanded $8 million in compensation from the government as a prolongation cost. “The Korean company has warned to breach the contract signed with the NEA unless it is paid the prolongation cost,” he said. China Gezhouba Water and Power, the contractor of the civil works, is responsible for building the intake, penstock tunnel and powerhouse. The company had started main civil works of the project from January 2007.

The Darchula-based project, originally scheduled to be completed in May, 2011, has been delayed due to the contractor’s poor performance. The project deadline, postponed till August 2013 once, was pushed back to March 2015. The NEA officials said despite several revisions in the completion date, the Chinese contractor’s progress has been “unsatisfactory.”

“The Korean firm has been claiming for the prolongation cost for a while now,” an NEA official said. “However, after its demand was not addressed, it has been threatening to pull away from the project unilaterally.”

Energy Secretary Bishwo Prakash Pandit said though the company has brought all necessary equipment to the project site for the electro-mechanical and hydro-mechanical works, it has not been able to start its work.

According to the Energy Ministry, the Korean firm has been waiting for almost two years to kick off the work. “As the company has not been able to install its equipment and forced to stay idle, it has been demanding the prolongation cost,” said Pandit.

The Korean company, however, is constructing the transmission line to connect the power generated from the project to the national grid. The 131-km transmission line is at the final phase of construction. The company was awarded the Rs 3.8 billion ($48 million) contract in April, 2009.

“The project that has already been delayed due to the Chinese contractor. The situation will only worsen if Korean firm walks out on the contract,” said the NEA official, lamenting that the state-owned utility does not have money to pay compensation to the Korean firm.

“The NEA is holding talks with the Korean firm and other stakeholders on Thursday to resolve the problem,” the official added.

The total cost of the entire project is estimated at $ 99.9 million. The South Korean government under the Economic Development Cooperation Fund, a joint mechanism, extended $ 45 million in ‘soft loan’ to Nepal to commission the project. Out of the total project cost of Rs 12.5 billion, Rs 8.6 billion has already been spent, according to the project.