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At a time when the publicly held GMR Infrastructure is looking at conserving cash and exploring various options to get its highly volatile leverage issue under control, the Nepal government has awarded it a Rs 8,500 crore 900 Mw hydropower project. GMR Infrastructure had initiated this proposal in 2008 and due to internal issues of various Nepal governments, the nod to this project has come after a long wait.
GMR Infrastructure during that time was on an expansive global expansion plan but has over the past 18 months tightened its belt to shed various assets, raise equity, free cash flows and is looking at managing its cash resources more efficiently.
A cabinet member of the Nepal government said it had cleared the way for this project in the northwest. This will be Nepal’s biggest inward foreign direct investment.
| GMR’S FOREIGN DREAMS |
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A GMR spokesperson confirmed the contract and said they expected to sign the final project development agreement shortly. After that, GMR will be roping in financial investors for the project in which the Nepal government will hold around 27 per cent equity.
However, GMR executives were unwilling to comment on the funding structure for the project when it was hard-pressed to deploy resources. GMR currently has corporate debts of as much as Rs 2,000 crore at the enterprise level taken specifically for the power vertical and is exploring various options to whittle them down, either through a private or a public offer or through divestment.
GMR has a little over 2,500 megawatt (Mw) of operationalised capacity across thermal and gas projects, while it is in the process of setting up 2,300 Mw of capacity. GMR has so far committed Rs 33,000 crore to its power projects, but the revenues have been lagging given problems at almost half of its plants due to low availability of natural gas.
The power vertical accounts for around 30 per cent of the company's revenues of Rs 10,000 crore and GMR is hoping that with fresh capacity coming on stream, the inflow from the power sector will be substantial.
China’s Three Gorges International Corp, is also in talks with Investment Board Nepal to build a $1.6 billion dam to generate 750 megawatts of electricity on the West Seti River in the same area, as Beijing competes with New Delhi for influence in Nepal.
The GMR plant, set for completion in 2021, will provide 12 per cent energy free to Nepal to ease a power shortage and help its economy emerge from a decade-long civil war that scared away investors and slowed infrastructure projects.
Officials said Investment Board Nepal will now sign a Project Development Agreement (PDA) with GMR, which will construct transmission lines across the border to transmit the remaining electricity to India.
The agreement was expected to be signed during Indian Prime Minister Narendra Modi’s visit in August but was delayed because some political parties wanted to ensure that the supply of water to irrigation canals on the same river would remain unaffected by the dam, as well as other benefits to Nepal.
GMR will build a separate power house to generate two megawatts of electricity to be supplied to villagers in Achham, Surkhet and Dailekh districts where the project will be located, officials said.
A group of former Maoist rebels says benefits to Nepal were not adequate and has vowed to protest against the scheme.
Nepal's economy is expected to grow 4.6 per cent in 2014-15, against the government target of 5.2 per cent, with the country facing up to 16 hours of daily power cuts during the dry season when its rivers flow slowly.
Tourism and aid-dependent Nepal, one of the world’s 10 poorest countries, has an electricity shortfall of about 600 megawatts. The cash-strapped government is trying to attract foreign investment to generate hydroelectricity and has offered tax incentives to investors in the hydropower sector.
