Identifier
Created
Classification
Origin
08KATHMANDU704
2008-06-20 10:30:00
UNCLASSIFIED
Embassy Kathmandu
Cable title:
NEPAL: 2008 REPORT ON INVESTMENT DISPUTES AND
how-toVZCZCXRO4132 PP RUEHCI DE RUEHKT #0704/01 1721030 ZNR UUUUU ZZH P 201030Z JUN 08 FM AMEMBASSY KATHMANDU TO RUEHC/SECSTATE WASHDC PRIORITY 8708 INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 6539 RUEHLM/AMEMBASSY COLOMBO PRIORITY 6857 RUEHKA/AMEMBASSY DHAKA PRIORITY 2154 RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 4896 RUEHLO/AMEMBASSY LONDON PRIORITY 6102 RUEHNE/AMEMBASSY NEW DELHI PRIORITY 2482 RUEHSA/AMEMBASSY PRETORIA PRIORITY 0159 RUEHCI/AMCONSUL KOLKATA PRIORITY 4226 RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
UNCLAS SECTION 01 OF 02 KATHMANDU 000704
SIPDIS
E.O. 12958: N/A
TAGS: CASC EINV KIDE OPIC PGOV NP
SUBJECT: NEPAL: 2008 REPORT ON INVESTMENT DISPUTES AND
EXPROPRIATION CLAIMS
REF: SECSTATE 43784
UNCLAS SECTION 01 OF 02 KATHMANDU 000704
SIPDIS
E.O. 12958: N/A
TAGS: CASC EINV KIDE OPIC PGOV NP
SUBJECT: NEPAL: 2008 REPORT ON INVESTMENT DISPUTES AND
EXPROPRIATION CLAIMS
REF: SECSTATE 43784
1. Post's submission of its 2008 "Report on Investment
Disputes and Expropriation Claims" follows:
Begin Text.
NEPAL
The United States Government is aware of two (2) claims of
United States citizens that may be outstanding against the
Government of Nepal (GON).
1. a. Claimant A
b. 2006
c. Claimant A performed services for the Nepal Electric
Authority (NEA) under a consulting contract agreement for
construction design and supervision related to the Kali
Gandaki "A" hydroelectric project. The Kali Gandaki project
has been operational since June 2002 and was formally
inaugurated on January 22, 2004, by then King Gyanendra.
On March 7, 2006 Claimant A sent a letter to NEA, requesting
the contract be closed and the final retention moneys paid.
Claimant A asserts that all of its contract obligations have
been fulfilled, including the submission of a final report
and as-built drawings. The amount due is USD 234,366.58.
Since October of 2006, Claimant A has sent six follow-ups
requesting the final retention payment. The last request was
dated May 7, 2008.
Since 2006, the NEA has asserted that Claimant A was not
entitled to full payment because Claimant A had failed to
fulfill all of its contract obligations. However, in
response to Post's inquiries in June of 2008, NEA stated that
payment of the retention amount had been approved. However,
due to financial problems, NEA would be able to release the
funds until its new budget is approved. (Note: The NEA has
reportedly included provisions for the payment to Claimant A
in its budget for the next fiscal year which will begin July
15, 2008. End Note) Claimant A has reportedly been notified
through informal channels of the NEA's intentions to send
payment at the start of the next fiscal year.
2. a. Claimant B
b. 2001
c. On July 21, 1996, Claimant B and the Nepal Electricity
Authority (NEA) entered into a project for a 36 MW hydropower
generation project on the Bhote Koshi river in Nepal's
Sindhupalchowk District. Claimant B was to build and operate
the facility, while the NEA was to purchase all 36 MW of
generated power. In May 2001, Claimant B issued an invoice
to NEA for the period of May 14-June 14, 2001. NEA did not
pay the invoice in full and provided no justification for the
reduced payment. Claimant B protested the short payment but
received no formal written response. According to Claimant
B, NEA has continued to underpay for the generated power ever
since. As of March 2007, the amount due was reportedly over
USD 5.4 million.
Since 2001, Embassy representatives have met periodically
with the Managing Director of NEA and the Secretary of Water
Resources to urge resolution of the dispute and in late 2002
and early 2003, Embassy representatives and the Ambassador,
at the request of Claimant B, asked the Prime Minister, the
Finance Minister, the Foreign Minister, and the Water
Resources Minister to address the payment dispute. In
response to the Embassy's efforts, the Department of Energy
Development (DED),under the Ministry of Water Resources
(MoWR),issued a letter in early May 2003 addressed to both
Claimant B and the NEA urging them to resolve their dispute.
In late May 2003, Claimant B and NEA sent separate letters to
the MoWR and the DED asking them to clarify their request.
The Charge then discussed the dispute with the Water Resource
Minister, again urging an amicable settlement. During the
rest of 2003, Claimant B tried to settle the dispute;
however, the NEA rejected all efforts to do so.
KATHMANDU 00000704 002 OF 002
Throughout late 2003 and 2004, the Embassy remained in close
regular contact with Claimant B's local office and with the
hydropower plant itself. Embassy representatives, the
Ambassador and Charge, as well as visiting State Department
officials, raised this dispute whenever possible at high
levels within the Government of Nepal. In late April 2004,
Claimant B requested that the Embassy alert the Government of
Nepal that it planned to make one last attempt to reach an
agreement with NEA prior to activating the dispute resolution
clause in the project agreement.
In March 2005, the MoWR formed a subcommittee comprised of
representatives from the MoWR and the NEA. The subcommittee
submitted a recommendation to the NEA Board with a divided
opinion (two in favor of Claimant B and two in favor of NEA).
In response, the NEA Board, in May 2005, constituted an
independent committee, including the Water and Energy
Commission Secretariat Executive Director, the Joint
Secretary from the Ministry of Law and Justice and the Joint
Secretary of the Ministry of Finance, to investigate the
dispute. The committee met several times and set a June 13,
2005 deadline, but that was disbanded when one of the senior
members retired.
On March 24, 2006, a private Nepalese energy company, which
owned 10 percent of the shares, purchased an additional 75
percent from the original U.S. investor. A year later on
March 28, 2007, the Nepalese company further increased its
ownership with the acquisition of an additional 10 percent
from the International Finance Corporation (IFC),a member of
the World Bank Group. (Note: An American engineering company
owns the remaining 5 percent.)
In May 2007, after the Nepalese energy company had acquired a
95 percent ownership interest, Claimant B re-started
negotiating with the Nepal Electricity Authority and the
Ministry of Water Resources to work out an amicable
settlement of the payment dispute, with the aim of avoiding
litigation.
On June 11, 2008, Claimant B and the NEA reached an agreement
to settle the seven-year-old dispute over the purchase of
what was characterized as "excess power." Claimant B agreed
to renounce its claim for past payments for the "excess
power" and NEA agreed to purchase all of the "excess power"
generated at a new agreed upon rate. The party's original
Power Purchase Agreement (PPA) was for 36 MW of electricity,
yet when at full capacity Claimant B produces 45 MW of
electricity. To date, NEA has refused to purchase the
additional watt hours under the original PPA. The new
agreement will reportedly be finalized after Claimant B
renews its license and signs a new Power Purchase Agreement
(PPA) reflecting the full generating capacity of the plant.
END TEXT
POWELL
SIPDIS
E.O. 12958: N/A
TAGS: CASC EINV KIDE OPIC PGOV NP
SUBJECT: NEPAL: 2008 REPORT ON INVESTMENT DISPUTES AND
EXPROPRIATION CLAIMS
REF: SECSTATE 43784
1. Post's submission of its 2008 "Report on Investment
Disputes and Expropriation Claims" follows:
Begin Text.
NEPAL
The United States Government is aware of two (2) claims of
United States citizens that may be outstanding against the
Government of Nepal (GON).
1. a. Claimant A
b. 2006
c. Claimant A performed services for the Nepal Electric
Authority (NEA) under a consulting contract agreement for
construction design and supervision related to the Kali
Gandaki "A" hydroelectric project. The Kali Gandaki project
has been operational since June 2002 and was formally
inaugurated on January 22, 2004, by then King Gyanendra.
On March 7, 2006 Claimant A sent a letter to NEA, requesting
the contract be closed and the final retention moneys paid.
Claimant A asserts that all of its contract obligations have
been fulfilled, including the submission of a final report
and as-built drawings. The amount due is USD 234,366.58.
Since October of 2006, Claimant A has sent six follow-ups
requesting the final retention payment. The last request was
dated May 7, 2008.
Since 2006, the NEA has asserted that Claimant A was not
entitled to full payment because Claimant A had failed to
fulfill all of its contract obligations. However, in
response to Post's inquiries in June of 2008, NEA stated that
payment of the retention amount had been approved. However,
due to financial problems, NEA would be able to release the
funds until its new budget is approved. (Note: The NEA has
reportedly included provisions for the payment to Claimant A
in its budget for the next fiscal year which will begin July
15, 2008. End Note) Claimant A has reportedly been notified
through informal channels of the NEA's intentions to send
payment at the start of the next fiscal year.
2. a. Claimant B
b. 2001
c. On July 21, 1996, Claimant B and the Nepal Electricity
Authority (NEA) entered into a project for a 36 MW hydropower
generation project on the Bhote Koshi river in Nepal's
Sindhupalchowk District. Claimant B was to build and operate
the facility, while the NEA was to purchase all 36 MW of
generated power. In May 2001, Claimant B issued an invoice
to NEA for the period of May 14-June 14, 2001. NEA did not
pay the invoice in full and provided no justification for the
reduced payment. Claimant B protested the short payment but
received no formal written response. According to Claimant
B, NEA has continued to underpay for the generated power ever
since. As of March 2007, the amount due was reportedly over
USD 5.4 million.
Since 2001, Embassy representatives have met periodically
with the Managing Director of NEA and the Secretary of Water
Resources to urge resolution of the dispute and in late 2002
and early 2003, Embassy representatives and the Ambassador,
at the request of Claimant B, asked the Prime Minister, the
Finance Minister, the Foreign Minister, and the Water
Resources Minister to address the payment dispute. In
response to the Embassy's efforts, the Department of Energy
Development (DED),under the Ministry of Water Resources
(MoWR),issued a letter in early May 2003 addressed to both
Claimant B and the NEA urging them to resolve their dispute.
In late May 2003, Claimant B and NEA sent separate letters to
the MoWR and the DED asking them to clarify their request.
The Charge then discussed the dispute with the Water Resource
Minister, again urging an amicable settlement. During the
rest of 2003, Claimant B tried to settle the dispute;
however, the NEA rejected all efforts to do so.
KATHMANDU 00000704 002 OF 002
Throughout late 2003 and 2004, the Embassy remained in close
regular contact with Claimant B's local office and with the
hydropower plant itself. Embassy representatives, the
Ambassador and Charge, as well as visiting State Department
officials, raised this dispute whenever possible at high
levels within the Government of Nepal. In late April 2004,
Claimant B requested that the Embassy alert the Government of
Nepal that it planned to make one last attempt to reach an
agreement with NEA prior to activating the dispute resolution
clause in the project agreement.
In March 2005, the MoWR formed a subcommittee comprised of
representatives from the MoWR and the NEA. The subcommittee
submitted a recommendation to the NEA Board with a divided
opinion (two in favor of Claimant B and two in favor of NEA).
In response, the NEA Board, in May 2005, constituted an
independent committee, including the Water and Energy
Commission Secretariat Executive Director, the Joint
Secretary from the Ministry of Law and Justice and the Joint
Secretary of the Ministry of Finance, to investigate the
dispute. The committee met several times and set a June 13,
2005 deadline, but that was disbanded when one of the senior
members retired.
On March 24, 2006, a private Nepalese energy company, which
owned 10 percent of the shares, purchased an additional 75
percent from the original U.S. investor. A year later on
March 28, 2007, the Nepalese company further increased its
ownership with the acquisition of an additional 10 percent
from the International Finance Corporation (IFC),a member of
the World Bank Group. (Note: An American engineering company
owns the remaining 5 percent.)
In May 2007, after the Nepalese energy company had acquired a
95 percent ownership interest, Claimant B re-started
negotiating with the Nepal Electricity Authority and the
Ministry of Water Resources to work out an amicable
settlement of the payment dispute, with the aim of avoiding
litigation.
On June 11, 2008, Claimant B and the NEA reached an agreement
to settle the seven-year-old dispute over the purchase of
what was characterized as "excess power." Claimant B agreed
to renounce its claim for past payments for the "excess
power" and NEA agreed to purchase all of the "excess power"
generated at a new agreed upon rate. The party's original
Power Purchase Agreement (PPA) was for 36 MW of electricity,
yet when at full capacity Claimant B produces 45 MW of
electricity. To date, NEA has refused to purchase the
additional watt hours under the original PPA. The new
agreement will reportedly be finalized after Claimant B
renews its license and signs a new Power Purchase Agreement
(PPA) reflecting the full generating capacity of the plant.
END TEXT
POWELL