Kathmandu, Jan.11: American Company EurOrient has backtracked from its earlier commitment to pay the performance guarantee for the survey license of Arun III Hydroelectric Project.

The Los Angeles-based Merchant Banking Group sent a letter to the Department of Electricity Development (DED) earlier this week stating its inability to pay the advance money for now.

“They have stated that they would pay the money only when applying for the development license,” said Dr. Kishor Babu Aryal, DED. The development license is mandatory for the developer before the first spade touches the project ground.

The letter, according to EurOrient’s local agent Binay Amatya, refers to questions asked by the American Company’s bank in the US. The bank is said to have asked why the guarantee money was made unconditional and irrevocable.

Other questions included: Under what basis would the guarantee money be forfeited? What are the specific obligations of the guarantor?

It was the same American Company that had, on December 13 last month, committed that it would pay Rupees 42 million as performance guarantee for the survey license of the 402 MW Hydropower Project by last month.

So much so, EurOrient had even assured the government that it would also pay above Rupees 17 million guarantee for Aandikhola Hydropower Project by last December.

But, when it actually came to opening the purse-string, Eurorient, for the second time in a couple of months, failed to keep its words.

Department officials said that the American Company had once again asked the DED to provide it the survey license on the basis of conditions other than the performance guarantee.

The Department, however, is prepared to give the idea a cold shoulder. “We would stand on our condition that the developer has to pay the performance guarantee to get the survey license of the project,” said Dr. Aryal.

EurOrient has been playing a time buying game ever since the government accepted the American Company’s proposal to develop the Arun III more than six months ago.

The private company, on November last year, had submitted a letter at the DED requesting the extension of the deadline – earlier fixed for November 24 – to pay the guarantee money for the project.

Pointing at the Arun III’s Terms of Reference, the department turned down the request forcing EurOrient to talk business. The American Company’s Chairman Ron Nechenmiya himself arrived here last month to assure the government that the money would be paid within December.

Almost two weeks later, the American Company is still refusing to cough up the money. While other companies — which had, together with EurOrient, applied for the survey licenses of other hydropower projects — have already paid their respective advance money.

According to Dr. Aryal, foreign companies like Pacific Hydro (for Likhu Hydropower Project), Vatech Switzerland (for Upper Marshyangdi Hydropower Project), among others, have already paid the performance guarantee money. “We have even given them the survey licenses.”

So, what is it that makes EurOrient dangle its feet? The official process for the project execution can perhaps explain a little. The survey license EurOrient has applied for will give the American Company between 18 and 24 months to study the detailed design of the Hydropower Project.

The World Bank had financed the designing in the early 90’s before it gave the 201 MW baby Arun a kiss of death in 1996. Now that it has been resurrected with doubled installed capacity, the US$ one billion hydropower project will cost US$ 2,500 for its every kilowatt electricity – half the price from its earlier version.

After the survey license, it would be the turn of construction license EurOrient will have to acquire for the construction. And for the prized document, the American Company will have to sign a Power Purchase Agreement (PPA) with India and will have to furnish its financial status.

Understandably, it is on the PPA aspect EurOrient is not so confident about. “I know a foreign company in Nepal that has been trying to sign the PPA with India (but has not been able to) for the last seven years before it could begin the construction of the project,” EurOrient’s chief Nechenmiya had said during his last visit here.