KATHMANDU, Jan. 3: In its bid to transfer the nation’s power project to private entrepreneurs, the government today sold its major share in the Butwal Power Company (BPC) to a private company.
Out of the 96.09 per cent of its paid shares in the BPC, the government transferred 75 per cent of the shares to Interkraft Nepal AS, a consortium of seven leading Nepalese enterprises. The transferred shares, according to the Ministry of Finance, are valued at Rs. 950.088 million, an aggregate of Rs. 870.42 million and US$ 1 million.

From the government side, Finance Secretary Bhanu Acharya and Water Resources Secretary Keshav Bahadur Chand and Balaram Pradhan on behlaf of Interkraft inked the agreement, the first of its kind, in which the government has sold its maximum shares on a power project to a private consortium.

“The government for long has been mulling to transfer its shares on the BPC to private entrepreneurs. The agreement reached today has taken the government’s plan to involve the private sector in power projects a step further,” Finance Secretary Acharya said after signing the agreement at the Finance Ministry.

“The buyers have shown their patience and understanding during the whole process of transfering the BPC to them. They must pull together to produce electricity more efficiently,” Acharya said. “The transfer will further encourage foreign and domestic investors in Nepal.”

The government has already collected Rs. 87.42 million, or equivalent to 10 per cent of the total shares, from the preferred bidder, Interkraft Nepal, in July last year. The buyer, as per the agreement, must pay the value equivalent to 60 per cent of the shares, or Rs. 501.5016 million and US $ 9,00,000, by the end of January. If it fails to do so, the government can forfeit the bid bond worth Rs. 87.42 million and US$ 1,00,000.

Interkraft must pay the remaining 30 per cent, or Rs. 280.53 million, within two years of signing the contract. Interkraft will pay an annual surcharge of 7.5 per cent until the dues are cleared. An Unconditional Irrevocable Letter of Credit that included the provision of surcharge was included in the agreement.

Established in 1966 jointly by the government and the United Mission to Nepal (UMN) under the Company Act-1965, BPC currently runs two hydropower projects, namely the Jhimruk (12 MW) and the Andhikhola (5.1 MW). Both projects have a capacity of producing 17.1 MW of electricity, the major source of rural electrification. The company has 300 employees.

Apart from the government’s 21.06 per cent remaining shares in the BPC, the UMN has 2.79, Nepal Electricity Authority, 1.06 and Nepal Industrial Development Corporation, 0.06. There are three private shareholders, each with 50 shares.

“We are committed to sell electricity at very fair prices and we also want to collect our investment on it as quickly as possible,” said Rup Jyoti, a member of Interkraft Nepal AS. Jyoti said that it was the first time that seven Nepalese industrialists are making their entry into the hydropower sector.

It may be noted that both BPC projects had suffered severe damages due to recent Maoist vandalism. But the group seems undaunted and has promised to work to produce power from them. “Despite the challenges posed by the difficult times, we have jumped to take up the BPC,” Jyoti added.
It will certainly encourage others, including foreigners, to invest into Nepalese power sectors, he said.
The government had called a bid to transfer 75 per cent of its shares to the private sector. Interkraft whose bid was rejected in the initial stage was fortunate to be awarded the transfer due to the lucrative financial proposal and was selected as a “preferred bidder” by the BPC Privatization Committee last year.

While talks were going on with the buyers, the Jhimruk Project was badly damaged, and the government had to ask Norway, the main partner in developing the project, for the repair. As per the agreement, Interkraft can nominate five persons to the BPC board of directors. The government can nominate two. The agreement has other conditions such as selling two per cent of the shares to the BPC workers and employees and 10 per cent to the common people.

These shares are to be sold within the next 15 months by both the sides. In case the government fails to do so, it can sell all the shares to Interkraft at the same price as it did the 75 per cent of holdings. Another condition, which binds both the sides, is that BPC must return the insurance claim of the Jhimruk Project to the government because all repairs of the project are being carried out through Norway’s assistance.

Provisions have also been made to renew the agreement between BPC and NEA after every 10 years. The government will continue to provide security to BPC projects as it has done to others.