NATIONAL 6 -(Spotlight Weekly)]

Deal Prolonged

With IPC having pulled out and Interkraft refusing to go for bidding, BPC's privatization faces an uncertain future

By A Correspondent

One year after it was started, the fate of Butwal Power Company's privatization process still remains undecided. Caught on the waist is the Ministry of Finance which is already facing a double edged sword.

As the government was still undecided on whom to award the 75 percent shares of the power company, one of the bidders Independent Power Company last week declared its withdrawal from the bid. It had serious allegations against the government.

"It has been confirmed to us by independent sources and by the Adam Smith Institute that the bond lodged by Interkraft (the rival bidder) and due for renewal had in fact lapsed prior to its belated renewal on November 30," stated a strong worded IPC's letter to Finance Minister Mahesh Acharya.

"This constitutes yet another breach of the tender rules in favor of Interkarft in a series of many which have been condoned or ignored by your ministry," reads the letter, adding, "In consequence of the repeated flagrant breaches of process in letter and intent and the unexplained delays since the inception of the tender process, IPC hereby notifies you that we now withdraw as a bidder for the sale shares in BPC and revoke our bid."

Two days after the Lodon based joint venture of American and British power developer dispatched the letter to the Finance Ministry boss, rival bidder Interkraft made its stand clear. "We will not take part in another bidding if the government decides to cancel the present bidding process and goes for a new one," Interkraft sources in the capital say.

The reaction came after the local media reported that the government, after IPC's withdrawal, has made up its mind to cancel the present bid and go for fresh bidding. Finance Ministry officials, however, say that they are still proceeding with the process and that they are yet to come out with a decision.

This is the second bid on BPC privatization both the parties took part in. After qualifying in the technical bid in the first round earlier this year, both IPC and Interkraft were asked to upgrade their financial packages. In the first bid, IPC had quoted 10 million US Dollars for the 75 percent shares of the BPC while Interkraft had offered a little above eight million US Dollars under non conditional bid. Under its conditional bid, it had quoted a little above 11 million US Dollars.

Government officials stressed that the bid should cover the following components: BPC's share in Himal Power Limited which is constructing 60 MW Khimti Project estimated at 4.95 million US Dollars, BPC's investment in Nepal Hydroelectric valued at 0.5 million US Dollars, BPC's net current assets of about 2.85 million US Dollars and the company's net present value of expected income from power sales from Andhikhola and Jhimruk to Nepal Electricity Authority over two years under existing Power Purchase Agreement (PPA).

In the rebidding, IPC refused to revise its earlier financial offer while Interkraft raised the figure to a little above Rupees 723 million. According to Finance Ministry sources, IPC had agreed to pay 80 percent of its offered amount through loan notes in the beginning and it will pay the remaining 20 percent over the following two years. On the other hand Interkraft has said that it will make cash down payment of 70 percent in the beginning and the remaining amount will be paid after two years.

More than the offered amount, the way the two parties have chosen to pay the government has been more confusing. "Therefore, we have been saying that the government should make each of the party sit across the table and iron out all the issues it wants to be clear about," says Douglas G. Clarke, Resident Advisor of Privatization Project at the Finance Ministry.

But now that one of the bidders has already declared its withdrawal, how will the officialdom tackle the situation is the matter of time alone.

As a private company that was started some 30 years ago, BPC completed the construction of 1 MW Tinau Hydropower project some seven years ago. Thenafter, it was taken over by the government. Later on, with the grant assistance of Norwegian Government, the power company constructed 5MW Aandikhola and 12 MW Jhimruk hydropower projects.

After the completion of these projects, the Norwegian grant was turned into the government's share. As a result, today, the government owns 97 percent of BPC's shares. With most of its power generation sold to NEA under the PPA, BPC sells some of its power for rural electrification. The existing PPA between the NEA and BPC remains valid till July 15, 2001.

After the completion of 60 MW Khimti Hydropower project -- being built by Himal Power Limited -- on which BPC has its 15 percent share, the power company will be able to generate above 25 MW of electricity by 2001. According to the latest auditing report (1997), the company has a fixed asset of above 810 million Rupees and has made the profit of above 180 million Rupees.

Considering all these, knowledgeable observers claim, that the bids the government has received on BPC's privatization is much less than what the company deserves. According to Martin Chautari, an NGO working on social development and investigation center, the tender price offered for the BPC, after it starts generating 26 MW of power, is 400 US Dollars per Kilo Watt of electricity. "Compare that to the NEA's investment of 2300 US Dollars for each kilowatt of electricity in the Kali Gandaki and Puva Khola hydropower projects," says the organization.