Tanahun hydro contract negotiations in final stage

KATHMANDU:

Negotiations on appointment of joint venture (JV) between Lahmeyer International GmbH Germany and Manitoba Hydro International of Canada as the consultant for the 140-megawatt Tanahun Hydropower Project have reached the final stage, with one issue on income tax remaining to be settled.

Tanahun Hydropower Ltd (THL), a state-owned special purpose vehicle formed to implement reservoir-type hydropower project, had started negotiations with Lahmeyer-Manitoba JV in January.

“All issues have been sorted out except one on income tax, which, we hope, will be settled soon,” a senior official of the Ministry of Finance (MoF) told The Himalayan Times

on condition of anonymity. “Once the issue is settled, THL will sign a contract with JV.”

During the course of negotiations, Lahmeyer-Manitoba JV proposed that non-resident experts be exempt from income tax.

The MoF has, however, said it cannot do so, as the government treats foreigners who have stayed here for over 183 days as residents. “So, income tax would be levied on remuneration of such people,” the official said.

However, the JV is said to have argued that the provision on payment of such tax was not included in the tender document.

In fact, the Asian Development Bank (ADB), one of the financiers of the project, which issued the tender documents after getting government approval, on December 11, 2013, notified bidders about non-inclusion of the tax component in the financial proposal.

“So, whether the consultant will be treated as non-resident is a question to be resolved in accordance with applicable laws (of Nepal),” says a letter written by the ADB to THL on February 4, 2015.

The MoF is now set to write to the ADB mentioning that everyone working for the project supervision consultant will have to pay the income tax.

The ADB, in the letter, has said: “Taxes can be considered for funding through the proceeds of ADB loans.”

THL is appointing the project supervision consultant to receive support in the areas of preparing tender documents to formally build the $505-million hydro project, project administration and design, engineering services, management control and other technical aspects.

The consultant has agreed to provide these services at a cost of $26.05 million for a total of 12 years, including one year of pre-construction phase, six years of construction stage and five years of operation stage.

Although the consultant should have been selected in May 2013, the process was delayed after the Commission for the Investigation of Abuse of Authority (CIAA) launched investigation into the consultant selection process launched by the ADB.

Then on December 17, Energy Minister Radha Kumari Gyawali scrapped the consultant selection process.

The minister’s move was severely criticised by the MoF — which had mobilised $505 million to build the project — as ‘it created uncertainty about implementation of the project’, which was crucial for the country facing long hours of power outage every day.

The Cabinet on January 1, however, overturned the energy minister’s decision, clearing the decks for the ADB to give continuity to the project supervision consultant selection process.

Source:THT