Govt takes initiative to resolve counter guarantee payment dispute

KATHMANDU, Aug 9: The government has begun diplomatic initiatives for reimbursement of the counter guarantee amount by the Chinese Construction Bank (CCB) to two Nepali banks -- Himalayan Bank Ltd (HBL) and Bank of Kathmandu (BOK) -- in connection with the guarantee these banks had furnished to the Chinese contractor of Melamchi Drinking Water Supply Project (MDWSP).

Finance Minister Ram Sharan Mahat, who is currently on China visit, on Thursday, formally raised the issue of delay in reimbursement of the guarantee amount that the former tunnel work contractor China Railway 15 Bureau Group had pledged through China Construction Bank during a meeting with his Chinese counterpart Lou Jiwei.

According to a statement issued by the finance ministry secretariat, Mahat sought the Chinese Finance Minister’s help to resolve the dispute over reimbursement of the guarantee amount.

HBL and BoK have landed in the soup after Patan Appellate Court in December last year ordered the Nepal Rastra Bank (NRB) to deduct the counter guarantee amount from banks for MDWSP, but not to make the payment until settlement of the case.

Following the order, HBL and BoK had deposited Rs 660 million and Rs 850 million respectively at the central bank. The banks were also made to provision certain percent for guarantee amount which is likely to have a negative impact on their balance sheets for the fiscal year 2013/14.

HBL has to pay US$ 6,665,000 and BOK US$ 6,200,000 and 1.40 million Euros to MDWSP for providing guarantee on behalf of CCB. CCB had stood guarantee for the China Railway 15 Bureau Group while the MDWP later terminated its contract in September 2012. After the termination of the contract, MDWSP had demanded payment of the guarantee amount from HBL and BoK. However, China Railway had lodged a case in Zhengzhou Intermediate Court of Henan province in China against MDWSP, CCB, and HBL and BOK immediately after terminating the contract.

The Chinese court subsequently stayed the payment by CCB. The bankers have been opposing the MDWSP’s stand on counter guarantee payment from domestic banks saying that the project should fight a legal battle with the Chinese contractor.

Source: Republica