Melamchi Board to seek compensation from banks

KATHMANDU, FEB 08 -

The Melamchi Drinking Water Development Board has decided to seek compensation from the Nepali banks that gave a counter guarantee to China Construction Bank which had given a guarantee to the Chinese company that won the contract to build the tunnel for the project.

The Melamchi Board has been working to get the guarantee amount released as per international practice after the contractor China Railway 15 Bureau Group abandoned the tunnel project in midstream.

However, the Chinese bank has refused to release the money citing a local court ruling. In retaliation, the Nepal Bankers’ Association has decided not to do any business with China Construction Bank, and to adopt maximum caution when dealing with any Chinese bank.

A member of the Melamchi Board said that it would seek compensation from the Nepali banks that have given a counter guarantee to the Chinese bank.

Himalayan Bank and the Bank of Kathmandu had provided China Construction Bank a performance security of US$ 6.62 million and a guarantee for advance payment of US$ 6.62 million and 1.4 million euros.

China Construction Bank had assured the Nepali counter guarantor banks that it would release the guaranteed amount as per international banking norms in the third week of December 2012. The Chinese bank said that it did not do so after a local court issued a stay order.

“The delay by the Chinese bank to issue the amount is inexcusable,” said a high-level board official. “We will claim a delay charge from the bank.” He added that compensation would be sought after the bank guarantee has been released.

Another board official said that there has been an agreement with the Nepali banks that compensation for the delay would be sought from the Chinese bank. “We are yet to finalize the amount to be demanded as compensation,” he added.

Meanwhile, the Chinese bank said in a SWIFT message sent to the Nepali banks that it would go to court against the contractor for the release of the bank guarantee amount.

After the government terminated the tunnel construction contract with China Railway 15 Bureau Group, the Chinese company had filed a case at the local court asking for a stay order to stop the release of the money.

The Chinese bank has sought the Nepali banks’ cooperation to put together enough documents to ensure release of the bank guarantee amount. The Chinese bank had earlier informed the Nepali banks about its inability to release the amount due to a court order. The Nepali banks had then warned it that failure to release the guarantee amount would endanger its reputation.

Krishna Prashad Acharya, director general of the board, said that it was also making every effort to press the Chinese bank to release the amount at the earliest. “Only last week, we asked Nepal Rastra Bank for its help to get the money released from the Chinese bank,” he said. “NRB has written to the Chinese central bank. We hope that its effort will bear fruit.”

 

Source: The Kathmandu Post