NEA asks BoK for advance payment deposited by Korean contractor

THE Nepal Electricity Authority (NEA) on Friday asked the Bank of Kathmandu (BoK) to release the advance payment deposited by KHNP Consortium, a Korean joint venture assigned to carry out electromechanical and hydro mechanical work at the 30 MW Chameliya hydropower project, to it. After the Appellate Court, Patan quashed the petition filed by the Korean firm demanding that it be allowed to terminate the contract with the NEA on Friday, the government power entity wrote a letter to the BoK asking it not to release the contractor’s performance guarantee bond and to release the advance payment to the NEA. In the first week of August, KHNP had notified the NEA that it was breaking the contract one-sidedly saying that the project developer had failed to fulfil its demand. The Korean consortium had previously warned the NEA that it would walk out of the contract unless it was compensated for delays in civil works. The contractor had demanded US$ 8 million in compensation from the government as a prolongation cost. Subsequently, the company had also filed a petition at the Appellate Court, Patan asking the court to allow it to take back its performance guarantee bond and advance payment. The court scrapped the company’s petition paving the way for the NEA to seize its advance payment. “Following the court’s verdict, we have written a letter to the BoK asking it to release the advance payment amount to us and to not release the performance bond to the company,” said Lava Bahadur Ghimire, acting managing director at the NEA. Rajan Adhikary, the NEA’s legal advisor, said that as the period of advance payment would terminate automatically on Saturday, the NEA claimed the amount on Friday while the NEA will claim the company’s performance security later as it remains valid till Aug 31, 2014. The company has deposited performance security worth Rs 32.6 million and advance guarantee worth Rs 122.8 million at the BoK. Meanwhile, the NEA’s contract agreement with the Korean firm will terminate on Saturday. The company was awarded the Rs 3.8 billion (US$ 48 million) contract in April 2009 for electro-mechanical and hydromechanical works as well as the construction of transmission lines. Project chief Rajendra Manandhar, however, said the NEA was still ready to negotiate with the Korean firm to resolve the matter. “We are forced to initiate the process towards confiscating the contractor’s advance amount after it tried to prove itself innocent and secure its security amount through a court verdict,” he said. NEA acting MD Ghimire on Tuesday had written a letter to the headquarters of KHNP in Korea asking the chief to come to Kathmandu to hold dialogue by the second week of September. “We were waiting for the headquarters’ reply, but the company went to Court which prompted us to seize its advance amount,” he said. NEA officials said it was a mistake on the part of the Korean company to announce breaking the contract unilaterally and claim security of its performance and advance amount through the court at a time when it was holding dialogue with the government. After the company warned it would breach the contract in the first week of August, the NEA formed a dialogue committee under the coordination of Bibek Tated, an NEA board member. However, during the course of the negotiation, the company on Aug 14 dispatched a letter to the NEA announcing formally that it was breaching the contract giving 14 days’ prior notice. However, KHNP’s local agent said the NEA was to be blamed for the firm’s preference to walk out of the project. “Had the NEA provided the demanded prolongation cost, the firm would not have made such a decision,” he said, adding that the project has now become a subject of uncertainty. NEA officials blamed China Gezhouba Water and Power (Group), the project’s civil contractor, for the dilemma the project is facing. Civil works precede the electro-mechanic and hydro mechanical works and Chinese contractor China Gezhouba Water and Power (Group) has been engaged in the civil works. The South Korean contractor had complained that delays in the civil works had been holding them back from starting their share of the work in the project. The civil contractor is responsible for building the intake, penstock tunnel and powerhouse. The Darchulabased project, originally scheduled to be completed in May 2011, has been delayed due to the contractor’s poor performance. The project deadline, postponed till Aug 2013, was again pushed back to March 2015. NEA officials said that despite several revisions in the completion date, the Chinese contractor’s progress had been “unsatisfactory”. CHAMELIYA HYDRO PROJECT