Herbert Smith Freehills has advised the Investment Board of the Government of Nepal on its project development agreement (PDA) with Indian public sector undertaking SJVN Limited to develop the 900 megawatt, US$1.1 billion Arun-3 Hydro Electric Project (the Project). This agreement follows on from the firm advising the Government of Nepal on the US$1.4 billion Upper Karnali Hydro Power Project PDA earlier this year, which is Nepal’s biggest ever foreign investment deal.
The Project was awarded to SJVN through an international competitive bidding process in 2008 on a build-own-operate-transfer basis. The PDA was signed by officials from the Investment Board (on behalf of the Government of Nepal) and SJVN on Tuesday 25th November 2014 in the presence of Nepal’s Prime Minister Sushil Koirala and Indian Prime Minister Narendra Modi. The Project is a further step towards the integration of power markets in South Asia and follows the finalisation of an agreement on cross-border power trade, transmission and grid connection between Nepal and India.
This is Nepal’s second biggest ever foreign investment deal, and when completed the Project will one of the largest of its kind in the country and one of the few cross-border projects in the region.
The Project will generate 4012 MU annually through four 225 megawatt generators. As part of the local benefits package agreed for the Project, SJVN will provide Nepal with 21.9 percent of the electricity output from the Project free of charge. This is in addition to the payment by SJVN of all applicable royalties as well as the implementation of several environmental and social sustainability measures to ensure the long term sustainability of the Project and benefits to the local community, including electrification of local area and providing local people with an option to buy shares in the company. The balance of the electricity from the Project will be transmitted to India through a 400 kV double circuit transmission line of 310km connected to the Indian grid in Bihar. Construction of the Project is anticipated to be completed by 2019 and the Project will be transferred to Nepal at the end of the 25-year operating life of the concession. International multilateral agencies such as IFC as well as international, Indian and Nepali commercial banks are potential lenders for the Project.
This is the second of six large-scale hydroelectric power projects Herbert Smith Freehills is advising the Investment Board of the Government of Nepal on. The projects will be granted to international developers under the relevant concession instruments and electricity from such projects will be sold both domestically and across borders into India.
London Finance partner Martin Kavanagh led the Herbert Smith Freehills team, assisted by Shashank Krishna (senior associate, Corporate), Aleem Tharani (senior associate, Corporate) and Lisa Quelch (associate, Finance). Matthew Warren (associate, Corporate), Shekhar Sumit (associate, Corporate), Cheng Shi (associate, Corporate) and Emily Blanshard (associate, Disputes) also advised on the deal, along with other partners and associates from Corporate, Tax, Real Estate, Disputes and Finance across the London and Brussels offices. Abhinawa Law Chambers advised the Investment Board of the Government of Nepal on local law.
