Nepalese Government Cancels Chinese Hydroelectric Project Citing Irregularities in the Bidding Process

On November 13, 2017, the Nepalese government scrapped a contract signed with China Gezhouba Group Corporation for the construction of the Budhi Gandaki Hydroelectric Project.  Government sources cited significant pressure from a number of parliamentary committees that have asserted the project (specifically China’s involvement) is not in the national interest.  The Ministry of Finance indicated the tender was awarded to CGGC under an opaque bidding process, characterizing the project as “irregular” and “impulsive.”

The hydroelectric project was awarded to the Chinese firm in May 2017 under an engineering, procurement, and construction contract.  Sources close to the deal revealed that Beijing had promised the Nepalese government a soft loan for the project, via the Export-Import Bank of China, under the stipulation that a Chinese contract be selected for the project.  The parliamentary committee indicated this requirement was, in fact, in breach of Nepal’s Public Procurement Act, which mandated that such projects be tendered under competitive bidding processes.  Following the signing of the agreement in May 2017, the Chinese government recognized the 1200 MW hydroelectric project under One Belt, One Road (OBOR).

It remains to be seen whether the project is renegotiated with CGGC, but the precedent of regulatory pushback against situations where a contractor is foisted on a customer as a condition of receiving a “soft loan” is likely to be concerning to Beijing, given the preponderance of such cases in recent years.