The hydropower project in Nepal, which has seen an investment of approximately 900 billion won, is at a crossroads following the devastating floods in August. Korean companies involved in the project are increasingly concerned about potential additional losses and lawsuits due to the complex financial and legal contracts surrounding the project. Experts suggest that the difficulties in recovery and ongoing fears of flooding necessitate serious discussions about withdrawing from the project.
According to data submitted by Kim Wi-sang, a lawmaker from the People Power Party, the Nepalese government has not requested any changes to the completion timeline, construction schedule, or contract terms for the Upper Trishuli-1 hydropower project, which suffered damage from landslides and flooding.
Instead, the local subsidiary established by Korea's South East Power, NWEDC, notified the Nepalese government of force majeure in August and submitted a progress report in September to assert its claims under the government guarantee contract.
Force majeure refers to circumstances such as natural disasters or wars that make it impossible to fulfill contractual obligations, thereby exempting parties from liability for damages.
At the end of September, NWEDC requested a delay in exercising rights from a consortium of nine international financial institutions, including the International Finance Corporation, Korea Export-Import Bank, and Asian Development Bank, until the confirmation of return costs, insurance payments, and additional funding.
However, it remains uncertain whether the consortium will fully accept this request. Currently, the consortium is internally coordinating its response to the request for a delay and plans to review the matter by late October or early November before communicating with NWEDC.
With the completion of the project unlikely by the end of this year and the possibility of resuming operations still unclear, a decision on whether to continue or withdraw from the project must be made after a feasibility study in March. Industry insiders believe that the long-term implications of the project will be unavoidable.
If a decision is made to resume operations, NWEDC will need to secure additional funding through project financing restructuring. Initially, NWEDC planned to operate the power plant for 30 years after commercial operation and use the profits to cover project costs.
To ensure profitability for project financing restructuring, negotiations with the Nepalese government will be necessary to extend the operational period. However, it is uncertain whether the financially strained Nepalese government will readily accept such terms. South East Power anticipates that it will be able to assess the additional funding needed for the project after the feasibility study in March.
Experts suggest that given the significant concerns about further flooding, an exit strategy may be more advantageous. Kang Bu-sik, a professor of infrastructure construction engineering at Dankook University, stated, "Even if a decision is made to resume operations, all the hydropower tunnels are blocked with debris, making it impossible to estimate how much project costs will increase when considering debris removal costs. There are also serious concerns about the weakened ice conditions in upstream glacier areas, and the possibility of similar incidents occurring again necessitates prior investigations."
Deciding to withdraw from the project also presents challenges. According to the contract between NWEDC and the Nepalese government, if the effects of force majeure persist for more than two years, either party can terminate the contract. If the contract is terminated due to the Nepalese government's fault, full recovery costs and investment returns are guaranteed. However, since this situation involves a natural disaster, it is unlikely that related costs will be covered. Instead, the contract stipulates compensation through the payment of asset transfer fees by the Nepalese government.
Thus, if withdrawal occurs, NWEDC will offset some of the project funds raised through project financing (loans + unpaid amounts from the Nepalese government + financial costs + capital) against the remaining balance of the construction insurance and loan repayment reserve account. The remaining debt is expected to be shared among NWEDC's shareholders, including South East Power, Korea Overseas Infrastructure & Urban Development Corporation, and the International Finance Corporation, according to equity method accounting.
However, the financially struggling Nepalese government is unlikely to fully accept this arrangement. In the worst-case scenario, a prolonged legal battle between Korean companies and the Nepalese government could ensue.
Meanwhile, Doosan Enerbility, the EPC contractor for the Nepalese hydropower project, is reported to have incurred relatively lower financial damages compared to South East Power, as it has received phased payments under a fixed total lump-sum contract.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.