Nepal's state–owned, Nepal Electricity Authority (NEA), has signed a power purchase agreement (PPA) for commissioning the 50 MW Upper Marshyangdi Hydro Electricity Project ‘A' (UMHEP) with Sino Hydro Sagarmatha Power Company, a Nepal-China joint venture company. This is the first Chinese investment in hydro project in Nepal.

UMHEP ‘A' located at Bhulbhule VDC of Lamjung district will start construction work this winter. It is expected to be completed in five years at an estimated cost of US$138 million.

“UMHEP is an attractive project compared to other donor-funded hydro projects as it will generate 50 percent of the total capacity even during the dry season,” said Diwakar Poudel, an NEA official. The government issued generation license for the project after the parties concerned signed the PPA.

The PPA has set the rate of 5.995 cents (approximately Rs 4.50) per unit taking 2010-11 as the base year. The PPA rate per unit from the commercial operation date (COD) will be 6.95 cents. The estimated COD for UMHEP is 2016-17.

Earlier, the NEA and the Chinese company had agreed on the power purchase rate of 5.73 cents (Rs 4.24) per unit.

According to the NEA, Sagarmatha Power Company that has 90 percent shares of Sino Hydro which deposited a bank guarantee of US$100,000 for project implementation. Sino Hydro ranks 84th among the top 500 companies in China.

The Nepal-China joint venture company had proposed to sell UMHEP-generated power at 6.46 cents (Rs 4.74) per unit to the NEA.

According to a study, UMHEP will generate 317 million units annually that will be transported through the 220 KV transmission lines being constructed at the Marshyangdi corridor by the government.