Making It Big

by Binod K Chaudhary

  Those who had been trying to make the situation difficult for me were dumbstruck when National Bank of Bangladesh took over Nepal Arab Bank. Defeated but defiant, they alleged I had circumvented the law to gain control of the bank by using the Bangladeshi bank. They started a propaganda campaign against me in the media. Governor Shrestha was also dragged into the controversy, as they charged him with giving permission to the Bangladeshi bank without the endorsement of the council of ministers. However, there was no legal impediment to a foreign bank transferring its promoter’s shares to another foreign bank. I was not guilty of breaching any law since my gentleman’s agreement with Rahman and Mintoo was legally irreproachable.

  A few years later, some internal dispute erupted among the partners in National Bank of Bangladesh, requiring intervention by the Bangladeshi central bank. At that point, National Bank decided to pull out of Nepal Arab Bank. Mahbubur Rahman and Abdul Awal Mintoo transferred the 50 per cent stake they had bought from the promoter to NB International, one of their undertakings. After this, Nepal Arab Bank was formally transformed into Nabil Bank.

  Another link between Nabil Bank and our family is that we hold around 5 per cent of the public shares. This plays an important role in the election of the public director of the bank. NB International still holds the majority shares of Nabil Bank. Rahman, Mintoo and I still stand by our gentleman’s agreement.

  My detractors’ allegation that I circumvented the law is not completely untrue. The ‘system’ in the country had compelled me to take the circuitous path. The writ filed by Shambu Poudel was eventually quashed by the Supreme Court, which ruled that the hurdles thrown in my path were without legal basis and that I had a legal right to buy the promoter’s shares in the bank. But it took five years for that decision to come. Had I waited for the verdict, somebody else would have taken over the bank, which might not then have emerged as one of the country’s leading commercial banks.

  Nepal Arab Bank is one of those success stories that makes me feel proud. Today it is one of the most profitable banks in Nepal. Shambhu Poudel’s and Gajananda Agrawal’s sons are still directors of the bank, and I have good relations with them. My battle with them ended the day the Supreme Court ruled in my favour.

  Butwal Power Company

  The government first called for bids for a 75 per cent stake in Butwal Power Company (BPC) in 1998. Bidders had to file both technical and financial proposals. Although twenty-five companies bought the tender forms, only two submitted their proposals. One of them was a consortium that included the Chaudhary Group and a British-American power company called Independent Power Corporation (IPC). Another bidder was Interkraft Private Limited Nepal, a consortium comprising a Norwegian company and Nepali business figures such as Padma Jyoti, Pradip Kumar Shrestha, Balram Pradhan and Gyanendra Lal Pradhan who were involved with Interkraft Nepal.

  Our technical proposal was judged superior to that of Interkraft’s, being awarded ninety-two points in comparison with their seventy-six. The financial proposals of both parties were opened in July 1999. We bid Rs 109.09 per unit share, which translated into Rs 68.65 crore. Interkraft bid Rs 90 per unit share, which amounted to Rs 57 crore.

  Based on their technical and financial proposals, the government should have transferred 75 per cent of the BPC’s shares to the IPC. Not only that, Interkraft had also submitted an alternative proposal with some preconditions such as renewal of a power purchase agreement with the Nepal Electricity Authority that was about to terminate, and a contract to construct a dam for the Melamchi drinking water project. This, despite the fact that the privatization cell of the ministry of finance, while inviting bids, had clearly stated that the bidder could not include any preconditions. In spite of all this, Interkraft was chosen over the IPC, whose proposal was not accepted. The government even asked for another financial proposal from Interkraft going against internationally accepted norms.

  We lodged a complaint with the government, stating that its conduct in the matter was against international tender practices. We insisted that the government evaluate the financial proposals that had been first submitted. The government treated our letter as though it were mere wastepaper.

  In its second financial proposal, Interkraft bid Rs 72 crore, which was slightly higher than our bid. However, again, its proposal was flawed. Unlike us, Interkraft wanted to buy the shares in instalments. If the amount was calculated in US dollars at the prevailing foreign exchange rate, their bid was lower than ours. But the government, turning a blind eye to all this, was set to accept their proposal. We went all out against it.

  The government was compelled to scrap the tender process and start again.

  The next call for bids was made a year later. Again, though six companies had bought the tender forms, it was only the IPC and Interkraft that submitted the required technical and financial proposals.

  The technical proposals were opened on 14 February 2001. Six months later, the government sent a letter notifying us that our proposal had been rejected, on the grounds that we had not attached a covering letter and that the bank guarantee that should have been attached to the financial proposal, was attached to the technical proposal instead, and vice versa. It should be remembered here that our technical proposal was approved, fetching very good marks in the initial tender process. This showed that the government, and particularly the ministry of finance, deliberately wanted to bar the Chaudhary Group from participating in the privatization of the BPC.

  On 17 August 2001, the ministry of finance returned our financial proposal without even opening it. It had opened only Interkraft’s proposal. We marched into the ministry of finance immediately and opened our sealed proposal in front of everyone there. We had bid Rs 82 crore—Rs 9 crore more than Interkraft had.

  The controversy attracted a lot of media attention. The finance minister himself admitted that the amount pledged by Interkraft was too low. The government then cancelled the second tender, saying the bids were too low.

  It was only when the shares were tendered a third time that Interkraft offered more than we did. We proposed Rs 86 crore while they quoted Rs 95 crore. This time too they said they would make the payment in instalments. Taking into account the exchange rate of the US dollar, this effectively reduced their bid to Rs 90 crore, only Rs 4 crore more than ours.

  Finally, Interkraft did get the BPC.

  Considering the complex machinations by which this happened, I believe the government wanted to award the tender to Interkraft from the very beginning. This explains why the first two tenders, which we should have won, were scrapped. And once Interkraft came up with a better proposal, the government immediately endorsed it. What kind of a referee is this, I wondered—a government that shows a red flag whenever I win and a green flag as soon as I lose!

  The presence of a Norwegian company in the Interkraft Nepal consortium was a plus point for them. The BPC benefited from Norwegian finance and technical assistance. On the other hand, it was our mistake to quote only Rs 86 crore in the third tender. Interkraft, which had raised its bid from Rs 57 crore in the first tender to Rs 73 crore in the second, had studied our proposal carefully, bidding Rs 95 crore in the third tender as a result. To be honest, we never imagined Interkraft would be successful in winning the tender. Perhaps I should have changed my strategy after realizing that the government and the members of the privatization cell were opposed to us and that the BPC would benefit from Norwegian assistance. I should have looked for ways to get the government to favour us, and should have also looked for a Norwegian company to partner with. By the time all this occurred to me, it was too late.

  To me, the privatization of the BPC was not merely a matter of obtaining shares in a hydropower company. I had imagined it as a strategic springboard for my long-term involvement in the energy sector. I had even chalked out a plan for proceeding in that direction.

  The failure to win the BPC tender was a huge blow to the Chaudhary Group and to our dreams of participating in the powe
r sector.

  My experience with the Modi Khola hydropower project was just as bitter.

  I had obtained the licence to develop the Modi Khola project in the course of the first Investment Summit. An American company was our chief rival. The then influential US ambassador to Nepal, Julia Chang Bloch, had tried hard to get the contract for the American company. However, the minister for industry, Ram Krishna Tamrakar, and the head of the department of foreign investment, Narendra Basnyat, favoured me.

  I got the licence.

  This would be the first private sector investment in any hydropower project in Nepal. A number of laws had to be enacted to make this possible. The first-ever Power Purchase Agreement (PPA) was prepared by the director general of the Nepal Electricity Authority, Ajit Narayan Singh Thapa. It was a risky proposition to bring foreign investors into the hydropower sector, which demands huge capital, at a time when the laws governing the sector were not fully developed.

  I was negotiating with potential foreign partners. Talks with the Canadian company Ontario Hydro were at an advanced stage. In the meantime, the Arun III Hydropower Project, which was to be funded primarily by the World Bank, was scrapped. The government of the time wrote to the bank saying it did not want the Arun III project to proceed. However, to demonstrate that it was capable of developing a project on its own, the government withdrew my licence for Modi Khola, purportedly because it was going to undertake the project by itself. A foundation stone was laid by UML leader Pradip Nepal, who was the water resources minister. To this day, however, there is no sign of the project.

  The Modi Khola project was our second failure in the hydropower sector.

  Following these two major setbacks, we decided to stay away from the sector for the time being. However, I had always felt that if I wanted to take up a long-term project in Nepal, it had to be in the hydropower sector.

  I started scouting for another opportunity.

  The Maoist insurgency was flaring up. The US government directed all American companies involved in infrastructure projects in Nepal to pull out. Hazra Engineering, an American partner in the Bhote Koshi hydropower project, decided to sell its shares. We lobbied, with the help of our previous partner Independent Power Corporation (IPC), for the shares but were thwarted in this attempt too. Prabhakar Shumsher Rana, who was the Nepali investor in the project, wanted to buy those shares himself, a natural step for him as he was already an investor.

  In 2006, after a long hiatus, we again started to explore opportunities in the hydropower sector. Nirvana took the initiative. This time we decided to develop a project from scratch instead of obtaining shares in a project developed by others. We went ahead with proposals to independently develop the 84-megawatt Madi Seti project and the 400-megawatt Doodh Koshi project in partnership with an American power company, the AES.

  Despite the acute power crisis in the country, the authorities concerned were still not interested in encouraging potential investors like us. On the contrary, they continued to discourage us by creating unnecessary hurdles in our path. They created numerous obstacles for us in obtaining the survey licence for the Madi Seti project. When they ran out of excuses, they decided to grant the licence by downgrading the project to 24 megawatts. Accordingly, we spent Rs 50 lakh on preparing the detailed project report, only to be told that there was another change and that the project would be one of 84 megawatts after all, and that it must be a reservoir-based and not the run-of-river type.

  As far as the Doodh Koshi project is concerned, the government remains undecided despite our repeated assurance to it that we are capable of developing the entire project with our own capital and that we can generate electricity from the project within four years. Many governments have come and gone since we applied for the licence for that project, but not one of them has been prepared to take a decision on it. During the tenure of the government led by Jhala Nath Khanal, Water Resources Minister Gokarna Bista, a very popular and dynamic leader, recommended that we be granted the licence. But even his suggestion fell on deaf ears, drowned out by the vested interests of crafty groups both within and outside the government.

  This is a glaring example of how thoughtless our political leaders can be, even when the country is reeling under load-shedding extending to fourteen hours a day.

  The politicians and the government, however, are not entirely responsible for this sorry state of affairs. The bureaucracy is equally responsible. The civil servants involved in the hydropower sector have woven such a web around themselves that no entrepreneur who wants to invest in the sector can be free from their influence. Even the politicians have not been able to get past the bureaucratic stranglehold despite attempts made by some good leaders such as Bista. If the bureaucratic walls could be taken down, this country—the second richest in the world in terms of hydropower potential—would not have faced the power crisis it does today.

  I have faced hurdles created by the ‘system’—the intertwined network of politicians, bureaucrats and other players—in every sector I have attempted to enter. However, my destiny has also shaped me such in such a way that I never give up on any project I start, regardless of the kind of obstacles the system might impose. I will continue to fight the system. Even if I fall down, I pick myself up and forge ahead.

  The defeats I suffered in relation to the hydropower sector only served to motivate me further.

  As I continued to explore possible opportunities in the sector, I came in touch with Guru Neupane, promoter of Siddhikali Power Company. I decided to invest in two of his hydropower projects—Upper Trishuli and Chameliya. I was weary of fighting the bureaucracy in trying to start a project of my own, and saw no other choice but to seek an opportunity to engage in projects being developed by others. The PPA for the 84-megawatt Upper Trishuli is now in the process of being signed, and the detailed feasibility report for Chameliya is under preparation.

  Meanwhile, we continued to look for other experienced partners in the power sector. Through Guru Neupane’s initiative, we re-established contacts with Coastal Energy, an Indian power developer, which had expressed willingness to work with us in the past. It has developed many hydropower projects from Arunachal Pradesh to Sikkim in north-eastern India. We sought an equal partnership with Coastal Energy.

  Some years earlier, Coastal Energy had sent us a proposal through Anil Sahu, one of our contacts in the Indian state of Meghalaya. Sahu had brought Coastal Energy’s main promoter, S. Surendra, to our New Delhi office. However, he had not sought an appointment with me and I was unable to meet him even though I was in the office. Had we met that day, we could have taken our engagement in the hydropower sector to the next level.

  To me, this shows that we get what is destined to be ours only at a time determined by fate.

  In the meantime, another important development took place. Yogendra Shrestha, promoter of Nepal Share Markets, went missing as soon as news of his involvement in ‘financial irregularities’ in the company became public. To recover the money lost due to the ‘irregularities’, the central bank decided to auction the promoter’s stake in Himal Hydro, one of the companies affiliated to Nepal Share Markets. Like the BPC, Himal Hydro was a company set up by the United Mission to Nepal (UMN) to develop the hydropower sector in the country. Nepal Share Markets held 68 per cent of the shares of the company, which had started the process of acquiring land to develop two projects, one of a capacity 60 megawatts and the other of 20 megawatts.

  We decided to buy the 68 per cent stake in Himal Hydro. Our bid for it was the highest.

  At one point, following our defeat in the protracted battle for the BPC, the Chaudhary Group was wondering about its future in the hydropower sector. Today, a number of projects of a total capacity of 200 megawatts is under development by our group.

  The lesson we learnt was that the BPC saga had actually proved a blessing in disguise.

  Mahalaxmi Sugar Mills

  This project made for the biggest professional battle of my life. T
he trouble began on 8 April 2002.

  On that day, the state-run Rastriya Banijya Bank wrote a letter to the Credit Information Bureau advising that my father, my spouse Sarika and I be blacklisted for defaulting on the loan taken for Mahalaxmi Sugar Mills.

  We received a drop copy of the letter by fax. Following the letter, the bureau blacklisted all three of us.

  I was shocked when I saw the letter because I had settled all my debts regarding the mills two years earlier. How could they link me to the company now?

  My association with Mahalaxmi Sugar Mills began around 1990, when a number of sugar mills were opening in Nepal. Om Prakash Kanaudiya, who was then the chairperson of the Association of Commerce and Industry of Krishnanagar, showed me a 134-acre plot at ward number 1 of Jawahari Village Development Committee of Kapilvastu district. Prince Dhirendra had bought this land for a sugar mill, which he had named Puja Sugar Mills. However, the project was dropped for some reason and the land was lying vacant. ‘India’s Birla Group has also conducted a feasibility study to open mills here,’ Kanaudiya told me.

  ‘Why didn’t you go for it then?’ I asked him.

  ‘We can’t do it on our own,’ he said. ‘You contribute the bulk of the capital. We’ll chip in. You can leave the rest to me.’

  We moved ahead with the project. Under a joint financing scheme, with the Nepal Industrial Development Corporation, Employees Provident Fund, Himalayan Bank Limited and Nepal Bank Limited as principal lenders, a loan was issued to us of Rs 30.17 crore, which also included loan capitalization.

  The sugar mills began production in 1997 but we never got much by way of practical support from Kanaudiya. He passed away soon after the mills came into operation. However, his son Birendra Kanaudiya, who was affiliated with the Nepali Congress and even held the post of assistant minister for water resources at one point, stepped into a management role.