NEA Faces Financial Crisis as Bank Accounts Frozen Over Arbitration Dispute

The Nepal Electricity Authority (NEA) has found itself in a financial crisis after all its bank accounts were frozen on Tuesday following a legal dispute with the Chinese contractor of the Chameliya Hydropower Project. The freeze, enforced by court order, has led to bounced checks and halted transactions, causing the authority an additional loss of Rs 740 million.

The issue stems from NEA’s failure to pay compensation to China Gezhouba Group Corporation (CGGC), the builder of the 30-megawatt Chameliya Hydropower Project. Despite the project being operational since 2074 BS (2017 AD), a long-standing payment dispute escalated after NEA challenged an arbitration tribunal’s ruling that had directed it to pay Rs 850 million to the contractor.

On September 17, 2023, the arbitration tribunal ruled in favor of CGGC, ordering NEA to settle the payment. However, under the directive of NEA’s Executive Director Kulman Ghising, the authority filed an appeal with the Patan High Court, arguing that the amount should not be paid. The High Court upheld the arbitration ruling, but NEA continued to resist payment. In response, CGGC took the matter to the Patan District Court under the Arbitration Act, 2055, which subsequently ordered NEA to pay Rs 1.59 billion, including interest.

This legal battle has now severely impacted NEA’s operations, as banks froze its accounts, causing significant financial disruptions. The development has raised concerns over NEA’s credibility, particularly as the state-owned entity recently announced a profit of Rs 37 billion. The situation has also sparked questions regarding Nepal’s investment climate, with critics arguing that ignoring contractual agreements and court rulings could deter foreign investors.

As the crisis deepens, NEA officials are reportedly frustrated with Executive Director Ghising’s handling of the issue, with many questioning why an organization that claims profitability failed to settle its dues in time. The authority now faces not only financial losses but also potential damage to its international reputation, casting uncertainty over its future dealings with global contractors and investors.