Legal barrier removed: Government to confiscate Rs 3.60 billion from Sunkoshi–Marin contractor

KATHMANDU — The Supreme Court has opened the legal pathway for the government to confiscate a Rs 3.60 billion bank guarantee deposited by the contractor of the National Pride Sunkoshi–Marin Diversion Multipurpose Project, marking a major development in one of Nepal’s most strategically significant water infrastructure schemes.

A joint bench of Justices Hari Prasad Phuyal and Nityananda Pandey on Monday declined to continue an earlier short-term interim order, effectively allowing project authorities to proceed with contract termination and the seizure of performance and advance payment guarantees held by the contractor, Patel–Raman JV.

Contract Termination Process Back on Track

The project office had earlier decided to terminate the contract with Patel–Raman JV, citing severe delays and non-performance. A 15-day notice had been issued on Kartik 25 (BS) regarding the termination of the contract covering headworks (dam), powerhouse civil structures, gates, and hydro-mechanical equipment supply and installation.

Simultaneously, the office initiated procedures to confiscate:

• Rs 2.40 billion in performance guarantee
• Rs 1.20 billion in advance payment guarantee

Together totaling Rs 3.60 billion.

Challenging this move, the contractor filed a writ petition at the Supreme Court on Mangsir 9 (BS), naming the then Minister for Energy, Water Resources and Irrigation Kulman Ghising, the ministry, Department of Irrigation, the project office, and consultants as defendants.

On Mangsir 10, Justice Tek Prasad Dhungana had issued a short-term interim order preventing the government from executing the termination and guarantee seizure, while summoning both sides for further hearings.

The government later filed a petition seeking to vacate that interim order. Monday’s ruling effectively lifts the restriction, enabling the state to move forward with contract cancellation and financial recovery measures.

Advocate Umesh Rupakheti, who argued on behalf of the project, said the order clears the way for the government’s decisions on contract termination, advance guarantee recovery, and performance guarantee forfeiture.

Severe Underperformance Cited

Project authorities had justified termination on grounds that:

• Around 61% of the contract period had elapsed
• Physical progress stood at only about 11%
• No serious effort was shown to accelerate work
• Even formal notices issued under contractual provisions to improve performance were ignored

While the contractor completed the tunnel excavation, key components such as the dam and powerhouse structures were left in limbo.

Contract Value and Progress

The construction contract with Patel–Raman JV was signed at Rs 14.08 billion (including tax), roughly 32% below the estimated project cost. Work began in Magh 2079 BS, with a contractual completion deadline of Asar 2084 BS.

Despite this, physical progress has reached only about 11%, while the project has already disbursed around Rs 2.14 billion, approximately 15% of the contract amount.

Strategic Importance of the Project

Located along the border of Sindhuli and Ramechhap, the project diverts water from the Sunkoshi River through a dam and a 13.3-kilometer tunnel — excavated using a Tunnel Boring Machine (TBM) and breakthrough achieved on Baisakh 26, 2081 BS — into the Marin River, ultimately feeding the Bagmati Irrigation System.

The scheme aims to provide irrigation to 122,000 hectares of land across Dhanusha, Mahottari, Sarlahi, Rautahat, and Bara, in addition to the 45,600 hectares already irrigated.

Beyond irrigation, the diversion will enable generation of 31 MW of hydropower.

Economic and Governance Implications

The government expects year-round irrigation in Madhesh’s fertile plains to boost agricultural productivity, improve farmer livelihoods, and contribute to the national economy, alongside added hydropower output.

The project’s total estimated cost stands at Rs 49.42 billion.

Legal observers say the Supreme Court’s decision could set a precedent for stricter enforcement of performance obligations in large public infrastructure contracts, especially in cases of chronic underperformance and project delays.