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The much-delayed Narayanghat–Butwal road expansion project has requested a fourth and final deadline extension, after failing to complete construction within the previously extended deadline of July 23. Despite nearly six years since the contract signing, physical progress remains around 70 percent, prompting concerns over project management and inter-agency coordination.

The project has submitted a request to the Department of Roads to extend the deadline by another year, with the aim of inaugurating the upgraded road by March 2026. The Ministry of Physical Infrastructure and Transport has stated it sees no alternative but to continue with the current Chinese contractor, though officials insist that this will be the final extension and that the contractor must complete the work within the new deadline.

Initially awarded in Dec 2018, the road’s first scheduled completion date was Aug 2022. The project faced numerous setbacks, including the Covid-19 pandemic, delays in tree clearance, utility pole relocation, and institutional instability. Former Secretary Arjun Jung Thapa noted that nearly two years were lost just navigating delays in tree-cutting permissions. An initial Environmental Impact Assessment (EIA) underestimated the number of trees by over 40,000—prompting a re-evaluation that stalled work further.

Additionally, electrical pole relocation and changes in political leadership and bureaucracy contributed to the prolonged delays.

Of the 113 kilometers of the road under construction, 60 km of four-lane paving and 33.5 km of two-lane blacktopping have been completed. The project saw a notable acceleration in 2023/24, completing 30 km of four-lane and 17.5 km of two-lane paving in that year alone.

The project is divided into two sections: Western Section: Butwal to Daunne (48 km) and Eastern Section: Daunne to Narayanghat (65 km).

According to Asian Development Bank (ADB) Project Director Chudamani Dhakal, the primary paving will be completed by March 2026, with ancillary works to finish by July 2026). Traffic flow has improved in most areas, except for Daunne, where travelers continue to face extreme hardship due to difficult terrain and construction bottlenecks.

The 13-kilometer stretch through Daunne remains the most challenging part of the project. Located in a fragile Chure region with steep gradients and narrow paths, this segment has posed engineering, geological, and traffic management hurdles. Officials say the need for deep cuts, the presence of massive boulders, and the lack of space for machinery and material storage have severely hampered progress.

With no alternative routes, both construction and traffic must coexist—leading to slower work and persistent public suffering. Although options such as a tunnel or bypass were considered, cost, environmental, and time constraints have so far ruled them out.

To minimize ecological impact, the project includes 43 culverts, two monkey crossings, and 27 ponds. Rope bridges and elevated structures have been installed to facilitate animal movement. The project also donated two vehicles to the District Forest Office in Nawalparasi and plans training programs for speed regulation in protected areas.

In the Eastern Section, which spans 65 kilometers, progress has been steady. About 56.6 kilometers of one-sided paving have been completed, along with two kilometers of bridge segments. Out of the 35 planned bridges, including the prominent Narayani Bridge, 31 have been completed, while two are still under construction. However, 6.4 kilometers remain unpaved, mostly in the Daunne area and near marketplace sections.

Meanwhile, the Western Section, covering 48 kilometers, has achieved 69 percent physical progress and 64 percent financial progress. So far, 62 percent of the paving work has been completed. Of the nine bridges planned in this section, eight have been finished, with construction still ongoing at the Rohini River bridge.

The project regained momentum after Prime Minister KP Sharma Oli intervened in April 2024. During an inspection of the Gaindakot section, he instructed authorities to expedite the project and issued a clear warning that contracts would be revoked if work did not commence by Nov 2024. Following his involvement and subsequent diplomatic efforts with the Chinese government, the project began moving forward again.

Authorities argue that cancelling the contract would only delay the project further. Hence, the decision to continue with the same contractor was made, while maintaining pressure for timely completion.

The project is being implemented with Asian Development Bank funding, with 83 percent of the cost covered by loans and 17 percent by the Nepal government. Initially estimated at Rs 21.75bn, the project was awarded at approximately Rs 17bn.

The reconstruction and management of the Jhyaple River section, damaged by a landslide under the Nagdhunga–Naubise road stretch, is in its final stages. Keshav Prasad Ojha, project chief of the eastern section of the Nagdhunga–Muglin road, said that the repair work is being carried out at a cost of around Rs 20m and is expected to be completed by July.

Following heavy rainfall last year, a massive landslide occurred in Jhyaple River along the Tribhuvan Highway. The landslide killed 35 people and swept 2.7 kilometers downhill from a point 600 meters ahead of Nagdhunga. It destroyed key infrastructure including retaining walls, breastwalls, and culverts.

Ojha said that reconstruction is underway in three phases, two of which have already been completed. “The first step involved protecting a previously built wall in the river, which was in a risky state due to the landslide. We conducted micropiling work to stabilize it. The second step was installing gabion walls in the lower area, which is now nearly complete. The third step, installing soil anchors on the damaged wall, is scheduled for completion by August,” he added.

Despite progress, long-term landslide mitigation in the Jhyaple area is expected to begin only after eight months. The Nagdhunga–Muglin road sees daily traffic of about 15,000 vehicles. Its upgrade is being funded through a concessional World Bank loan and investment from the Government of Nepal.

The 12.26-kilometer Nagdhunga–Naubise stretch is the first package under this project. A contract agreement was signed with the Jiangsu-Sagun JV on 12 April 2022, and construction began on 9 June 2022. The project, originally set to complete by 30 May 2024, has seen two deadline extensions—first to 9 Feb 2025, and again to July 25. The section is currently 84 percent complete, and discussions are ongoing with consultants regarding another extension.

Ojha explained that reconstruction was delayed due to the need for a fresh study and redesign following the unexpected landslide. “We hadn’t anticipated a landslide of this scale. A separate study was launched in October, with resource allocation and modality finalized. The consultant submitted the report in May,” he said. The study, jointly conducted by ITECO and TMS, assessed soil quality and geological conditions. Based on its recommendations, the original contractor, Jiangsu-Sagun JV, was retained for landslide management under a contract variation.

However, Ojha emphasized that this current work addresses only the immediate damage. “A new contract and budget will be needed for a comprehensive landslide management plan in the Jhyaple River area,” he said.

Gyanendra Ghimire, manager of Jiangsu-Sagun JV, said that land plotting above the Jhyaple River contributed to the disaster. “Soil, stones, and debris were left uncleared, forming a landslide-prone area. The landslide occurred when silt blocked drainage and flowed directly into the river,” he explained.

Suman Ghimire, Chief District Officer of Dhading, said the landslide was likely triggered by the area’s weak geological structure. “Risk-reduction work is ongoing,” he said. The Department of Roads has taken a specialized approach for this landslide. Gabion and bamboo-crested walls have been installed to prevent further slides, while micro-piling and RCT wall construction are underway to stabilize the road above the affected area.

The 140-megawatt Tanahun Hydropower Project is awaiting approval from the Ministry of Finance for source assurance of Rs 5.85bn needed for forest compensation. The reservoir area—spanning 421 hectares—includes a community forest, while 92 hectares of national forest lie along the project’s transmission line route. Forest-related issues have emerged as a major obstacle to the project’s progress.

The government has pledged to ensure funding, but Project Chief Shyamji Bhandari says construction will proceed only after compensation for forest areas is secured. Although Rs 6bn has been allocated for the project in the current fiscal year, it does not include the forest compensation amount.

As per earlier forest regulations, the project agreed to plant 25 trees for every tree felled in government forests. For dams, the ratio remains 1:25, but under new guidelines, the ratio is 1:10 for transmission lines. The Rs 5.85bn required includes the cost of afforestation, land valuation of affected forest areas, and a five-year forest conservation plan.

The project has applied to the Finance Ministry to allocate this amount to the Forest Development Fund under the Ministry of Forests. Although the Nepal Electricity Authority (NEA) is handling construction, the project is classified as a government initiative, and the Cabinet has committed to ensuring financial resources.

Approval for tree felling in government forests was processed by the District Forest Office and forwarded via the Forest Department to the Ministry of Forests and Environment. Bhandari said the project submitted the required documents around three months ago. The Ministry of Forests then communicated the compensation amount to the Ministry of Energy, Water Resources, and Irrigation. Ministry sources confirm that the matter has now reached the Finance Ministry. “We have received the application to ensure the funding source for the Forest Development Fund. Discussions are ongoing,” said a source at the Finance Ministry.

Meanwhile, the NEA warns that failure to ensure this funding could delay the project. NEA Executive Director Hitendradev Shakya said that despite the NEA’s 100​ percent investment, the government must either provide the funding or offer a loan to the authority. “Neither has been done so far,” said Shakya. “If the government fails to act, the project will face a crisis. The NEA does not have the funds to cover this cost.”

Without the funding guarantee, the Forest Department has withheld the order for tree felling—jeopardizing construction of the transmission line. Of the total 94 towers, 14 on the Chitwan side are located in forest areas. The contractor has said work in these areas cannot proceed without deforestation clearance. According to Bhandari, tower foundations have been completed at 80 sites, and towers erected at 69. Fourteen towers remain to be built.

The overall progress of the reservoir project is around 67 percent. Although the financial structure was finalized in 2015, completion is now expected by May 2026—two years later than originally planned—due to forest-related and other delays. The NEA conducted the initial feasibility study in 2001, with another conducted by Japan’s JICA in 2003. The Detailed Project Report (DPR), supported by the Asian Development Bank (ADB) and prepared by J-Power, was completed in 2015.

Construction is divided into three packages. Package-1, covering the main dam, was initially awarded to Italian company CMC on ​26 July 2018. However, the contract was terminated after the company failed to respond by ​19 Feb​ 2019. Tanahun Hydropower notified CMC of the cancellation.

The total project cost—including the transmission line, rural electrification, and interest during construction—is estimated at $505m. ADB has provided $150m, JICA $184m, the European Investment Bank $85m, and the Government of Nepal/NEA $86m. Around Rs 1.3bn has already been distributed as compensation for 1,400 ropanis of land.

A 140-meter-high dam is being constructed on the Seti River, at the border of Rishing Rural Municipality-1 and Byas Municipality-5 in Tanahun. Package-2 covers the tunnel, powerhouse, and hydromechanical/electromechanical installations. Package-3 involves building a 220 kV double-circuit transmission line from Damauli to Bharatpur in Chitwan, currently being constructed by India’s KEC International Limited.

In addition, the company is advancing development of the 126 MW Lower Seti Hydropower Project, utilizing flow from the current project along with water from the Madi River.

The government’s decision to sign Power Purchase Agreements (PPAs) for run-of-river (ROR) hydropower projects on the ‘take-and-pay’ model has triggered strong opposition from the private sector. Independent power producers (IPP) say this policy shift could affect the development of over 350 projects with a combined capacity of 17,117 MW, putting Rs 109bn already invested in studies and preparations at risk.

Under the ‘take-and-pay’ model, the Nepal Electricity Authority (NEA), the only entity in the country involved in energy trading, will only pay developers for electricity it actually purchases and uses. This means if NEA does not consume the electricity, producers receive no payment. This means there is no guaranteed revenue stream for developers which makes it difficult to attract investment or secure financing.

The private sector has long advocated for the ‘take-or-pay’ mode in which NEA is obligated to pay for a pre-agreed amount of electricity, whether or not it is actually used. This model assures developers of predictable revenue and has historically been key to attracting private investment in Nepal’s hydropower sector.

The Independent Power Producers’ Association Nepal (IPPAN) says the new policy sends a message that the government no longer welcomes private investment in run-of-river hydropower. IPPAN Senior Vice-president Mohan Kumar Dangi said this policy effectively tells private developers to stop investing in hydropower. “After issuing survey licenses and signing connection agreements, it now wants to deny payment guarantees,” Dangi added. 

IPPAN has warned that this policy could lead to the suspension of over 350 hydropower projects and write off Rs 109bn already invested and a potential Rs 3.3trn in future investments may never come. The government would forgo Rs 327bn during construction and up to Rs 3.1trn post-completion revenue. The government has set an ambitious target of generating 28,500 MW of electricity over the next 10 years. Nepal also has agreements to export electricity to India and Bangladesh (40 MW). If new projects are not developed, these targets may be unachievable, said IPPAN Deputy Secretary-General Prakash Dulal. 

Banks are unlikely to invest in projects under the Take and Pay model, making financing more difficult and undermining the perceived security of hydropower investments. On average, a 1 MW project provides employment to 100 people for 2–3 years and 10 people permanently after completion. “This change will spike unemployment by halting project development,” Dulal added.

The hydropower sector also drives demand in cement, steel, and transportation industries. If the 17,117 MW worth of projects are scrapped, the estimated direct losses across sectors include: Rs 355bn in cement, Rs 235bn in steel, Rs 250bn in construction materials and transport, Rs 175bn in fuel, Rs 894bn in labor income, Rs 659bn in imports, and Rs 257bn in interest—totaling over Rs 2.8trn.

NEA Executive Director Hitendra Dev Shakya admits that while production capacity has grown, investment in transmission infrastructure has lagged. “We focused on generation, but not enough on transmission,” he said. “Of the Rs 900bn invested so far in generating around 3,600 MW, only a fraction has been spent on transmission, which should have accounted for at least 20 percent.”

With many ROR projects peaking during the rainy season and falling to just 25 percent capacity in winter, Nepal still relies on imports from India during dry months. NEA currently buys about 300 MW on a contingency basis—only when needed. 

“If transmission lines aren’t built, even projects with ‘take-or-pay’ PPAs may end up being paid under ‘take-and-pay’ terms because NEA can’t evacuate the power,” Shakya said. “We did not suggest that the government adopt ‘take-and-pay’ for ROR projects. We only asked for investment in transmission.”

Shakya, however, said the private developers should not be alarmed by the new policy. “NEA has published a notice for 11,080 MW being developed by the private sector, 700 MW being developed by the NEA and 5,000 MW being developed by Indian companies to sign PPA,” he said. “Rather, the private sector should focus on financial closure for the 4,100 MW of projects that already have PPAs but have made no progress in financing for years.” 

He added that the government was preparing to bring new regulations to allow private investment in transmission lines and offer ‘take-or-pay’ PA for projects with secured markets and grid connectivity.

Energy Secretary Suresh Acharya, however, said there is no alternative to the ‘take-or-pay’ model. “The Hydropower Development Roadmap also envisions ‘take-or-pay’, so we must stick with it,” he said. “While the model is necessary, some regulatory restrictions may be required to avoid blanket guarantees.”

Meanwhile, lawmakers and energy experts have also strongly criticized the decision calling it “unfortunate” and “harmful” to Nepal’s energy sector. Speaking at a program organized by the Society of Infrastructure Journalists Nepal on Monday, they urged the government to immediately revise the provision to protect the country’s hydropower development.

Deepak Bahadur Singh, Chair of the Parliamentary Infrastructure Development Committee, said the budget was biased and pledged to initiate fair decisions to safeguard the sector. “Over 6m Nepali citizens have invested in the energy sector. We must act in their collective interest,” he said. Lawmaker Urmila Majhi called it “shameful” that the government officials who drafted the budget were unaware of the implications of the Take and Pay model. Fellow lawmaker Bina Lama said the parliamentary committee would summon concerned stakeholders for discussion and push for a revision. MP Nisha Dangi warned the policy would fail, and Dinesh Kumar Yadav said they are raising the issue in Parliament to have it repealed. MPs Mahesh Basnet, Sushila Shrestha, and Shiva Nepali also pledged to take corrective action.

Former National Planning Commission Vice-chair Govind Raj Pokharel said the budget targets sectors that create employment, showing the government’s insensitivity to energy infrastructure challenges.

Ganesh Karki, President of the IPPAN, said if the provision is not amended, not a single hydropower project would be built under the new fiscal budget. “The energy sector is under siege and needs urgent support,” he stated.

The new fiscal budget presented on Thursday has effectively halted the progress of around 17,117 MW of run-of-river (RoR) hydropower projects in Nepal by introducing a major policy shift in the Power Purchase Agreement (PPA) model.

Until now, RoR projects operated under a ‘Take or Pay’ PPA model, where the Nepal Electricity Authority (NEA) had to pay private developers regardless of whether it used the electricity or not. The latest budget, however, proposes a shift to a ‘Take and Pay’ model, meaning the NEA will only pay for the electricity it actually purchases.

Ganesh Karki, President of the Independent Power Producers’ Association of Nepal (IPPAN), warned that this policy change could render investments already made by private developers in RoR projects unviable. He said banks are unlikely to finance projects under the new PPA model, pushing many developments to the brink of cancellation.

According to IPPAN, 17,117 MW worth of RoR projects currently hold licenses from the Department of Electricity Development, with approximately Rs 66bn already invested. These projects are in various stages of development, awaiting PPAs and financial closure. Once fully implemented, total investment could reach Rs 3.4trn. The breakdown includes 2,078 MW of projects already under construction, 6,436 MW awaiting construction permits, 5,079 MW with survey licenses, and 3,521 MW awaiting survey permits.

This shift has frustrated private developers who had expected the budget to align with the government’s recently unveiled Energy Development Roadmap, which aims to generate 28,500 MW of electricity—15,000 MW for export to India and 13,500 MW for domestic consumption.

IPPAN claims the new provision makes it nearly impossible for the private sector to move forward, despite other budget promises like streamlining forest clearance, transmission line construction, and support for reservoir-based projects. Karki argued that unless developers can build the projects, these other incentives become meaningless.

“The government’s move has placed private developers in a position where their investment could drop to zero,” Karki said. “The state should not have issued licenses in the first place if it planned to later change the agreement terms. The Department of Electricity Development continues to issue licenses, but developers are now left in limbo.”

NEA sources said the switch to ‘Take and Pay’ is necessary for the financial sustainability of the authority. The previous model, where payments had to be made even without actual power usage, posed significant financial risks—especially during the monsoon when RoR production exceeds domestic demand and guaranteed exports to India remain uncertain.

IPPAN has strongly opposed the shift and announced plans to launch protests if the decision is not reversed. In a statement released Friday, IPPAN described the new policy as hostile to private investment and a setback for Nepal’s power sector. The group also criticized the government for failing to support the ongoing development of RoR projects, which they claim still constitute a majority of the private sector’s hydropower activity.

IPPAN called for an immediate revision of the policy and demanded a return to the ‘Take or Pay’ model. Failure to do so, they said, would prompt a “strong and decisive” protest campaign.

Currently, Nepal’s total electricity generation capacity is about 3,600 MW, with over 80 percent contributed by the private sector. Of the 17,117 MW of RoR projects awaiting PPAs, the NEA or the government is developing only 190 MW.

IPPAN argues that the new provision contradicts the Energy Development Roadmap and the goals set out in the 16th Five-Year Plan of the National Planning Commission. The association also claims the decision violates existing policies and legislation, including the Electricity Act 1992, the Hydropower Policy 2001, and the National Water Resources Policy.

The organization fears that this policy change will derail over Rs 1.5trn already invested by the private sector, and jeopardize an additional Rs 3trn planned for future investment, pushing the entire sector into uncertainty.

Hydropower generation in Nepal began over a century ago with the 500-kilowatt Pharping Hydropower Project, the country’s first. Initially, the government held a monopoly on hydropower, and only a limited number of projects were developed. By 1989, Nepal had generated just 167 megawatts of electricity. After the first People’s Movement in 1989, the country transitioned to a multi-party democracy. The 1990 Constitution embraced a policy of liberalization, opening the door to private sector involvement in industry and business, which significantly increased the demand for electricity. Former Energy Secretary Devendra Karki notes that hydropower development has since seen visible progress.

The government alone could not meet the rising electricity demand. The Electricity Act of 1989 paved the way for private investment in hydropower. In 1995, the first private sector project, Himal Hydro, signed a Power Purchase Agreement (PPA) for the 60-megawatt Khimti Hydropower Project, which was connected to the national transmission grid in 2000.

According to the Independent Power Producers Association of Nepal (IPPAN), private developers have added 2,740 megawatts to the national grid over the past 24 years. The private sector now accounts for about 80 percent of Nepal’s hydropower generation, says IPPAN General Secretary Balram Khatiwada. In contrast, government projects contribute about 700 megawatts. In recent years, Nepal has made notable strides in hydropower generation, electricity export, green energy promotion, and private sector engagement—moving the country closer to energy self-reliance and economic growth.

Nepal has vast potential for hydropower generation. Government data suggest that approximately 72,000 megawatts can be generated economically and technically. However, current production stands at around 3,400 megawatts, with PPAs signed for an additional 11,000 megawatts.

To address chronic load-shedding, the government declared an energy crisis in 2015 and ramped up hydropower development. At one point, Nepal was importing electricity worth Rs 22bn annually from India to meet demand. Since then, domestic electricity production has surged. Today, surplus electricity during the monsoon season is exported to India, and in Nov 2024, Nepal began exporting 40 megawatts to Bangladesh.

In April 2023, Nepal and India signed a long-term agreement to export 10,000 megawatts of electricity, setting the stage for Nepal to become an energy-exporting nation within the next decade. The private sector has invested approximately Rs 600bn in hydropower, with an additional 4,200 megawatts currently under construction. IPPAN estimates that total investment could reach Rs 1,500bn when ongoing projects are included.

Total investment in completed and ongoing projects stands at around Rs 1,300bn, which includes bank loans, equity capital, and contributions from around 400,000 individual investors. While hydropower development initially occurred in a handful of districts, it has now spread to 70 of Nepal’s 77 districts. Energy projects are underway in nearly all districts except Bara, Bardiya, Bhaktapur, Dang, Dhankuta, Salyan, and Saptari.

According to preliminary IPPAN data, hydropower development has contributed not only to electricity generation but also to socio-economic development in remote areas. These projects have built 3,300 kilometers of roads, 350 kilometers of tunnels, 140 health centers, 153 schools, 95 drinking water systems, and 45 irrigation systems.

To address local needs, the sector has also supported the hiring of 200 teachers and the provision of 30 ambulances. A one-megawatt project under construction can employ about 300 people, while operational projects employ around 10 people each.

To build on this progress, the government has introduced the Energy Development Roadmap and Action Plan 2024, aiming to expand production, consumption, and export of electricity. The goal is to generate 28,500 megawatts of electricity within the next decade. Former Secretary Karki emphasizes the importance of public-private collaboration to implement the roadmap effectively. “The roadmap has been prepared, but to ensure it is not derailed, we must revise laws and create an investment-friendly environment on time,” he says.

Sri Lanka was officially declared bankrupt for the first time in its history in April 2022 after its foreign currency reserves plunged to less than $50m. Sri Lankan Prime Minister Ranil Wickremesinghe announced in parliament that the country was facing an extreme economic crisis and had gone bankrupt. The island nation was experiencing over 50 percent inflation and food shortages. Its foreign debt alone had reached around $51bn, approximately 10 percent of which came from China.

According to international news reports, long-standing structural weaknesses, external pressures and policy flaws drove the country towards economic crisis. A World Bank report cited weak governance, a restricted trade regime, poor investment climate and a lack of monetary discipline as additional contributors. Amid high inflation and a sharp currency depreciation, the economy contracted by 7.3 percent. Poverty, which Sri Lanka had succeeded in reducing after the civil war, quadrupled from 2019 onwards.

After Sri Lanka went bankrupt, many in Nepal argued that Nepal too was heading down Sri Lanka’s path, citing Nepal’s declining foreign exchange reserves and rising trade deficit. In the first six months of fiscal year 2021/22, the foreign exchange reserves of the country were enough to cover merchandise imports of 7.4 months and merchandise and services imports of 6.7 months. Reserves sufficient for less than six months are considered a sign of moving towards an economic crisis. Similarly, Nepal’s balance of payments situation was at its lowest in history, with a deficit of Rs 247.03bn during the review period, compared to a surplus of Rs. 97.36bn in the previous year.

Sri Lanka, which was officially declared bankrupt, is now recovering. According to the latest World Bank data, Sri Lanka’s economic growth is expected to be positive in 2024. The Asian Development Bank (ADB) expects moderate positive growth in the medium term. The lingering effects of the crisis, high taxes, low real incomes and high emigration of skilled workers are cited as factors behind moderate growth.

External and financial balances of Sri Lanka showed signs of stabilization in 2023 as foreign exchange and liquidity pressures started easing significantly. Usable official foreign exchange reserves increased to cover 8-9 weeks of imports, up from just 1-2 weeks at the peak of the crisis. The Sri Lankan rupee also appreciated by 10.8 percent against the US dollar in 2023, after depreciating by 81.2 percent in 2022. According to the ADB, inflation has fallen faster than expected to single digits after peaking above 50 percent. According to the Sri Lankan finance ministry, annual inflation is at around 5.7 percent only.

After nearly two years of monetary tightening, the Central Bank of Sri Lanka allowed a gradual return to an easing cycle in mid-2023. Policy rates were cut by 650 basis points in June and Nov 2023, with the Standing Deposit Facility Rate at nine percent and the Standing Lending Facility Rate at 10 percent. The Statutory Reserve Ratio was also lowered by 200 basis points to two percent in August 2023. With monetary easing and clarity on domestic debt restructuring, market interest rates have fallen, with 91-day Treasury bill rates declining by 20 percentage points between March 2023 and March 2024.

The Sri Lankan government has undertaken crucial structural and policy actions to achieve economic stability. The implementation of many important reforms under the Extended Fund Facility program with the International Monetary Fund (IMF), cost-reflective utility pricing, and new revenue measures appear to have contributed to macroeconomic stability.

Tourism recovery

In 2018, tourist arrivals in Sri Lanka reached around 2.3m which generated a total expenditure of $5.6bn. However, due to the Covid-19 pandemic, tourist arrivals declined by 92 percent in 2020. During the peak of the economic crisis in 2021/22, around 100,000 tourists visited Sri Lanka, compared to around 2.3m in 2018.

Despite the challenges of the severe economic crisis, Sri Lanka achieved significant progress in tourist arrivals in 2023. According to the Sri Lanka Tourism Development Authority, tourist arrivals doubled from 719,000 in 2022 to 1.48m in 2023. Europe contributed 50.9 percent of total tourist arrivals, while Asia and the Pacific region emerged as the second major source market, contributing 40.1 percent.

Sri Lanka has welcomed 784,651 tourists over the first four months of 2024.

Eager to attract Nepali tourists

Sri Lanka is rebranding and offering various packages to attract tourists from all over the world. Sri Lankan Airlines, the national carrier, operates direct and network flights to 113 destinations in 59 countries.

The airline has been operating direct flights between Kathmandu and Colombo for the past three years. Nilina Pathirana, the country manager for Nepal, said that the airline currently operates five flights a week from Sunday to Friday. She believes Sri Lanka could become an affordable destination for Nepali tourists. “Nepalis have increased spending capacity. Since they are traveling to destinations like the Maldives, Malaysia, Thailand, Dubai and Indonesia, Sri Lanka can also be a destination for them,” she added.

Pathirana suggests that a package of around Rs 90,000 per person for a 4-night, 5-day stay could be attractive for Nepali tourists. This package includes round-trip airfare on Sri Lankan Airlines, sightseeing, meals, and accommodation.

Around 5,000 Nepali tourists visited Sri Lanka in 2018. The number fell to 1,500 in 2023.

Nepal is seeing the first diplomatic visit of 2024 from India. Indian External Affairs Minister S Jaishankar is arriving in Kathmandu for a two-day visit on Jan 4.

Jaishankar will lead the Indian delegation in the 7th meeting of the Nepal-India Joint Commission—the highest bilateral mechanism between the two countries. The delegation will include Indian Foreign Secretary Vinay Mohan Kwatra, Anurag Srivastava, Nepal desk chief at the Indian External Affairs Ministry, and other high-level officials.

Among the key agendas of the meeting is the formal signing of the Power Purchase Agreement (PPA) which will pave the way for India to import 10,000 MW of hydropower from Nepal in 10 years, energy ministry officials say. The 11th meeting of the Nepal-India Joint Steering Committee in Chitwan will finalize the agreement. However, secretaries of both countries have yet to sign the agreement to formalize the long-term PPA.

The preliminary agreement for the long-term PPA was signed in June. It was endorsed by the Indian cabinet in September. Nepal had presented the draft of the long-term PPA to India during Prime Minister Pushpa Kamal Dahal’s visit to the southern neighbor from May 31 to June 3.

Pancheshwar in limbo

High-ranking government sources reveal that the upcoming diplomatic visit will not make progress on the Joint Detailed Study Report (DPR) of the Pancheshwar Multipurpose Project.

Despite being proposed nearly seven decades ago, the Pancheshwar project still remains confined to paper. A former Indian ambassador to Nepal expressed skepticism about the project, stating that neither country is genuinely committed to advancing the project. Despite being a recurring topic in high-level discussions, there is a lack of genuine commitment from Nepal and India to implement this mega project, he added.

An official from Nepal’s energy ministry echoed the sentiment. “The project won’t move forward without political commitment. The joint mechanism between the two countries cannot resolve the issue,” he added.

While the initial disagreements on the joint DPR of the project numbered over 500, most of them have been sorted out. The two sides reportedly have differences or just two or three issues now. Both nations have struggled to form a common stance on water use. “The project has been stalled because the countries are prioritizing self-interests over bilateral concerns regarding water usage,” the energy ministry official said.

India first identified the Pancheshwar Project on the Mahakali River, which serves as the border between the two countries, in 1956. The two countries decided to form a joint team to study the project in 1978. Nepal established the Pancheshwar Multipurpose Project Office in 1988. The 1991 Pancheshwar Multipurpose Project Report stated that 6,720 MW of hydropower can be generated - 6,480 MW by building a 315-meter rock-filled dam at Pancheshwar, and an additional 240 MW by building an 83-meter regulating dam at Rupaligad. Nepal prepared the Detailed Project Report (DPR) for the project in 1995 based on the findings and insights derived from the 1991 report.

Nepal and India signed the Mahakali Treaty for the integrated development of the Mahakali River, which included Sarada barrage, Tanakpur barrage and Pancheshwar Dam Project, on 12 Feb 1996.

In 2009, Nepal and India agreed to form the Pancheshwar Development Authority to implement the project. In 2014, WAPCOS Limited, a government undertaking of India, was assigned to prepare a joint DPR by studying separated DPR prepared by the two countries. WAPCOS submitted the DPR in 2016. However, differences arose between the two countries on the DPR as it reportedly contradicted the Mahakali Treaty signed by the two countries. An agreement was reached to finalize the DPR within three months during Dahal’s India visit. However, there has been no progress even though it has already been seven months since the agreement was reached. 

The project also aims to control floods in Kanchanpur district and irrigate 93,000 hectares in Kanchanpur and 1.6m hectares in India.