The Upper Arun Hydropower Project has received a significant boost as the government has opted for a concessional loan of $6m to fund the project’s initial preparations. The Cabinet meeting on Friday, approved around Rs 800m in funding from the World Bank to support the preparatory phase of the Upper Arun Hydropower Project.
Of late, there has been some momentum about the 1,061 MW project with the Finance Ministry, in the second week of June, organizing a discussion with donor agencies to secure investments for its construction. This meeting was attended by representatives from several organizations, including the World Bank, Asian Development Bank, JICA, the German Government, OPEC Fund, European Union, European Investment Bank, Germany, and Saudi Development Fund, among others.
During the discussion, representatives from the World Bank, Asian Development Bank, JICA Fund, and Saudi Fund expressed their willingness to invest in the Upper Arun project. Meanwhile, the representative from the German government indicated their readiness to invest in the transmission line contingent upon the project’s progress.
The Nepal Electricity Authority (NEA) intends to finalize the financial closure of the project by the end of 2023. The state-owned power utility has initiated the necessary steps to secure financing for the 1,061 MW project through collaborations with the World Bank and local lenders.
NEA has commenced project development by founding Upper Arun Hydropower Limited. NEA has projected that an investment of Rs 214.86bn will be necessary for the project’s development.
Out of the entire project cost, 70 percent, which amounts to Rs 150.40bn, is being sourced through loans. The World Bank has expressed its commitment to provide Rs 97.06bn in the form of a loan for the project.
The World Bank will serve as the primary international financial institution responsible for funding the construction of the project, located in the upper reaches of the Arun River within the Bhotekhola Rural Municipality of the Sankhuwasbha district. As per Finance Ministry officials, the World Bank will also lead efforts to secure investments from other donors, including the Asian Development Bank, OPEC Fund, and European Investment Bank, among others.
NEA officials said that the World Bank has already promised to provide loans for this project. “We are working to make a financial agreement with the World Bank within this year,” said the NEA source.
The project will be structured with a 70:30 debt-to-equity ratio. According to NEA, the project will secure funding through Rs 150bn in loans, consisting of Rs 97 billion from international financiers and Rs 53bn from domestic creditors.
This is the first time the global lender is back in the hydropower project in the Arun River after the debacle of the Arun-3 project in the mid-90s.
As per NEA, a total of Rs 53bn will be raised through collaboration with a consortium of domestic institutions, which includes Hydropower Investment and Development Company Limited (HIDCL), Nepal Bank, Rastriya Banijya Bank, and Citizen Investment Trust. An initial memorandum of understanding was executed between the project's promoter company, Upper Arun Hydropower Limited, and these institutions in August of the previous year. NEA intends to finalize agreements simultaneously with both the World Bank and these domestic institutions.
The promoter company Upper Arun Hydropower Limited will invest 30 percent i.e. Rs 64.46bn in the project as equity.
The government had advanced the concept of this project in 1985 and a feasibility study was done in 1986. The government in 2011 had entrusted the development of the project to NEA.
Currently, works are being carried out to design the tender for the construction of the project. NEA plans to start the construction of the project in 2024. It is estimated that the project will take about six years to complete, which is the picking run-of-river project.
NEA has said that about 100 meters high will be constructed on the Arun River and the water will be channelized through an 8.5 km long tunnel to an underground hydroelectric plant in Chongrak. The project will generate 4.51bn units of electricity annually.
That electricity from the project will be connected to the substation at Haitar Sankhuwasabha by constructing a 400 kV double circuit transmission line about 6 km long from the powerhouse.
