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Upper Arun misses financial closure deadline

Upper Arun misses financial closure deadline

The Upper Arun Hydropower Project in Sankhuwasabha district has failed to achieve financial closure within the stipulated time frame due to a lack of investment guarantees from development partners.

A consortium of development partners led by the World Bank and comprising the Asian Development Bank and Japan International Cooperation Agency (JICA), among others, had earlier agreed in principle for loan financing of the 1,063 MW semi-reservoir project. However, the project missed the October deadline to achieve financial closure because of uncertainty of investment from development partners.

Sources at the energy ministry say the World Bank has not been able to take a financing decision due to India’s concerns.

The estimated cost of the Upper Arun project, including interest during construction and inflation, is $1.75bn. The funding structure is planned with 70 percent loans and 30 percent equity. The plan was to secure concessional loans from international financial institutions and domestic banks. Two years ago, an MoU was signed under the leadership of Hydroelectricity Investment and Development Company (HIDCL) to raise Rs 53bn through co-financing from domestic banks and financial institutions.

Kulman Ghising, the executive director of the Nepal Electricity Authority (NEA), acknowledged delays in the financial closure but said discussions were underway at the administrative and diplomatic levels to secure World Bank funding. “Even if foreign agencies withdraw, the project will still be implemented through domestic investments,” he added.

The World Bank’s operational guidelines require consensus with both upstream (China) and downstream (India) countries. Ghising confirmed that both neighbors were formally notified about the project. However, India has not responded to the notification.

Sources say since an Indian company is developing three hydropower projects in the Arun River basin, India is naturally concerned about the project planned upstream. A source at the ministry said India is expecting some equity in the company developing Upper Arun.

The NEA plans to develop the project as a model of “blended financing,” involving equity investments from the federal government, provincial government, local units, project-affected residents, and the general public, along with concessional loans from international and domestic financial institutions. Of the 30 percent equity, 51 percent will be raised from promoter shares held by Upper Arun Hydroelectric Company, while the remaining 49 percent will come from public shares. Local governments, provincial government, and affected residents in Sankhuwasabha will also hold stakes in the company.

According to Project Director Phanindra Raj Joshi, preparatory works such as design review and tender document preparation are ongoing. “Preparations are underway so that we can initiate the tender process right once financial closure is achieved,” Joshi said.

French firm Tractebel Engineering has been appointed as the consultant for construction supervision of the project. The company is currently involved in reviewing the design and preparing bidding documents.

The construction is targeted to begin in early 2026 and be completed by 2031. The project has already spent approximately Rs 5bn on preparatory works. A total of 232.14 hectares of private land has already been acquired. Likewise, resettlement of affected families is ongoing. The project is expected to displace around 22 households, while environmental and social impacts are expected to be minimal.

The project is designed to operate at full capacity for six hours daily during the winter months when demand for energy is high.

The feasibility study for Upper Arun was initially conducted in 1991. The feasibility report was refined in 2011 and updated in 2021. According to the project office, storage bunkers for explosives required for tunnel excavation and associated facilities for military personnel overseeing them are under construction. Similarly, track opening for access roads from Chhongrang to Namase has begun. Likewise, the construction of office and residential buildings for project staff is in the final stages.

A joint venture of Gayatri Projects Ltd of India and Kankai International Builders of Nepal was awarded the access road contract for Rs 7.91bn in February.

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