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.
