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.
