The government has finalized investment modality for two of Nepal’s largest hydropower projects—the 1,200 MW Budhigandaki Reservoir Hydroelectric Project and the 1,063 MW Upper Arun Semi-Reservoir Hydroelectric Project.
According to the Ministry of Energy, Water Resources and Irrigation, both projects will be built entirely with Nepali investment. Energy Minister Kulman Ghising has directed officials to submit the investment modality to the Cabinet and relevant authorities for final approval.
The government plans to mobilize funds for these projects through a mix of instruments, including equity by the Nepal Electricity Authority (NEA), energy bonds, loans from banks and financial institutions, concessional government loans, and the infrastructure tax levied on petroleum imports. Likewise, shares will also be offered to migrant workers, Non-Resident Nepalis (NRNs), and the general public.
The Budhigandaki project, located in Dhading and Gorkha, is expected to cost approximately Rs 374bn, with total costs rising to Rs 406 billion after accounting for Rs 32bn in interest during construction. The construction period is estimated at eight years.
Under the proposed 70:30 debt-equity structure, the government will invest Rs 248bn, including Rs 97.47bn in equity and Rs 150bn in concessional loans. The Rs 45bn already spent on land acquisition and preparatory works will be converted into equity. The plan also proposes channeling Customs and VAT revenues from project-related imports and allocating 50 percent of the infrastructure tax on petroleum products to the project.
NEA will make an equity investment of Rs 24.37bn in the project. The project company—Budhigandaki Company Ltd—will be owned 80 percent by the government and 20 percent by NEA.
To meet its debt requirement, the project will issue Rs 30bn in energy bonds, which banks and institutional investors can count toward mandatory liquidity. A consortium financing of Rs 104 billion is planned with participation from the Employees Provident Fund, Citizen Investment Trust, Social Security Fund and commercial banks.
The Upper Arun project is estimated to cost around Rs 214 billion. The project follows a similar 70:30 debt-equity structure, with 51 percent of equity reserved for institutional investors—including NEA, provincial and local governments, Nepal Telecom, EPF, CIT, Social Security Fund, HIDCL, insurance firms, and NEA subsidiaries. The general public, including migrant workers, employees of promoter institutions, locals and affected areas will hold the remaining 49 percent equity.
As per the investment modality, a consortium financing of Rs 168bn will be sought from banks and financial institutions.
The World Bank had initially shown interest in the project. However, the project had become uncertain after the multilateral withdrawal reportedly after failing to secure the ‘go-ahead’ from the neighboring countries.
The Indian government undertaking SJVN is building three projects in the Arun corridor - the Arun III (900 MW), Lower Arun (669 MW) and Arun IV (695 MW). NEA will hold 49 percent stake in the joint venture with SJVN that will be formed to build Arun IV.
