Kathmandu, 26 Nov: The Ministry of Energy, Water Resources and Irrigation has finalized the investment modality for two major hydropower projects—Budhigandaki and Upper Arun. On Tuesday, discussions between Energy, Water Resources and Irrigation Minister Kulman Ghising, secretaries Chiranjivi Chataut and Sarita Dawadi, and other project-related officials gave final shape to the modality, the ministry said.
According to the ministry, the finalized proposal on investment modality will be submitted to the Council of Ministers for final approval.
For the 1,200 MW Budhigandaki Hydropower Project to be built in Dhading and Gorkha, the baseline construction cost has been estimated at USD 2.77 billion (around NPR 374 billion). Likewise, the cost estimate—including interest during construction and inflation—for the 1,063 MW semi-reservoir-type Upper Arun Hydropower Project to be constructed in Bhotkhola Rural Municipality of Sankhuwasabha is USD 1.75 billion (around NPR 214 billion). The total cost of both projects will be around NPR 600 billion. The ministry has adopted the strategy of mobilizing domestic investment for both projects. Each project will have 30% equity and 70% debt financing.
The viability gap funding (VGF) through government financing for Budhigandaki, and the issue of bringing in World Bank investment for Upper Arun, had remained uncertain. Now, however, new possible mechanisms are being considered to manage investment for both projects.
Investment Modality for Budhigandaki
The project, which has a construction period of eight years, will require NPR 406 billion, including NPR 32 billion in interest during construction. The promoter company, Budhigandaki Company Limited, will have 80% share ownership by the Government of Nepal and 20% by the Nepal Electricity Authority (NEA).
The government will invest a total of NPR 248 billion in the project—NPR 97.47 billion as equity and NPR 150 billion as concessional loans. It has been proposed that 50% of the infrastructure tax collected on petroleum imports at customs points be allocated to the project, to be used as government concessional loans. It has also been proposed that the government invest the customs and VAT revenue collected during construction into the project.
Based on this arrangement, excluding the investment made so far, the government will need to ensure NPR 228 billion in total funding. The Nepal Electricity Authority will invest NPR 24.37 billion as equity. To ensure project viability, NPR 30 billion in energy bonds will be issued, which will be considered under the mandatory liquidity ratio with government facilitation. Banks and financial institutions will provide NPR 104 billion in loans. Additional investment is proposed through co-financing by the Employees Provident Fund, Citizen Investment Trust, Social Security Fund, insurance and reinsurance companies, HIDCL, Nepal Telecom, and commercial banks.
According to Budhigandaki Hydropower Company CEO Arjun Rajouria, since securing VGF has become difficult, the financing will be managed through methods such as equity, bonds, loans, and concessional financing. “The modality we have finalized will be submitted to the Cabinet for final approval with the consent of the Ministry of Finance,” he said.
Upper Arun Financing Through Co-financing
The cost estimate for the 1,063 MW semi-reservoir-type Upper Arun Hydropower Project in Sankhuwasabha—including interest during construction and inflation—is USD 1.75 billion (around NPR 214 billion). This project will also follow the financing structure of 70% debt and 30% equity.
Of the 30% equity, 51% will be held by founders and 49% by general shareholders. A total of NPR 36.67 billion will be raised from founder shareholders and NPR 35.23 billion from general shareholders. Banks and financial institutions will invest NPR 168 billion through co-financing. After uncertainty over World Bank investment, the government is moving forward with domestic banks and financial institutions as well as investment from Nepalis at home and abroad. A memorandum of understanding has already been reached between the Nepal Electricity Authority, the project promoter company, and banks/financial institutions for co-financing of around NPR 53 billion for the project.
