KATHMANDU, Nov : The government, which has set a target of generating around 28,500 megawatts of electricity, has not been able to move forward with new hydropower projects after halting the signing of Power Purchase Agreements (PPAs).
According to the Independent Power Producers’ Association, Nepal (IPPAN), PPAs for projects totaling about 13,000 MW—whose developers had already applied—have been put on hold.
Although the Nepal Electricity Authority (NEA) had begun the process of signing PPAs for around 5,000 MW, the introduction of the “take or pay” provision in the Fiscal Year (FY) 2025/26 budget halted further progress. The private sector has also been protesting this provision. IPPAN President Ganesh Karki said developers who have obtained licenses are still waiting for their PPAs to be approved. “Developers have taken licenses and applied, waiting for their PPAs. But since the PPA process is stalled, electricity production is being affected,” Karki said. So far, only about 11,600 MW worth of PPAs have been signed.
Karki said the government, which aims to export about 10,000 MW of electricity to India, must open new PPAs to create an investment-friendly environment for the private sector. “The private sector is ready to invest,” he said. “Halting PPAs despite having a ready market for electricity is not a good decision.”
On May 29, the government replaced the “take or pay” policy with a “take and pay” policy in the current fiscal year’s budget. The budget states: “Substations and transmission lines will be constructed in coordination with the completion timelines of hydropower projects. A policy of signing PPAs to maintain a balance between electricity production and consumption will be adopted. PPAs for run-of-river (ROR) projects will follow the ‘take and pay’ concept.”
After the then-Finance Minister Bishnu Poudel introduced this policy, coalition partner Nepali Congress (NC) and power producers strongly opposed it. Then-Energy Minister Deepak Khadka, also from NC, said the provision had been added to the budget without his knowledge. Although Minister Poudel promised to revise it, no amendment has been made.
Due to this provision, signing PPAs for run-of-river (ROR) hydropower projects has become difficult. Only ROR projects up to 10 MW face no issues. PPAs for larger ROR projects have been halted because they fall under “take and pay,” which allows payment only when electricity is purchased. Under this model, NEA buys electricity only when needed and pays only for what it buys. If NEA does not purchase electricity, it does not pay.
This system provides no income guarantee to electricity producers, as NEA can choose whether to buy electricity based on demand. In contrast, under the earlier “take or pay” policy, NEA had to pay for the agreed quantity of electricity regardless of consumption. This guaranteed revenue for investors and played a key role in attracting investment in Nepal’s hydropower sector.
NEA Spokesperson Rajan Dhakal confirmed that PPAs for ROR-based projects have been halted. “ROR projects generate surplus electricity during the monsoon, which goes to waste, while NEA has to buy more electricity in winter. So PPAs must be balanced considering production and demand,” Dhakal said. He added that monsoon production creates imbalance and noted, “NEA cannot change what is stated in the budget.”
Investors are also concerned because the Securities Board of Nepal (SEBON) has halted the Initial Public Offerings (IPOs) of hydropower companies. Investors say they have lost billions of rupees after IPOs worth around Rs 23.25 billion were halted. SEBON has not approved IPOs of hydropower companies since May 2023. According to IPPAN, the hydropower sector has lost around Rs 108 billion because developers have not been permitted to issue IPOs.
IPPAN President Karki said that 43 companies with a combined capacity of 975 MW are waiting to issue IPOs, while seven companies are waiting to issue rights shares. According to IPPAN, because 50 companies could not issue IPOs on time, securities worth Rs 23.27 billion could not be floated, resulting in an estimated loss of Rs 108.5 billion to the sector. SEBON, however, said IPOs were halted following the Public Accounts Committee’s directive that only companies with a net worth above 90 be allowed to issue IPOs. IPPAN argues that stopping IPOs solely on the basis of net worth is unjustified.
According to IPPAN, delays in issuing IPOs have increased interest payments by Rs 12.40 billion and raised project costs by Rs 24.30 billion. IPPAN’s study claims that the sector has lost an additional Rs 71.78 billion in revenue.
Republica
