Kathmandu — With the approval of the financial investment modality for the 1,200 MW Budhigandaki reservoir-based hydropower project, the project has now moved forward into the construction phase. The investment model, which had been approved twice by the Cabinet of the interim government, is now set to be implemented.
Earlier, the Cabinet meeting held on January 15 had decided to approve the financial investment modality of the Budhigandaki Hydropower Project. However, the decision was not authenticated at that time. Subsequently, the Cabinet meeting held on February 24 again approved the investment modality.
The Ministry of Energy, Water Resources and Irrigation sent the approval letter of the financial investment modality to the project promoter, Budhigandaki Hydropower Company Limited, on March 22. “As mentioned in the current fiscal year’s annual budget and program, the financial investment modality of the Budhigandaki reservoir-based hydropower project has been approved,” the Cabinet decision states. Point 224 of the current fiscal year’s budget speech mentions that the Budhigandaki project will be constructed under a public-private partnership model.
Earlier, in mid-December, the Ministry of Finance had agreed to the investment modality of the 1,200 MW Budhigandaki reservoir-based hydropower project. Following the Ministry’s consent, further processes had moved ahead. Arun Rajouria, Chief Executive Officer of Budhigandaki Hydropower Company Limited, confirmed that the Cabinet decision has now been authenticated and received.
“The investment modality has now been authenticated, and the project will move ahead to construction,” he said. Rajouria added that once the budget is released by the Ministry of Finance, tenders will be invited for the construction of permanent bridges and camps.
“We plan to award contracts and begin construction of the main project from January 2028,” he said. “Within two years, we will complete the Power Purchase Agreement (PPA), financial closure of the project, and the construction of access bridges and camps at the project site.”
The Budhigandaki reservoir-based hydropower project, to be built in Dhading and Gorkha, has a base cost of USD 2.77 billion (approximately NPR 374 billion). The construction period is estimated at 8 years. According to the company, the total project cost, including NPR 32 billion in interest during construction, will reach around NPR 406 billion.
Based on the total cost including interest during construction, the investment modality has been structured with a 70:30 debt-to-equity ratio.
In Budhigandaki Hydropower Company Limited, the project promoter, the Government of Nepal will hold 80 percent ownership, while the Nepal Electricity Authority will hold 20 percent.
After the project is completed—or in its final construction phase—a certain percentage of shares may be issued to the general public, based on suitability and feasibility while considering actual financial indicators. This would help reduce the debt burden or allow restructuring of the government’s shareholding.
The government’s total investment in the project will amount to NPR 248 billion, including NPR 97.47 billion in equity and NPR 150 billion in concessional loans. Of this, the NPR 45 billion already spent by the government on the project has been converted into equity investment in the company.
The government had previously started collecting taxes under the name of the Budhigandaki project. According to the Nepal Oil Corporation, taxes were collected in the name of Budhigandaki during the fiscal years 2015/16 and 2016/17. Following strong criticism, the Ministry of Finance removed the Budhigandaki heading and continued collecting the tax under the title of ‘Infrastructure Development Tax.’ A total of NPR 10.59 billion was collected in two years under the Budhigandaki title.
Since 2017/18, the tax has been collected under ‘Infrastructure Development Tax.’ According to the Corporation, NPR 11.36 billion was collected in 2017/18, NPR 12.41 billion in 2018/19, NPR 13.98 billion in 2019/20, NPR 22.87 billion in 2020/21, NPR 24.95 billion in 2021/22, NPR 20.56 billion in 2022/23, NPR 20.58 billion in 2023/24, and NPR 22.10 billion in 2024/25.
The Corporation had been levying a tax of NPR 5 per liter on petrol, diesel, and aviation fuel (both domestic and international). However, since January/February 2021 , the tax has been increased by NPR 5, and NPR 10 per liter is currently being collected. A proposal has been made to allocate 50 percent of the infrastructure tax collected at customs points on petroleum imports for investment in the project.
After deducting the investment made so far, a total of NPR 228 billion in government funding for the project will need to be secured. The Nepal Electricity Authority will invest NPR 24.37 billion in equity. The proposal includes raising funds through multiple sources: issuing shares of the Nepal Electricity Authority, floating energy bonds, borrowing from banks and financial institutions, obtaining concessional loans from the government, utilizing funds collected from the infrastructure tax on petroleum products, and issuing shares to Nepalis working abroad, non-resident Nepalis, and the general public.
To reduce financial costs and ensure the project’s viability, it has been proposed to issue NPR 30 billion worth of energy bonds, which would be counted under the mandatory liquidity ratio with government facilitation. These bonds can be purchased by banks and financial institutions, insurance and reinsurance companies, and public funds. Additionally, NPR 104 billion in loans will be mobilized from banks and financial institutions.
The government had initially launched the project as a national pride project in 2012/13, with a target to complete it by 2026/27. At that time, the estimated total cost was NPR 260 billion, according to the 60th report of the Office of the Auditor General. A Cabinet meeting held on April 7, 2023 decided to develop the project under a company model with domestic investment. In line with that decision, the company was established on July 5, 2023 with majority ownership held by the government.
A Cabinet meeting held on November 9, 2023 had directed the determination of the project’s investment modality. Shortly after, Budhigandaki Hydropower Company Limited, in March/April 2024, had proposed two investment modality options. However, uncertainty arose after the Ministry of Finance did not approve the proposed structure.
At that time, the company had estimated the project cost at NPR 310.47 billion if Viability Gap Funding (VGF) was provided, and NPR 398.02 billion without VGF.
Kantipur
