Upper Arun Hydroelectric Project’s Pledge to Surge Capacity to 1061 Megawatts

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On November 3, 2023, in the Bhote Khola Rural Municipality of Sankhuwasabha, a commitment has been expressed to advance the construction of the 1,061-megawatt Lower Arun Hydropower Project with an attached reservoir.

Minister of Finance, Dr. Prakash Sharan Mahat, Minister of Energy, Water Resources, and Irrigation, Shakti Bahadur Basnet, Federal Member of Parliament from Sankhuwasabha, Dipak Karki, Secretary of Energy, Dinesh Kumar Ghimire, Managing Director of Nepal Electricity Authority, Kulman Ghising, and a team led by Aana Bjerde, the World Bank’s Managing Director and Chief Operating Officer for Financial and Private Sector Development, including Ramesh Subramaniam, Director General of the Asian Development Bank (ADB), inspected the project site on Friday for international financing worth 9 billion rupees for the project.

In the program organized in Chhograng, Bhote Khola Rural Municipality-4, Finance Minister Mahat informed that in the implementation phase of the Lower Arun Hydropower Project, they are planning to have a viewing of the project. He mentioned that despite resource constraints, they have allocated a good budget for the implementation phase of the Lower Arun. Minister Mahat expressed the commitment not to let the project fall behind due to resource shortages. He also highlighted that for investment, locals should acquire their required shares. The former Energy Minister, who was also present, emphasized the extreme importance of such a project for the country and mentioned that they have reached the stage of collecting funds for investment now.

“In the project, the World Bank has shown a special interest in providing funding for investment; it has been actively seeking to involve various international financial institutions as partners in raising investment,” Minister Mahat mentioned. “Through the annual meetings and bilateral discussions with the World Bank, the project has been made investment-worthy, and it has received concessional loans that will be instrumental in moving the construction forward by collecting substantial investment quickly. This demonstrates complete cooperation and support.”

Minister of Energy, Water Resources, and Irrigation Basnet emphasized that now is the right foundation and time for utilizing water resources for prosperity. He mentioned that the government is committed to advancing projects like Upper Arun immediately, highlighting the issue of road construction obstruction. He stated, “We are aware of the road construction obstacles and are working to swiftly resolve them in accordance with the court’s orders. We are also fast-tracking the modalities to involve locals as shareholders in the project.”

Member of Parliament Khadka mentioned that the local residents, who are always prepared to support the project’s advancement, should not delay the construction.

World Bank’s Managing Director Bjerde, since her arrival in Nepal, has been engaged in discussions regarding the Lower Arun project and highlighted that the electricity generated is essential for domestic consumption and export. She mentioned that all parties, including the locals, are eager to move the project forward, and she informed that the bank is ready to support investment in the project, ensuring benefits for all stakeholders.

World Bank Managing Director Bjerde said that since he came to Nepal, the issue of Upper Arun has been discussed and the electricity produced is important for consumption and export in the country. Mentioning that he has found that all parties, including the locals, are eager to move forward with the project, he said that the bank is ready to invest in the project to benefit all parties.

The construction period is estimated to cost approximately 1.75 billion US dollars (around 214 billion Nepali Rupees), including interest, and in the case of the Lower Arun project, 70% of the funding will come from loans, while 30% will come from equity. The project, under the authority of the Nepal Electricity Authority, is being prepared to move forward in the form of a blended finance model. For this purpose, the project involves investment from the Nepali government, provincial government, local bodies in the project-affected districts, local residents of the project-affected districts, shares from the general public nationwide, concessional loans from international bilateral development partners, and domestic bank and financial institution financing.

Under the leadership of the World Bank, international financial institutions will provide 75 million dollars in concessional loans. Among these, the World Bank will provide 50 million dollars in concessional loans.

A plan has been formulated to manage financial resources by raising 40 million dollars from domestic banks and financial institutions. For this purpose, a Memorandum of Understanding (MoU) has been signed between the Hydroelectricity Investment and Development Company (HIDCL) under the leadership of the Domestic Bank and Financial Institutions for financial collaboration.

Approximately 64 billion Nepali Rupees will be collected, with 51% coming from the promoter share of the project’s developer, Upper Arun Hydro Electric Company, and 49% from common shares. The public will be included in the People’s Hydropower Program. The project includes the participation of the provincial government, local bodies in the project-affected Sankhuwasabha district, founding institutions such as the Nepal Electricity Authority, and affected local residents. Additionally, approximately 32 billion Nepali Rupees will be collected through the issuance of common shares.

The financial management for the project is planned to be completed by June 2024, and construction is set to commence around mid-2025. The goal is to complete the project’s construction by the year 2031.

The feasibility study for the project has been completed, and consultants have been selected for tender design and construction supervision. As part of the project’s preliminary preparations, the construction of approximately 21 kilometers of access roads, including the 2-kilometer tunnel , has commenced.

Compensation has been determined for the acquisition of approximately 2,025 hectares of private land required for the project. Around 22 households will be physically displaced due to the project. Studies have shown that the environmental and social impacts of the project construction will be relatively minimal in comparison.

The project has been designed to operate for 6 hours daily, for a total of 6 months, to meet the increased electricity demand during the winter season. The project is expected to generate an annual output of 4.51 billion units of energy.

Approximately 30% of the energy will be generated from hydropower. The generated electricity will be transmitted through a 6-kilometer 400 kV transmission line to the proposed substation in Sankhuwasabha, where it will be integrated into the national grid.

The authority has also advanced a 30-megawatt Ikhuwa Hydroelectric Project, which is part of the Upper Arun project. The Ikhuwa project is also included in the People’s Hydropower Program.