IPAN Urges Government to Scrap ‘Take and Pay’ Policy in PPA, Energy Minister Khadka Expresses Concerns

KATHMANDU: Energy entrepreneurs in Nepal have made an urgent plea to the government to remove the ‘Take and Pay’ policy introduced in the 2025/26 budget for power purchase agreements (PPAs). The Independent Power Producers’ Association of Nepal (IPAN) met with Energy Minister Deepak Khadka on Tuesday, warning that the policy could bring hydropower production to a standstill if implemented.

IPAN President Ganesh Karki highlighted that the ‘Take and Pay’ policy, outlined in Clause 227 of the budget, has severely undermined investor confidence. The policy stipulates that PPAs for run-of-river (RoR) hydropower projects will be based on the ‘Take and Pay’ model, meaning the Nepal Electricity Authority (NEA) will only pay for the electricity it actually consumes, rather than a fixed amount as under the previous ‘Take or Pay’ model. Karki cautioned that this shift could jeopardize the government’s ambitious target of achieving 28,500 megawatts (MW) of electricity production by 2035, potentially triggering significant economic risks in the hydropower sector.

“The ‘Take and Pay’ policy will create a hostile environment for investment, directly threatening the government’s goal of 28,500 MW by 2035,” Karki stated during the meeting. He emphasized that the policy could deter investors, as it increases financial uncertainty for producers who rely on guaranteed payments to recover their investments in hydropower projects.

Minister Khadka, acknowledging IPAN’s concerns, assured the delegation that he would take steps to address the issue. He expressed his own dissatisfaction with the budget provision and committed to discussing the matter with the Finance Minister to push for the removal of the ‘Take and Pay’ clause from PPAs. “The government is working towards eliminating the need to import electricity from India during the dry season, and such budget provisions could hinder our progress,” Khadka said. “I will coordinate with the Finance Minister to ensure a necessary decision is made to resolve this issue.”

Khadka further noted that the policy could disrupt the investment climate at a critical time when Nepal aims to significantly boost its energy production capacity. The ‘Take and Pay’ model, he argued, might lead to implementation challenges, especially for run-of-river projects that are heavily dependent on seasonal water flows and face production variability.

The hydropower sector has been a cornerstone of Nepal’s energy strategy, with the government aiming to achieve energy self-sufficiency and position the country as a potential electricity exporter in the region. However, the introduction of the ‘Take and Pay’ policy has sparked fears among independent power producers, who argue that it shifts the financial risk entirely onto them, particularly during periods of low demand or surplus production.

IPAN’s plea reflects broader concerns within the energy sector about policy consistency and the need for a stable investment framework to meet Nepal’s energy goals. The outcome of the discussions between Minister Khadka and the Finance Ministry will be closely watched by stakeholders, as it could set a precedent for future energy policies and Nepal’s ability to attract investment in its hydropower sector. For now, energy producers are hopeful that the government will reconsider the contentious policy to safeguard the growth of this critical industry.