Finance minister signals conditional removal of ‘Take and Pay’ policy amid coalition tensions

KATHMANDU: Finance Minister Bishnu Paudel has indicated a conditional withdrawal of the controversial ‘Take and Pay’ policy in hydropower projects, partially addressing an agreement with the Nepali Congress, the largest coalition partner. The move follows a warning from Congress President Sher Bahadur Deuba, who threatened a coalition crisis unless the policy, included in the budget, was scrapped.

On Monday night, Prime Minister KP Sharma Oli and Deuba reached a consensus at Baluwatar to amend the ‘Take and Pay’ provision after intense discussions. The decision was further endorsed in a Cabinet meeting. However, in Tuesday’s House of Representatives session, Poudel responded to lawmakers’ queries by stating that power purchase agreements (PPAs) would only be made for projects with assured energy consumption or export potential and where the Nepal Electricity Authority (NEA) can guarantee payment obligations, without fully committing to removing the clause.

Paudel said, “Considering the concerns raised, PPAs can be made based on financial risk assessments for projects with confirmed energy consumption or export and NEA’s assured payment capacity. This approach will lead to a fair outcome.”

The ‘Take and Pay’ policy, outlined in budget Clause 227, had sparked criticism from Nepali Congress lawmakers, who argued it discourages private sector investment in hydropower. Deuba, after discussions with party lawmakers, had directly urged Poudel on Monday to remove the provision, warning of coalition instability. Sources close to Deuba confirmed that Oli agreed to scrap the policy during their talks.

However, energy entrepreneurs criticized Poudel’s conditional stance in Parliament as vague and potentially burdensome. Ganesh Karki, President of the Independent Power Producers’ Association, Nepal (IPPAN), “Adding conditions just complicates things further. If it’s as the Finance Minister says, NEA will create more hurdles. PPAs won’t happen under these terms unless the private sector is granted electricity trading licenses.”

Paudel defended the government’s intent to bolster private sector involvement in energy development, stating, “Government investment alone isn’t enough for hydropower. We need private investment, which we’ve been attracting and aim to make more effective. The goal is to align electricity production with consumption.”

He explained that Clause 227 was designed to prevent wastage of generated electricity, attract private investment in viable projects with assured consumption, and minimize investment risks. “The policy aims to ensure electricity isn’t wasted, attract private investment in projects with guaranteed consumption, and manage risks. PPAs under ‘Take and Pay’ are meant for reservoir and semi-reservoir projects to address dry-season energy shortages, manage government liabilities, and create obligations within economic capacity,” Poudel added.

Despite the assurances, energy stakeholders remain skeptical, viewing the conditional approach as a setback for private sector confidence in hydropower investments.