Budhi Gandaki and Upper Arun secure financial blueprint, Green light for construction

KATHMANDU: The Government of Nepal has finalized the long-awaited investment and financing models for two strategically critical mega-hydropower projects—the 1200 MW Budhi Gandaki Reservoir Project and the 1063 MW Upper Arun Semi-Reservoir Project—committing to construct both entirely with domestic resources.

The proposed investment modality, which includes a blend of state equity, energy bonds, and public fundraising, was presented to Minister for Energy, Water Resources, and Irrigation, Kulman Ghising, who subsequently directed officials to submit the proposal for immediate Cabinet approval.

“These projects have remained subjects of discussion for too long,” Minister Ghising stated after reviewing the financial analysis. “The investment modality must now be finalized to move both projects into the construction phase.”

The Domestic Financing Blueprint
The financial model prepared by the Ministry calls for a standard 70:30 Debt-to-Equity ratio for both projects. The equity component will be raised domestically through an innovative and comprehensive strategy that includes:

Budhi Gandaki: A NPR 406 Billion Giant
The NPR 406 billion (approx. $2.77 billion) Budhi Gandaki project, located in the Gorkha and Dhading districts, has a proposed construction timeline of eight years.

The financing structure for Budhi Gandaki Company Ltd. establishes an 80:20 shareholding split between the Government of Nepal and the Nepal Electricity Authority (NEA).

The government’s total proposed investment is a massive NPR 248 Billion, comprising NPR 97.47 billion in equity and NPR 150 billion in subsidized loans. Crucially, the NPR 45 billion already distributed for land compensation will be converted into the government’s equity stake in the company.

To ensure sufficient liquidity, the plan mandates the issuance of a NPR 30 billion Energy Bond to be purchased by financial institutions, counting towards their Statutory Liquidity Ratio (SLR). The remaining debt of over NPR 104 billion will be met through co-financing led by major public funds, including the Employee Provident Fund and Citizen Investment Trust.

The financial feasibility is underpinned by a projected annual revenue of NPR 31.48 billion, based on proposed Power Purchase Agreement (PPA) rates of NPR 12.40/unit during the dry season and NPR 7.10/unit during the wet season.

Land Acquisition Progress and Upper Arun Details
A major hurdle for the Budhi Gandaki project—land acquisition—is nearly complete, with 90% of the land secured and NPR 42.65 billion already disbursed as compensation. The project will physically and economically affect over 8,117 households, with 3,560 families requiring full relocation.

The Upper Arun Project (1,063 MW), with an estimated total cost of NPR 214 billion (approx. $1.75 billion), will be led by the NEA in Sankhuwasabha. Its financing model proposes splitting the 30% equity component into 51% Promoter Shares (reserved for institutional investors like the NEA, Nepal Telecom, and provident funds) and 49% General Shares, prioritizing NRNs and the general public for participation.

The finalization of these investment blueprints is viewed as a decisive step toward unlocking the construction of the two largest projects in Nepal’s history, significantly strengthening national energy security and reducing reliance on external power sources.