Long-delayed Budhigandaki Project moves forward as finance ministry, NPC approve funding modality

KATHMANDU: The government has finalized a major financing decision for the 1,200-megawatt Budhigandaki Hydropower Project, agreeing to provide Rs 150 billion in concessional loans for the long-delayed national pride project. The investment modality has been jointly endorsed by the Ministry of Finance and the National Planning Commission, clearing a key financial hurdle for the project to move toward construction.

According to the agreed framework, the government’s concessional loan will carry a highly subsidized interest rate of 1 percent. With the Ministry of Finance’s consent now secured, the availability of government financing is effectively confirmed, although the final modality still requires formal approval from the Cabinet.

Under the proposed structure, the government’s total financial commitment to Budhigandaki will stand at Rs 248 billion. Of this, Rs 150 billion will be provided as debt financing, to be managed through revenue collected from the infrastructure tax levied on petroleum products. Since 2016, the government has been collecting a 10 percent infrastructure tax on petroleum imports specifically to support large-scale national projects, including Budhigandaki.

As per the new arrangement, 50 percent of the revenue generated from this tax will be directly transferred to the project account as concessional loans. This creates a dedicated, predictable financing stream for one of Nepal’s largest infrastructure projects.

The remaining Rs 97.47 billion will be invested by the government as equity. Additionally, nearly Rs 50 billion already spent on the project to date will be converted into government share capital, strengthening the project’s balance sheet and improving its bankability.

The total estimated cost of the Budhigandaki project is USD 2.77 billion, equivalent to approximately Rs 374 billion. The financing model is based on a 70:30 ratio, with 70 percent to be raised through loans and 30 percent through equity. With the investment framework now largely in place, officials say the project, which has been trapped for years in policy uncertainty and political debate, is finally positioned to advance toward physical construction.

Project authorities confirm that the Detailed Project Report (DPR) and tender documents are in the final stages of preparation. Once financial closure is achieved, construction work can begin without further procedural delays.

One of the most complex components of the project, land acquisition, has already reached around 90 percent completion. To date, Rs 42.65 billion has been distributed to landowners as compensation for land, structures, trees, and crops. The project will physically and economically affect 8,117 households across Gorkha and Dhading districts, of which 3,560 households will be fully displaced.

Budhigandaki is considered strategically vital for Nepal’s energy security due to its proximity to major load centers such as Kathmandu, Chitwan, and Pokhara. The project involves the construction of a 263-meter-high curved arch dam on the Budhigandaki River, which flows along the border of Gorkha and Dhading districts.

The dam will affect 14 former Village Development Committees (now four rural municipalities and one municipality) in Dhading and 13 former VDCs (now four rural municipalities) in Gorkha. Once impounded, the reservoir will cover an area of 63 square kilometers upstream.

Beyond power generation, the reservoir is expected to create opportunities for employment, business development, tourism hubs, and fisheries. The project’s maximum water level will reach 540 meters, and it is designed to generate 3.383 billion units of electricity annually, significantly strengthening Nepal’s domestic power supply and export potential.

The Budhigandaki project was first identified more than five decades ago. Initially studied in 1973/74, its pre-feasibility study was completed in 1983/84. It was originally proposed as a 600 MW project, but the Nepal Electricity Authority updated the studies in 2010/11, doubling the planned capacity.

For feasibility studies, detailed design, and tender documentation, the authority signed a contract with France’s Tractebel Engineering in December 2012. Despite these preparations, repeated policy shifts and political instability prevented the project from advancing.

With a clear financing structure now emerging, Budhigandaki is once again being positioned as a cornerstone of Nepal’s long-term hydropower strategy and a critical driver of energy security and economic growth.