- Decision on Upper Arun also taken -
The Nepal Weekly 
December 2, 2025
Recently, Government of Nepal has finalized investment modality (structure) for the 1,200MW Budhigandaki reservoir-based hydropower project and 1,063MW Upper Arun semi-reservoir-based hydropower projects has been finalized. The mega scaled hydropower projects are planned to be built with domestic investment according to the prepared investment modality.
Minister for Energy, Water Resources and Irrigation; Physical Infrastructure and Transport; and Urban Development, Kulman Ghising, has reviewed the proposed investment modality – prepared along with the financial analysis of both ambitious projects. He also has instructed that it be submitted for the necessary approvals.
Minister Ghising stated that since both projects had remained in discussions, but not brought into action for a long time. No further delay should be made to finalize the investment modality and move them toward construction, he stressed.
It has been proposed to raise investment for the projects by issuing shares of the Nepal Electricity Authority, issuing energy bonds, taking loans from banks and financial institutions, providing concessional loans from the government, utilizing funds collected from the infrastructure tax levied on petroleum products, and issuing shares to Nepalis working abroad, non-resident Nepalis, and the general public.
The construction period of the project estimated to be eight years.
The base cost of the Budhigandaki reservoir-based hydropower project, which is proposed to be constructed in Dhading and Gorkha, is 2.77 billion dollars (approximately 374 billion rupees). Including the interest during construction will be 32 billion rupees, that makes the total cost of the project stands at 406 billion rupees.
The government’s investment in the project will be a total of 248.47 billion rupees – 97.47 billion rupees as equity and 150 billion rupees as concessional loans. It has been proposed that the 45 billion rupees already spent by the government on the project be converted into share investment in the company.
It has been proposed that the government also invest in the project the amount collected as customs and value-added tax during the construction of the project. Additionally, it has been proposed to allocate 50 percent of the infrastructure tax levied at the customs point on petroleum imports for investment in the project.
The project is designed to generate 338 million units of electricity- 141 million units in the dry season and 197 million units in the rainy season. The proposed electricity purchase rates are 12.40 rupees per unit for the dry season and 7.10 rupees per unit for the rainy season. Once electricity generation from the project begins, it is expected to generate an annual revenue of 3.148 billion rupees. It has been proposed that the electricity generation license for the project be valid for 50 years. If the project is completed within eight years, electricity will be produced for 42 years.
Compensation of 4.265 billion rupees has been distributed to landowners for land acquisition, structures, plants, and fruit trees. Physically and economically, the project will affect 8,117 households in Gorkha and Dhading, of which 3,560 households will be completely displaced.
After the dam is constructed, the reservoir formed by the impounded water will spread over 63 square kilometers in the upper reaches. The 63-square-kilometer reservoir on the Budhigandaki will create opportunities for employment, business, tourism hubs, and fish farming, as well as benefits for the lower reaches. The maximum water level of the project will reach up to 540 meters.
Investment on the Upper Arun Hydropower Project
The 1,063-megawatt Upper Arun semi-reservoir hydropower project will be constructed in Bhote Khola Rural Municipality, Sankhuwasabha. The estimated cost, including interest during construction and inflation, is 1.75 billion dollars (approximately 214 billion rupees). For Upper Arun, 70 percent of the funding will come from debt and 30 percent from equity.
The 30 percent equity is considered 100 percent, of which 51 percent will be founder shares and 49 percent ordinary shares. It has been proposed that 3.667 billion rupees come from founder shareholders and 3.523 billion rupees from ordinary shareholders.
Budhi Gandaki Infrastructure Development Tax (Nov 30, 2024) Government of Nepal initiated a tax of Rs 5 per liter on fuel imports beginning in the fiscal year 072/73 to finance the 1200 megawatt Budhigandaki hydropower project, with collection starting on June 16. Although funds raised amounted to over Rs 10 billion in the initial years, the tax was renamed ‘Infrastructure Development Tax’ following public criticism. The total tax collected from 074/75 to 080/81 reached Rs 126 billion 71 crores. Despite the tax being collected, only compensatory distributions for the project have occurred. The Finance Ministry confirmed that tax revenue is being invested in infrastructure needs beyond those directly associated with Budhigandaki. Around Rs 43 billion was spent on compensation from tax revenues, which raised a total of Rs 1 trillion 16 billion in nine years. (TNW)
