KATHMANDU, Dec 4: The construction of the 1,200 MW Budhigandaki Hydropower Project (BHP) has been delayed due to the lack of financial management, as the investment modality has yet to be finalised. This national pride project, whose construction was approved nearly 13 years ago, has seen its cost increase by around Rs 100 billion, yet its future remains uncertain.
The government decided to advance the BHP in Fiscal Year (FY) 2069/70 BS. With the goal of completing construction by FY 2083/84 BS, it issued the “Budhigandaki Hydropower Project Development Committee (Formation) Order, 2069 BS,” and work formally commenced.
Although compensation has been distributed to approximately 95 percent of affected households, construction has not progressed due to insufficient financial resources. The current base cost of the BHP stands at around Rs 374 billion. Including interest during the construction period amounting to Rs 3.2 billion, the total estimated cost rises to Rs 406 billion. In 2079 BS, the project was estimated to cost Rs 255 billion. Due to repeated delays, costs have increased by roughly Rs 150 billion.
Arjun Rajauria, Chief Executive Officer of the BHP, stated that construction has not begun because of unresolved financial arrangements. “The study is complete, and the project is ready to go,” he said. “We can proceed once the financial arrangements are in place.”
He added that 95 percent of compensation has been distributed and the EIA has been completed. “The detailed project report and tender documents are ready,” he said.
Although the government has collected revenue from petroleum products for the BHP, those funds have not been released for use. Concerned about the project’s uncertain future, a team led by former Prime Minister Dr Baburam Bhattarai drew Prime Minister Sushila Karki’s attention to the matter on Wednesday. “It is appropriate to form a separate Budhigandaki Authority to effectively advance this project,” Bhattarai said. “The government must take the lead in moving the project forward.”
The government has indicated in this FY’s budget that the BHP will be implemented under the PPP model, with 70 percent debt and 30 percent equity. The government will hold 80 percent of the equity, with the Nepal Electricity Authority (NEA) holding the remaining 20 percent. Upon completion or at an advanced stage of construction, a portion of shares may be issued to the public based on actual financial performance to reduce the debt burden or restructure government ownership.
A proposal has been prepared to invest a total of Rs 248 billion in the project, comprising Rs 97.47 billion in equity and Rs 150 billion in concessional loans. It has been proposed that the government’s current investment of Rs 45 billion be converted into company shares. Revenue from customs and value-added taxes collected during construction has also been proposed for investment in the BHP.
The proposal specifies that 50 percent of the infrastructure tax collected at petroleum import customs points should be allocated to the project. The government must ensure sources of Rs 228 billion for its share of the investment. NEA will invest Rs 24.37 billion in equity.
To reduce financial costs and ensure feasibility, it has also been proposed to issue an energy bond worth Rs 3 billion, calculated based on mandatory liquidity ratios, with government facilitation. These bonds may be purchased by banks, financial institutions, insurance and reinsurance companies, and public funds. Banks and financial institutions are expected to provide Rs 104 billion in loans. Additional funds will be raised through co-financing from the Employees Provident Fund, Citizens Investment Trust, Social Security Fund, insurance and reinsurance companies, HICDL, Nepal Telecom, and commercial banks.
The project is expected to generate 338 million units of electricity annually—141 million units in the dry season and 197 million units in the monsoon season. Proposed electricity purchase rates are Rs 12.40 per unit in the dry season and Rs 7.10 in the monsoon season. Once production begins, annual revenue is expected to reach Rs 31.48 billion. The project is planned for completion within eight years and will generate electricity for 42 years.
A total of 8,117 households in Gorkha and Dhading districts will be physically and economically affected, including 3,560 households that will be fully displaced. As it lies close to major electricity load centres such as Kathmandu, Chitwan and Pokhara, the BHP holds strategic importance for national energy security.
A 263-metre-high curved arch dam will be built across the Budhigandaki River, which forms the border between Gorkha and Dhading districts. This will affect 14 former VDCs (now four rural municipalities and one municipality) in Dhading, and 13 former VDCs (now four rural municipalities) in Gorkha. After construction, the reservoir will cover 63 square kilometres in the upper catchment area. The project is expected to create employment opportunities and could also be developed as a tourism hub and fishery centre. The maximum water level of the project will reach 540 metres.