Before the political changes of 2046, the country used to generate about 228 megawatts of electricity. The government formed in 2048 had introduced a policy in 2049 that allowed domestic and foreign private investment in electricity generation.

In this context, as per the agreement reached between the World Bank and the government in 1993 (BS 2050), the government had decided to construct the 402 MW Arun III Hydropower Project in the first phase in 2010 and the second phase in 2010. However, the main opposition party UML, along with national and international social organizations, opposed the conditional loan from the World Bank, saying that it was not in the interest of Nepal. Even after a long time since the agreement was signed, the issue of moving forward with the Arun Project was becoming complicated. This dispute was in the news as a national issue.

Especially since the issue of whether to take a loan from the World Bank was not decided, Arun's future was also uncertain. When the UML was the leader-in-waiting in the House of Representatives, the opinion towards Arun was not positive. National and international organizations were also lobbying that Arun would cause losses to Nepal and that it should not take a loan from the World Bank. Due to the influence of NGOs in Western countries, it was not easy to make a decision on Arun. UML also seemed to support the issue raised by Nepali NGOs. UML was of the opinion that some of the conditions set by the main lender, the World Bank, were not acceptable to the country.

An agreement was reached with the World Bank to provide a loan of Rs 8.75 billion. But after the country's internal problems arose strongly, an agreement could not be reached with the bank. The argument was put forward that the construction of the 402 MW Arun, which would be built at a cost of Rs 38 billion with the support of the World Bank, the Asian Development Bank, Japan, and others, would result in the country losing many rights, natural resources would go to foreigners, the electricity production rate per megawatt would become expensive, and the environment would be damaged when the road was built.

As the voices of opposition grew, a 'People's Commission' was formed in 2051 B.E. with the support of 50 organizations to further study the World Bank loan and Arun. The review committee, chaired by former Supreme Court Justice Vasudev Sharma, included leftist leader Padmaratna Tuladhar, economist Govinda Prasad Lohani, Dr. Parthiveshwar Timilsina, and Professor Shyam Bahadur Sherpa. The report they prepared was submitted to the World Bank inspection mission in Nepal on November 22, 2051.

The commission, which was formed when the party was in the opposition, had already reached the UML by the time it submitted its report. Manmohan Adhikari was the Prime Minister. Tuladhar, a member of the commission, had also become a minister. A three-member independent high-level inspection commission was formed in October 2051 to advise and recommend to the World Bank's Board of Directors regarding the Arun controversy. The commission was formed by the bank itself.

The commission had informed that the report given by the commission formed at the grassroots level in Nepal would be submitted to the bank's board. The people's commission submitted its report when the members of the mission formed by the bank were also in Nepal. Richard Wiesel of the mission had informed that the report would be submitted within 10 days, i.e. within the first week of December 2051, keeping in mind the deadline given by the bank. Richard had informed that he was preparing to submit the report by incorporating the suggestions given by the commission. Judge Sharma's commission had suggested that the Arun issue should be discussed in the House and that the government should study it further. The

commission did not give any concrete suggestions on whether or not to advance Arun or how to proceed. The UML had been demanding a discussion in the Parliament when it was in the opposition. The Sharma Commission had also prepared its report along the same lines. NGOs were raising loud voices that the construction of a 117-km road in Sankhuwasabha to reach the project site would have a major impact on the environment. But the people's commission had not spoken about the issue of roads and the environment. The commission also included issues that were being raised by NGOs in particular. The commission had put forward the condition that the project's risk responsibility and the investment should be raised from the profits generated after the project was completed. NGOs and INGOs had been raising this condition. After Nepal held talks with the World Bank for 9 days in Washington, D.C., from the last week of Jestha, 2051, an agreement in principle was reached to receive loan assistance.