The construction of the much-talked about Arun-3 Hydropower Project had become a challenge for Nepal. The concept of Arun was introduced in the Panchayat itself, but after the change in 2046, the Girija Prasad-led government tried to move forward with the construction process. The project, which was to be built in two phases with investment including a loan from the World Bank, was 402 MW.

The first project was of 2010 MW. However, when the Congress was in power, leftist parties including the UML, national/international organizations, and human rights activists had campaigned against the construction of the Arun project and the World Bank loan, arguing that it was not in the interest of the country.

After the opposition, the minority UML government was in a dilemma whether to proceed with the Arun project or not after the mid-term elections. The government seemed to be in a moral crisis about how to continue the project. Due to the compulsion to provide an outlet while in government, the Deputy Prime Minister of the UML government, Madhav Kumar Nepal, had written a letter to the World Bank with conditions in 2051 Falgun and expressed the opinion that Arun could be proceeded with.

The correspondence mentioned points such as the government should maintain the 193 km elevated road to reach the project, the provision that the Electricity Authority or the government should seek permission from the World Bank if it wants to build a power project exceeding 10 MW should be removed, and the condition for increasing electricity tariffs should not be imposed. But since Arun had been opposing him in collaboration with social organizations while he was in the opposition, the World Bank was not satisfied with the letter from Madhav Kumar, who is also the UML general secretary.

The delegation that went to Washington DC under the leadership of the then Water Resources Minister of the UML government, Hari Pandey, also met with World Bank officials. Pandey, the then Minister, had said that the World Bank had imposed strict conditions on the US$ 175 million loan to Arun at that time.

The UML government fell without resolving Arun's issue. In 2052 Bhadra, Congress parliamentary party leader Sher Bahadur Deuba became the Prime Minister and Ram Sharan Mahat became the Finance Minister. At that time, efforts were made to continue the Arun project.

Finance Minister Mahat had returned from Washington, D.C., on October 27, 2009, after attending a joint meeting of the World Bank and the International Monetary Fund. After returning to Kathmandu, Mahat had said that the World Bank was positive about disbursing loans and constructing the Arun project. He also claimed that he had succeeded in making the World Bank officials positive about Arun.

He believed that international forces were active against Arun. He said, ‘Some big businessmen, environmentalists and organizations in Nepal are also involved in the international gang.’ Mahat had informed that World Bank officials had the idea that the road should be built first and then the project should be started.

Mahat had told the international community that they had come with a new economic strategy after the collapse of the UML government. According to Mahat, the new government’s economic policy, liberal economic programs, privatization and deficit-reduction programs were discussed with the World Bank president. Mahat was one of the five finance ministers who held bilateral talks with the bank president.

Nepal's finance minister met the World Bank president after 12 years. During the talks, he said that the World Bank president was sensitive to the development of the Arun Valley. Finance ministers from 169 countries participated in the World Bank meeting. Mahat also met and discussed with officials from Japan, France and Germany, which are providing assistance to Arun.

He also informed that he had met the French finance minister and head of European affairs at the Foreign Ministry in Paris and requested financial assistance to Nepal. He informed that the Japanese finance minister's advisor had expressed the opinion that Nepal should be allowed to build the Arun project. He had expected France's help to revive Arun.

Efforts were made to move forward with the Arun III hydroelectric project at a time when about 228 megawatts of electricity was being generated in the country. But the investment environment was spoiled by the incident where Gopal Siwakoti 'Chintan' and Ganesh Kumar Ghimire, members of the Arun Concern Group, asked questions to the World Bank regarding the Arun project and filed a complaint. Therefore, even though the bank had been studying the issue of investing in the power project for seven years, it had not been able to reach a conclusion. Siwakoti and other activists had been saying that the Arun project should not be built with a World Bank loan. They had raised questions about the conditions placed in the name of the loan and the achievements the project would provide.

The Deuba-led coalition government had tried to move Arun forward due to lobbying by the concern group, leftist parties, social organizations, and campaigners against the project being built with a World Bank loan. For that, a news item was published in Kantipur Daily on 28 Asoj 2052 under the title 'Hope for revival of Arun III project', referring to the issue of lobbying by the then Finance Minister Mahat.