The 1,200-megawatt Budhi Gandaki Reservoir Hydropower Project is stuck in the investment modalities. The project has not been able to move to the construction phase due to repeated modality approvals from the government. As a result, the project has not been able to gain momentum despite being a priority for the government since the budget statement of the fiscal year 2068/69.

The progress of Budhi Gandaki, which is included as a national pride project, has been seen only in land acquisition and compensation distribution for 13 years. Although the land acquisition and compensation distribution work is 95 percent complete, the project has not been able to start the construction of the structure as the government has not finalized the investment modality.

‘Budget has been allocated to start work in the coming fiscal year for the preparation of the Detailed Project Report (DPR) of the 600 MW Budhi Gandaki Reservoir Project,’ the budget statement for 2068/69 said, ‘The project will be taken to the implementation stage within the next three years.’ But instead of the project going into the implementation stage for 14 years, the investment modality of the project has been stuck in the Ministry of Energy, Water Resources and Irrigation and the Ministry of Finance.

The government had started the project as a national pride project in 2069/70 with the aim of completing the project in the fiscal year 2083/84. At that time, the total cost estimate was Rs 260 billion, as mentioned in the 60th report of the Auditor General's Office. The Cabinet meeting held on 24 Chaitra 2079 had decided to build the project through domestic investment in the company model. As per the same decision, the company was established on 21 Ashad 2079 with the government owning the majority of the shares.

The government has again prepared an investment modality to build it with domestic investment. Arjun Rajouria, Chief Executive Officer of Budhigandaki Hydropower Company Limited, said that the investment modality has been prepared and sent to the Ministry of Energy. "The company's board has decided and sent the modality to the Ministry of Energy," he said. "The Ministry of Energy will send it to the Ministry of Finance for approval." Once the Ministry of Finance approves the proposed investment model, the Ministry of Energy will submit a proposal to the Council of Ministers. Rajouria said that the project will move forward towards construction.

It has been proposed to issue shares of Nepal Electricity Authority, issue energy bonds, take loans from banks and financial institutions, provide concessional loans to the government, raise funds from the infrastructure tax levied on petroleum products, issue shares to foreign employed and non-resident Nepalis and the general public to raise investment in the project.

The basic cost of the Budhi Gandaki Reservoir Hydropower Project to be built in Dhading and Gorkha is $2.77 billion (about Rs. 374 billion). The construction period of the project is 8 years. The project cost is Rs. 406 billion, including interest during the construction period, including Rs. 32 billion. The modality has been prepared so that the loan and equity (equity) ratio is 70 and 30 percent, based on the total cost, including interest during the construction period. The government will own 80 percent of the shares in Budhi Gandaki Company Limited, the project promoter, and the Authority will own 20 percent.

After the project is completed or in the final stage of construction, it has been proposed to reduce the debt burden by issuing a certain percentage of shares to the general public based on suitability and feasibility, taking into account the actual financial indicators, or to restructure the government's share. The government's project will have a total investment of Rs 248 billion, including Rs 97.47 billion for equity and Rs 150 billion for concessional loans. It has been proposed to convert the Rs 45 billion invested in the project so far by the government into share investment in the company.

It is proposed that the government should also invest the amount for customs and value-added tax in this project during the construction of the project. It has been proposed that 50 percent of the infrastructure tax levied at the customs point on the import of petroleum products should be allocated for investment in the project.

By reducing the investment so far, the government's investment in the project will have to be ensured in the source of Rs 228 billion. The Authority will invest Rs 24.37 billion for equity in the project. It has been proposed to issue energy bonds of Rs 30 billion to be calculated in the mandatory liquidity ratio with the government's facilitation by reducing the financial cost.

The bonds will be purchased by banks and financial institutions, insurance and reinsurance companies and public funds. A loan of Rs 104 billion will be disbursed from banks and financial institutions. It is proposed to raise the funds through co-financing of Employees Provident Fund, Citizens Investment Fund, Social Security Fund, Insurance and Reinsurance Company, HIDCL, Nepal Telecom and commercial banks.

The project will generate 3.38 billion units of electricity, including Rs 1.41 billion in the winter season and Rs 1.97 billion in the rainy season. The electricity purchase and sale rate is proposed to be Rs 12.40 and Rs 7.10 per unit for the winter and rainy seasons respectively. Thus, after the project starts generating electricity, it will generate an annual income of Rs 31.48 billion. The project's power generation license is proposed to be for 50 years. If the project is completed within eight years, electricity will be generated for 42 years.

Rajouria also said that the detailed project report and tender documents of the project are in preparation. The progress of land acquisition, which is considered the most complex part of the project, is about 95 percent. Rs 42 billion 65 has been distributed to the landowners for compensation for land, structures, plants and fruits. The project will affect 8,117 households in Gorkha and Dhading physically and financially. Out of these, 3,560 households will be completely displaced.

‘There is no situation where the project cannot be constructed due to land acquisition and compensation distribution,’ said Rajouria, ‘All the documents are ready to tender for the construction of the project.’ Rajouria said that once the Council of Ministers approves the investment modality, the financial management will be taken forward. Rajouria says that the goal is to proceed with the construction of the project within the next two years by moving forward with the construction work of the permanent camp, the access road to the project, etc.

Budhi Gandaki is also of strategic importance from the perspective of energy security due to its proximity to electricity load centers such as Kathmandu, Chitwan and Pokhara. A 263-meter-high curved arch dam will be built to block the Budhi Gandaki River flowing through the border of Gorkha and Dhading districts.

This will affect the 14 VDCs (currently 4 rural municipalities and 1 municipality) of Dhading and 13 VDCs (currently 4 rural municipalities) of Gorkha. After the dam is built, the reservoir of water trapped will spread over 63 square kilometers in the upper coastal area. Budhi Gandaki is a potential location for employment, business, tourism hub, fisheries, and downstream benefits. The maximum water level of the project will be up to 540 meters.