With the approval of the financial investment framework (modality) of the 1,200-megawatt Budhi Gandaki Reservoir Hydropower Project, it has moved forward in the construction phase. The investment modality of the project, which was approved twice by the interim government's cabinet meeting, is now about to be implemented.

Earlier, the cabinet meeting held on 2 Magh had initially decided to approve the financial investment framework of the Budhi Gandaki Reservoir Hydropower Project. But the decision was not validated at that time. Meanwhile, the cabinet meeting held on 12 Falgun has decided to approve the investment framework again.

The Ministry of Energy, Water Resources and Irrigation sent a letter approving the financial investment framework to the project promoter, Budhi Gandaki Company Limited, on 9 Chaitra. 'The financial investment framework of the Budhi Gandaki Reservoir Hydropower Project will be approved as mentioned in the annual budget and program of the current fiscal year,' the decision of the cabinet said. Point 224 of the budget statement for the current fiscal year states that the Budhigandaki project will be built in public-private partnership.

Last December, the Ministry of Finance had agreed to the investment framework for the 1,200-megawatt Budhigandaki Reservoir Hydropower Project. Once the Ministry of Finance agreed to the investment modality, further processes were taken forward. Arun Rajouria, CEO of the project promoter Budhigandaki Company Limited, said that the decision of the Council of Ministers has been verified.

“The investment modality has been verified, now the project can be built,” he said. Rajouria said that once the budget is released by the Ministry of Finance, contracts will be invited for the construction of concrete bridges and camps. ‘We plan to start construction by contracting for the main project from January 2028,’ he said. ‘Within two years, we will sign a power purchase agreement (PPA), financial management of the project, and build a bridge and camp to reach the project site.’

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 company says that the project will cost Rs. 406 billion, including interest during the construction period of 32 billion. The modality has been prepared so that the debt and equity (equity) ratio is 70 and 30 percent, based on the total cost, including interest during the construction period.

The government of Nepal and Nepal Electricity Authority will own 80 percent and 20 percent of the shares in the Budhi Gandaki Company Limited, the promoter of the project, respectively. After the project is completed or in the final stage of construction, taking into account the actual financial indicators, a certain percentage of shares will be issued to the general public based on suitability and feasibility to reduce the debt burden or restructure the government’s shares.

The government will invest Rs 248 billion in the project, including Rs 97.47 billion in equity and Rs 150 billion in concessional loans. The Rs 45 billion invested in the project so far by the government has been converted into share investment in the company.

The government had started collecting taxes in the name of Budhi Gandaki. According to Nepal Oil Corporation, taxes were collected in the name of Budhi Gandaki in the fiscal years 2072/73 and 2073/74. After it was heavily criticized, the Ministry of Finance has been collecting taxes in the name of 'Infrastructure Development Tax' by removing the title of Budhi Gandaki. The government had collected Rs 10.59 billion in the name of Budhi Gandaki in 2 years.

'Infrastructure Development Tax' has been collected since 2074/75. The Corporation has stated that it has collected Rs 11.36 billion in 2074/75, Rs 12.41 billion in 2075/76, Rs 13.98 billion in 2076/77, Rs 22.87 billion in 2077/78, Rs 24.95 billion in 2078/79, Rs 20.56 billion in 2079/80, Rs 20.58 billion in 2080/81 and Rs 22.10 billion in 2081/82.

The Corporation had been levying tax of Rs 5 per liter on petrol, diesel and aviation fuel (domestic and international). However, it has increased it by Rs 5 per liter from Magh 2077 and is now collecting Rs 10 per liter. It has been proposed to allocate 50 percent of the infrastructure tax levied at customs points on the import of petroleum products for investment in the project.

By reducing the investment so far, the government will have to ensure the source of Rs 228 billion for the project.  Nepal Electricity Authority will invest Rs 24.37 billion in equity in the project. It was 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.

Reduce the financial cost and make the project feasible Under the facilitation of the government, an energy bond of Rs 30 billion will be issued, calculated on the mandatory liquidity ratio. 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 has been proposed to raise it 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 rates were proposed to be Rs 12.40 and Rs 7.10 per unit for 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 will be valid for 50 years. If the project is completed within 8 years, it will generate electricity for 42 years. The detailed project report and tender documents of the project are under preparation.

The progress of land acquisition, which is considered the most complex part of the project, is about 96 percent. Rs 45 billion has been distributed to the landowners for compensation for land, structures, plants and fruits. The project will physically and economically affect 8,117 households in Gorkha and Dhading. Out of these, 3,560 households will be completely displaced. The company has stated that those who are completely displaced will have to be rehabilitated and relocated by making a procedure. 

The government had started the project as a national pride project in 2069/70 with a target of completing the project in the fiscal year 2083/84. The total cost estimate at that time 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 Ashar 2079 with the government holding the majority of the shares.

The Cabinet meeting held on 23 Kartik 2080 had decided to issue instructions to determine the investment model of the project. Immediately after, Budhigandaki Hydropower Company Limited had previously put forward an investment modality with two options in Chaitra 2080. However, confusion arose when the Ministry of Finance did not agree to the investment model.