The Supreme Court has issued a directive to increase the proportion of electricity that Nepal will receive free of charge from the 480-megawatt Phukot Karnali Hydropower Project.

In May 2023, a memorandum of understanding (MoU) was signed between the state-owned power generation company (VUCL) and the Indian state-owned National Hydroelectric Power Corporation (NHPC). According to clause 5.1 of the said article, 21.9 percent of the electricity will be provided free of charge after commercial generation starts.

‘The agreement under which the government will receive only 21.9 percent of the electricity from the high-yield project for which Nepal has already prepared the construction will be renegotiated and the necessary amendments will be made to the MoU to increase the proportion of free of charge as much as possible, taking into account the investment of the Government of Nepal, and implementing it,’ the court said.

The VUCL board of directors meeting chaired by Energy Secretary Chiranjivi Chataut has decided to implement the court order, said VUCL Acting Chief Executive Officer (CEO) Hiraman Waiba. 'We have written to NHPC to come for discussions to implement the court order,' he said.

The construction cost of Phukot Karnali, which will be built on the Karnali River in Kalikot district, is around Rs 92 billion. On 13 Mangsir 2080, Eshudakumari Baral and Ajay Bahadur Shahi of Kalikot had filed a writ petition against the then Prime Minister and the Office of the Council of Ministers. The order on the same writ petition came on 16 Bhadra 2082.

The court has also asked to publish a mutually agreed upon schedule to ensure the implementation of the project within the revised time frame by reducing the period from the date of agreement to the date of filing of the writ and taking the date of entry of the order in the court's case management software system as the basis for completion within 12 months.  According to VUCL, the 6 months lost due to the case will be added.

The term of the MoU between NHPC and VUCL was 2 years.  The term expired in May 2025.  Since then, the term of the MoU has not been extended. 

In Article 5, Clause 5.2 of the MoU, if the project is not commercially viable, both parties may discuss the free energy of Clause 5.1 along with other modalities in 'good faith' to make the project feasible. 

Relying on the same clause of the agreement, NHPC has been informally saying that the project would not be feasible if it provided 21.9 percent free electricity. However, now the government has ordered to increase the free electricity to 21.9 percent.

Former Energy Secretary Dinesh Ghimire says that both VUCL and NHPC should conclude the 'negotiation' to implement the court order. He says that both parties should negotiate and determine the amount of free electricity as per the court order. 'VUCL should move forward with the negotiations to see whether it can provide free electricity or not,' he said.

He said that the issue of increasing the amount of free electricity is also linked to the feasibility of the project. 'It was possible to build the project by providing 21.9 percent free electricity in Arun-3.' Accordingly, he said, 'Therefore, an understanding has been reached in Phukot Karnali that it will not be less than 21.9 percent.' Done .’  

The court has also directed that the progress report of the project construction be submitted to the Judgment Implementation Directorate every 6 months by the joint venture to ensure the project construction progress during the project development period or until it is completed .