Facing sharp backlash from energy entrepreneurs, the government has revised Clause 227 of the national budget for fiscal year 2025/26, which begins on July 17.
The controversy stemmed from a proposed shift to a ‘take-and-pay’ model for power purchase agreement (PPA) for run-of-the-river (RoR) hydropower projects. Under the model, the Nepal Electricity Authority (NEA) would only pay for electricity it consumed, replacing the earlier ‘take-or-pay’ policy where NEA was obligated to pay regardless of actual usage.
Read: Power Struggle: Energy Entrepreneurs Battle ‘Take-and-Pay’ Policy
Deputy Prime Minister and Finance Minister Bishnu Paudel announced the revision in Parliament on Tuesday. “The government’s earlier intention was to reduce energy waste, prioritise high-return projects, and ensure reliable winter supply,” he said, citing input from stakeholders and lawmakers made the government change its stance.
The revised clause now states that Power Purchase Agreements (PPAs) will be signed for projects whose electricity is confirmed to be consumed domestically or exported. Agreements will be based on financial risk assessments, ensuring NEA’s payment capacity.
The proposed shift had sparked divisions within the ruling coalition. Energy Minister Deepak Khadka distanced himself from the clause, claiming the idea was not his. Nepali Congress President Sher Bahadur Deuba reportedly urged Prime Minister KP Sharma Oli and Minister Paudel on Monday to revert to the ‘take-or-pay’ model.
Read: IPPAN Announces Protest Campaign Against 'Take-and-Pay' Policy
The Independent Power Producers’ Association Nepal (IPPAN), the umbrella group of private power developers, had launched protests on Friday, warning that the change would undermine investor confidence, stall future projects, and threaten billions already invested in the sector.
IPPAN had warned of escalated protests if the clause remained unchanged by the time the budget was passed. The parliament passed the budget Tuesday.
Minister Paudel, who initially defended the policy, on Tuesday highlighted the need for greater private sector engagement in energy. “We want to make the private sector’s role more effective,” he said.
Read: FM Paudel in the Hot Seat as 'Take-and-Pay' Sparks Uproar in Power Sector
IPPAN President Ganesh Karki said the change was a step in the right direction. “The government, after initially resisting, has now acknowledged our concerns,” he said.
Nepal was allowed to enter in the day-ahead market of the Indian Energy Exchange on May 1, 2021 for the import while it was given the go ahead to export electricity on November 3, 2021. In October, the same year, Nepal was allowed to sell 39MW of electricity to India.
In August, 2024, India showed Nepal the green flag to export an additional 251 MW of electricity from 12 hydropower projects, taking the total approved export quantity of electricity to India to 941 megawatts from 28 hydropower projects.
The long-term energy trade agreement between India and Nepal in early 2024 has envisioned Nepal exporting up to 10,000 megawatts to India in 10 years.
Additionally, Nepal has begun selling 40 MW to Bangladesh during the wet season. Adding these to the government’s plan of increasing domestic consumption in the coming years, Karki said the revised clause will pave the way for new PPAs. He added that IPPAN will soon take an official decision regarding its protest campaign in light of the policy change.
