For over sixty years, Nepal’s most ambitious hydro-irrigation project, the Karnali Chisapani Multipurpose Project, has remained trapped in a cycle of studies, proposals and political promises. Touted as a game-changer for Nepal’s economy and a cornerstone of regional energy security, the project has yet to break ground, leaving many to wonder: Will it ever become reality?

Energy Minister Deepak Khadka recently revived hopes with a bold vision—South Asian nations, including India, Bangladesh, Bhutan and Sri Lanka, could collaborate to push the project forward. But given the long history of geopolitical tensions, financing hurdles and bureaucratic inertia, skepticism runs deep. Will this time be different? On May 5, 2025, Energy Minister Deepak Khadka took to social media with a grand proclamation: “South Asia’s largest hydropower initiative—the Rs 2,000 billion Karnali Chisapani Project—is set to move forward rapidly through multinational collaboration.” He outlined a vision of regional cooperation to ensure energy security, expand irrigation networks and promote sustainable development.

But behind the grand rhetoric lie familiar questions: Who will lead the project? How will it be financed? What assurances are there that this won’t stall again? Nepal does not have the technical and financial capacity to execute a project of this scale alone. Will India, the regional powerhouse, take the lead? Or will a consortium of South Asian nations share the responsibility? So far, there is no clear roadmap. A Rs 2,000 billion-project ($15 billion) requires more than bold statements. Will multilateral lenders like the World Bank step in? Or will private players, such as Indian conglomerate Adani Group, which has reportedly shown interest in the project, set the terms? Hydropower development in Nepal has a troubled history. Major projects like Arun III and West Seti stalled in the past due to funding gaps. Without firm financial backing, even the most promising ventures collapse.

Energy Secretary Suresh Acharya admitted to NewBiz’s sister publication Arthik Abhiyan that the proposal is still in its early stages. “The energy minister proposed regional collaboration, as Nepal alone cannot finance this project. Since then, there has been no formal discussion,” Acharya said. During Indian Power Minister Manohar Lal Khattar’s recent visit to Kathmandu in April, Khadka floated the idea of joint investment. However, Khattar did not respond.

This was not the first attempt to revive the project though. In August 2023, then-Prime Minister Pushpa Kamal Dahal promised to advance the project through the Nepal Electricity Authority (NEA). Earlier, in 2016, then Finance Minister Bishnu Poudel proposed a trilateral partnership with India and China to develop the project. However, the plan collapsed due to geopolitical tensions.

Six Decades of Dreams And Delays

The Karnali (Chisapani) Multipurpose Hydropower Project has a long and complex history stretching back over six decades. From the beginning, it attracted the attention of the government for its transformative potential to boost the national economy through energy generation and regional integration.

During the Panchayat era, the government initiated a targeted program to train engineers specifically for the project. As the project gained prominence in 1978 as a major nationally owned initiative, Nepal faced a shortage of skilled manpower. To address this gap, the government, with support from the United Nations Development Program (UNDP), implemented a plan to send Nepali students on engineering scholarships to Roorkee University (now IIT Roorkee) in Uttarakhand, India. The goal was to produce 250 engineers in five years by awarding 50 scholarships annually. Of the 250 who studied at Roorkee, 11 have since passed away. Yet, despite significant investment in human capital, the project still remains uncertain.

The project’s earliest feasibility study was conducted by Japan’s Nippon Koei in 1966. It proposed a relatively modest capacity of 1,800 MW, reflecting the limited energy demand in northern India at the time. In 1968, Australia’s Snowy Mountains Hydroelectric Authority (SMHA) reviewed this study and raised concerns about the scale and practicality of the project. This marked the start of a series of reassessments aimed at aligning the project with evolving regional energy needs.

In 1977, a new study by Norconsult (Norway) and Electrowatt (Switzerland) recommended expanding the project’s capacity and exploring downstream alternatives, reflecting growing awareness of its large-scale potential. However, progress continued to be limited by two key challenges: India’s constrained power market and the lack of infrastructure for regional energy trade. Despite these hurdles, interest in the Karnali Chisapani project remained strong. In 1978, Nepal and India established the “Committee on Karnali”—a bi-national policy to oversee the project’s development. This was followed in 1983 by the formation of the Karnali Coordinating Committee (KCC), a group of technical experts from both countries. These developments marked a transition from preliminary feasibility studies to more formal bilateral coordination.

As multipurpose water and energy projects became increasingly significant in South Asia, the government commissioned a comprehensive feasibility study between 1986 and 1989. The study was financed by a loan from the International Development Association (IDA) of the World Bank Group, along with funds from the government. It was conducted by Himalayan Power Consultants (HPC), a joint venture of Canadian firms—Acres, SNC, and Shawinigan/Lavalin—and the US-based Ebasco. Advisory services were provided by Overseas Bechtel Inc (OBI). The KCC continued to provide oversight throughout the study.

After three years of extensive technical, environmental and economic analysis, HPC submitted its final feasibility report in January 1990. The report incorporated inputs from Nepali and Indian technical experts, World Bank reviewers and an independent panel of international specialists. It remains one of the most detailed and comprehensive assessments ever conducted for a hydropower project in Nepal. Despite this, the project failed to move forward, hindered by geopolitical sensitivities, financing challenges and the absence of a robust framework for regional electricity trade.

Renewed interest in the project emerged in the 2010s. At the 2014 SAARC Summit in Kathmandu, regional leaders prioritized cross-border energy cooperation. The SAARC Framework Agreement for Energy Cooperation (Electricity) was signed by the foreign ministers of all eight member states, including Nepal. This agreement encouraged member states to identify and develop high-priority projects across energy sectors including hydropower, solar and wind. Under this framework, the government and SAARC jointly reviewed the 1989 feasibility study of the Karnali (Chisapani) project in 2017. A new Terms of Reference (ToR) was drafted to hire consultants to update the study and move the project forward as a regional power initiative, reaffirming its strategic importance in South Asia’s evolving energy landscape.

Regional Power Security

The Karnali Chisapani project holds immense strategic value not only for Nepal but for the entire broader South Asian region, where energy security is emerging as a critical concern. Amid mounting climate risks, growing electricity demand, and continued dependence on fossil fuels, particularly coal, Nepal’s hydropower potential offers a clean, renewable solution for the region. Nepal had initially envisioned a tripartite partnership with India and China to develop the project. In 2016, then Finance Minister Poudel formally proposed the idea in the national budget, reflecting an ambition to leverage hydropower diplomacy as a balancing strategy between two geopolitical giants. However, this vision soon faced obstacles. India’s long-standing policy of excluding Chinese-involved projects from its power import framework rendered the trilateral vision effectively unviable. India’s Cross-Border Trade in Electricity Guidelines, 2018 prohibits Indian entities from purchasing electricity from third-country projects involving firms from countries with which India shares sensitive borders.

In response, Nepal has since pivoted toward a broader, regionally inclusive model of cooperation, excluding Chinese participation and focusing instead on partnerships with India, Bangladesh, Bhutan and Sri Lanka. This realignment not only conforms to India’s energy and foreign policy priorities but also strengthens the project’s bankability and improves the prospects for securing long-term Power Purchase Agreements (PPAs). This regional approach addresses one of the project’s main challenges: finding a market for electricity. With India’s participation, the energy generated by the project is unlikely to go to waste.

Experts, however, are still skeptical. According to Mukesh Kafle, former Executive Director of the Nepal Electricity Authority (NEA), the Karnali Chisapani project is linked to India’s National River Linking Project (NRLP). “India wants to connect the Karnali River, known as the Ghaghara in India, to the Yamuna River through a canal system,” he said. “This is not just about hydropower.” He reminded that Nepal has already entered into water-sharing agreements with India under the Koshi, Gandak and Mahakali treaties. “Nepal should optimize its water resources, but with caution,” he added.

India’s growing energy needs add urgency to this regional cooperation. Despite rapid growth in renewable energy, over 75% of India’s electricity still came from coal as of 2023. As the world’s third-largest greenhouse gas emitter, India is under pressure to diversify its energy mix and meet its climate obligations under the Paris Agreement. Hydropower imports from Nepal could play a vital role in achieving these goals. Bangladesh faces similar challenges. With a heavy reliance on natural gas and imported coal, it is increasingly vulnerable to energy insecurity. For both India and Bangladesh, Nepal’s untapped hydropower presents a valuable opportunity to secure clean, reliable energy.

Sources at the NEA have confirmed interest from India’s private sector in the Karnali Chisapani project. “But the government is being cautious, as most large hydropower projects have already been handed over to India. For Karnali Chisapani, the government is aiming for broader regional cooperation. Unfortunately, there is a lack of seriousness on Nepal’s part,” a source at the utility said. This caution was echoed during a reported approach by India’s Adani Group in early 2022. Nepali media reported that representatives from Adani Group met then Energy Minister Pampha Bhusal in Kathmandu. In April 2022, Adani representatives also held discussions with senior representatives from the Office of the Prime Minister and Council of Ministers, Office of the Investment Board Nepal, National Planning Commission, Ministry of Energy and the NEA. The group had shown particular interest in hydropower projects in the Karnali basin, including the Karnali Chisapani project.

For India and Bangladesh, the Karnali Chisapani project offers access to large-scale green energy. For Nepal, it represents a transformative opportunity to unlock revenue, enhance infrastructure and establish itself as a regional energy exporter. According to Rajan Dhakal, the spokesperson for the NEA, the project is more than just another infrastructure venture—it is a transformative megaproject requiring unprecedented levels of coordination, planning and investment. “The NEA alone cannot realize this ambition,” he said. “We are still in the consultation phase. Given the project’s scale and strategic importance—not only for Nepal's energy future but also for regional cooperation—it will require sustained commitment and ownership from all key stakeholders.”

The NEA source echoed concerns about the government's lack of seriousness. “The government has repeatedly used the project as a political tool to appease voters,” the source said. “Our team has conducted site visits and verified the project’s feasibility. Still, the government has not taken formal steps to award the updated feasibility study to the NEA.”

Not Just a Hydropower Project

The Karnali (Chisapani) Multipurpose Project is more than a hydropower initiative. Its design includes critical irrigation and flood control components with far-reaching implications for food security, rural livelihoods, and disaster risk reduction in both Nepal and India. Kafle said India’s interest in the Karnali River extends well beyond electricity generation as the southern neighbor plans to connect Karnali to the Yamuna River through an extensive canal network. “This integration highlights the strategic importance of the Karnali basin for India’s broader water management and irrigation objectives,” he added.

Nepal’s historical experience with water treaties, such as the Koshi (1954), Gandak (1959) and Mahakali (1996) agreements, has often been marked by perceptions of inequitable benefit-sharing and implementation challenges. Domestically, the Karnali Chisapani project unlocks vast irrigation potential in Nepal’s western Tarai. The gross command area, stretching from the Rapti River in the east to the Mohana River in the west, totals 238,709 hectares. After accounting for non-arable land, the net irrigable area stands at 191,000 hectares, making it one of the most ambitious irrigation projects. The design includes two major gravity-fed canals, one on each side of the river, totaling 134 kilometers and drawing water from the project’s regulating reservoir.

The irrigation component alone is projected to deliver annual net benefits of $157 million against an initial investment of $627 million, with an Economic Internal Rate of Return (EIRR) of 9.8%. While slightly below Nepal’s 10% social opportunity cost of capital, the project’s broader developmental value extends beyond financial metrics. It promises to transform Nepal’s agricultural sector, enabling crop diversification, enhancing food insecurity and reducing dependence on erratic monsoon rainfall. The project’s transboundary benefits are equally significant. In India, regulated flows from the Karnali will support two large irrigation systems in Uttar Pradesh state—the Saryu Canal System (1.2 million hectares) and the Sarda Sahayak Scheme (2 million hectares), together covering 3.2 million hectares of cultivable land.

The Road Ahead: Can Nepal Finally Turn the Tide?

The path ahead for the Karnali Chisapani project is fraught with challenges—but also rich with unprecedented opportunities, if the country plays its cards right. At the heart of Nepal’s energy ambitions lies a staggering figure: Rs 2,000 billion ($15 billion). For a developing country, this is no small sum. Realizing Nepal’s hydropower potential, building cross-border transmission lines and modernizing its grid infrastructure require investment far beyond the country’s domestic capacity. Simply put, Nepal cannot finance this vision alone.

This is where international cooperation becomes essential. Multilateral lenders such as the World Bank Group and the Asian Development Bank have long supported Nepal’s infrastructure development. Their continued engagement, alongside bilateral and regional partners like India, will be critical. A mix of grants, concessional loans and blended finance mechanisms must be mobilized to bridge the funding gap. Financing is only a part of the equation though. The bigger question is: who will buy the power? Without firm Power Purchase Agreements (PPAs), neither public nor private investors will commit billions to build generation and transmission infrastructure.

India’s role in this project is important. As the region’s largest market and Nepal’s only immediate neighbor with significant demand, India’s involvement is integral to the project’s future. Encouragingly, recent developments offer signs of progress. Nepal has begun exporting electricity to India and has also signed an agreement with Bangladesh. However, scaling up requires more than seasonal or ad hoc deals. Nepal must secure long-term, bankable PPAs, spanning decades, with clearly defined terms on pricing, grid access and transmission infrastructure. Only then will large-scale hydropower development become viable.

Energy experts also urge Nepal to learn from past mistakes. Equitable water-sharing arrangements must be non-negotiable. Any transboundary project must address both downstream benefits and risks in a way that is fair and transparent. Public skepticism remains high, particularly toward deals perceived to disproportionately benefit India.

Over six decades, Nepal’s hydropower aspirations have been littered with abandoned studies and unfulfilled promises. The 1989 feasibility report was shelved. The 2016 proposal for a trilateral partnership with India and China collapsed. The 2023 initiative under PM Dahal failed to take off. Why should this time be different?

The truth is: there are no guarantees—only risks. Geopolitical tensions, bureaucratic inertia and shifting priorities could stall progress yet again. Until concrete agreements are signed, funds are secured and construction begins, Karnali Chisapani remains a dream deferred.

(This report was originally published in   June 2025 issue   of New Business Age Magazine.)