Nepal to Sign Direct Agreement for Arun-III Hydropower Project

The Investment Board Nepal (IBN) has approved a plan to sign a direct agreement with Indian investors and their lenders for the 900 MW Arun-III Hydropower Project, currently under construction. The move aims to safeguard foreign investments and ensure financing for the project.

At its 66th meeting held Friday under the chairmanship of Prime Minister and IBN Chair KP Sharma Oli, the board endorsed the draft of the agreement and decided to recommend it to the Council of Ministers for approval. The direct agreement will grant lenders access to project documents, a global standard practice in large-scale infrastructure financing. Typically, such agreements involve the host government, the project developer, and the lenders in a tripartite arrangement.

Read: Arun III Hydroelectric Project Achieves Tunnel Breakthrough

IBN spokesperson Pradyumna Prasad Upadhyay explained that foreign investors rely heavily on banks, financial institutions, and international lenders, who in turn demand legal guarantees for the security of their funds. Hence, a formal agreement among the government, project company, and lenders is necessary, especially for capital-intensive projects like hydropower.

Lower Arun Hydropower Project Advances

The board also approved the draft project development agreement (PDA) for the 669 MW Lower Arun Hydropower Project, authorizing IBN’s Chief Executive Officer to issue the official license. The project will be developed by SJVN, a subsidiary of India’s state-owned Satluj Jal Vidyut Nigam, which signed a deal with IBN on June 1, 2023. With an estimated cost of Rs 130 billion, the project is located downstream of Arun-III and will use water released from Arun-III’s tailrace for power generation.

Planned under a tandem operation model, the project is expected to generate 2,500 gigawatt-hours of electricity annually. It will involve the construction of a 17-kilometer tunnel, a large surge shaft, and penstock to channel water into the powerhouse. The electricity produced will be connected to Nepal’s national grid through Arun-3’s 400 kV transmission line. The construction timeline has been set at five years. Nepal will receive 21.9 percent of the electricity free of cost, equivalent to 141 MW.

Eco-Industrial Park and Institutional Decisions

The board also decided to move forward with the Auto Service Eco-Industrial Park Project, which was submitted as an unsolicited proposal. The board’s CEO has been authorized to sign a memorandum of understanding with the proposing company and issue a survey license.

Additionally, the board agreed to propose to the Council of Ministers the approval of temporary staff positions across various services, groups, and categories at IBN’s office for fiscal year 2025/26.

Read: ARUN III HYDROPOWER PROJECT : A Success Story in the Making