The government has amended a clause in the budget following controversy over the ‘take and pay’ provision in the hydropower sector.

Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel on Tuesday proposed a revision to Clause No 227 of the budget during a session of the House of Representatives, clarifying the government's position on the issue. Replying to the lawmakers’ questions, Finance Minister Paudel said the government will remove the take-and-pay provision on certain conditions.

As per his revised proposal, the clause now states that power purchase agreements (PPAs) can be signed for hydropower projects that are confirmed to have domestic consumption or export potential and for which the Nepal Electricity Authority (NEA) can ensure payment obligations based on financial risk assessment.

Previously, Clause 227 stated: "Substations and transmission lines will be constructed in accordance with the schedule of hydropower project completion. A policy will be adopted to maintain balance between electricity production and consumption while signing PPAs. It will be signed for run-of-river projects under the 'take and pay' model."

The clause had sparked intense debate between the ruling CPN-UML and the Nepali Congress, ultimately leading to an agreement to revise the wording.

The government had been under pressure due to its ‘take-and-pay’ policy announced in the budget for the next fiscal year (FY), with stakeholders from various fronts expressing dissatisfaction over the government’s new move. The rift had surfaced even within the government. While Energy Minister Deepak Khadka was on the side of revising the policy announced in the budget, Finance Minister Paudel had been reluctant to back Minister Khadka.

Nepali Congress President Sher Bahadur Deuba even expressed his dissatisfaction over the mandatory take-and-pay policy forwarded by the government and called Finance Minister Paudel to remove the clause from the budget document before passing the annual budget of 2025/26 from the parliament. Bowing to the pressure, the ruling political parties including the Nepali Congress and the CPN-UML reached an agreement late Monday to remove the policy from the budget document.