Nepal’s hydropower sector is facing a severe crisis following the introduction of the ‘Take and Pay’ policy in the 2025/26 budget, putting over 17,000 megawatts (MW) of projects and billions in private investments at risk. The policy, which applies to power purchase agreements (PPAs) for run-of-river (RoR) hydropower projects, has sparked outrage among private investors, with the Independent Power Producers’ Association of Nepal (IPAN) warning of dire consequences for the industry.

IPAN President Ganesh Karki revealed that the policy jeopardizes 17,117 MW of ongoing and planned projects, threatening over NPR 15 trillion in existing investments and an additional NPR 30 trillion in proposed investments. Under the ‘Take and Pay’ model, the Nepal Electricity Authority (NEA) will only pay for electricity it consumes, removing the financial security provided by the previous ‘Take or Pay’ system, where payments were guaranteed regardless of usage. “This creates uncertainty for projects at various stages - those with production licenses, applications, or surveys - putting NPR 66.22 billion in current investments at risk of being lost,” Karki said during a gathering of energy producers held today, Thursday, to protest the policy.

Nepal’s hydropower sector currently produces 3,602 MW, with the private sector contributing 80%, according to the Economic Survey. Private investors have initiated projects exceeding 17,000 MW, but the budget’s sudden policy shift has created widespread uncertainty. The government’s ‘Energy Development Roadmap 2024’ targets 28,500 MW of production by 2035, a goal now in jeopardy due to the new policy. Karki warned that banks and financial institutions may halt lending to hydropower projects, as the ‘Take and Pay’ model increases financial risks for investors.

Both Energy Minister Deepak Khadka and Deputy Prime Minister cum Finance Minister Bishnu Paudel expressed surprise at the policy’s inclusion in the budget, claiming they were unaware of its addition. Energy Secretary Suresh Acharya echoed their sentiments, stating, “We are shocked at how ‘Take and Pay’ made its way into the budget.” Khadka assured stakeholders that discussions are underway to amend the policy, saying, “We are working to rectify this and move forward.”

In a swift response, the Ministry of Finance has announced it is addressing the issue with urgency. Sources within the ministry confirmed that Finance Minister Paudel has instructed officials to begin immediate groundwork to resolve the crisis. “The ministry recognizes the gravity of the situation and its potential impact on Nepal’s energy goals. We are starting the necessary homework to address the concerns and will take appropriate action very soon,” a senior official from the Ministry of Finance said on condition of anonymity.

The policy contradicts existing legal frameworks, including the Electricity Act of 1992 and the Hydropower Policy of 2001, which encourage private sector participation in the energy sector. Private producers, who have not been granted independent electricity trading rights, argue that the ‘Take and Pay’ policy undermines their trust in the government. Today’s gathering of energy producers underscored the sector’s unified opposition, with calls for the government to scrap the policy to protect Nepal’s hydropower ambitions.

The hydropower sector is critical to Nepal’s goal of energy self-sufficiency and reducing reliance on imports. With the Ministry of Finance now stepping in, stakeholders are hopeful for a resolution that will restore investor confidence and ensure the sector’s growth. However, the urgency of the situation demands swift action to prevent further damage to one of Nepal’s most vital industries.