The prospect of exporting 500 megawatts (MW) of electricity from Nepal’s 900 MW Upper Karnali Hydropower Project to Bangladesh is in jeopardy, as Bangladesh’s interim government has decided to suspend all agreements made under its Special Powers Act, including the tripartite Power Supply Agreement (PSA) involving Nepal, India, and Bangladesh. This development has raised concerns in Kathmandu about the future of Nepal’s hydropower export ambitions and its growing energy partnership with Bangladesh.

Following last year’s political upheaval, the new government in Bangladesh has not been able to establish good relations with India. Meanwhile, Bangladesh has either canceled or is preparing to cancel various energy agreements.

The decision in Dhaka comes amid geopolitical complexities, as the electricity from Nepal’s Upper Karnali project, developed by GMR Upper Karnali Hydropower Ltd (GUKHL), would be transmitted through a 117-kilometer-long, 765kV high-voltage transmission corridor in India. Nepal has viewed this trilateral arrangement as a critical step toward establishing itself as a key hydropower exporter in the region, but Bangladesh’s hesitation has introduced uncertainty.

According to sources, Bangladesh’s interim government has shown little interest in advancing the project, which was initially supported by the ousted Awami League administration. The tripartite PSA, finalized on December 5, 2024, between the Bangladesh Power Development Board (BPDB), India’s NTPC Vidyut Vyapar Nigam (NVVN), and GUKHL, was meant to facilitate a 25-year power supply starting in 2029. Negotiations for this deal began in 2016, culminating in a Letter of Intent (LoI) in January 2020, with GUKHL depositing USD 5 million as proposal security.

In February 2025, GUKHL Chairman S.N. Barde wrote to Bangladesh’s Power Secretary, urging the formalization of the PSA and citing the successful 40 MW trilateral electricity trade among Nepal, India, and Bangladesh as a model for future cooperation. The draft agreement was signed during the 23rd Bangladesh-India-Nepal steering committee meeting in Khulna in May 2023, attended by Nepal’s energy officials alongside Bangladesh’s Power Division Secretary Md Habibur Rahman and Indian Power Secretary Alok Kumar.

From Nepal’s perspective, the project represents a significant opportunity to leverage its vast hydropower potential and strengthen economic ties with Bangladesh. In 2024, Bangladesh expressed interest in co-investing in Nepal’s hydropower projects, signaling a potential for deeper bilateral energy collaboration. A Memorandum of Understanding (MoU) was signed between BPDB and GMR Energy to import 500 MW of electricity from Nepal via India’s grid, a move seen as a milestone in Nepal’s energy export strategy.

However, Bangladesh’s decision to cancel agreements under the Special Power Act, including the deal with GUKHL, has cast a shadow over these plans. “The government has decided to suspend all agreements under the Special Power Act, and the proposed deal with GMR has also been canceled,” BPDB Chairman Engr Rezaul Karim told the media in Dhaka. This move is part of a broader effort by Bangladesh’s interim government to terminate power and energy contracts signed under the previous administration.

For Nepal, the cancellation raises questions about the reliability of Bangladesh as an energy trade partner and the challenges of navigating trilateral agreements involving India’s transmission infrastructure. While the 40 MW trilateral trade remains a success, the suspension of the Upper Karnali deal could delay Nepal’s ambitions to scale up its hydropower exports and attract further investment in its energy sector. Nepali officials are now likely to reassess strategies to ensure the Upper Karnali project moves forward, potentially seeking alternative markets or renegotiating terms with Bangladesh to revive the agreement.

Investment Secured for the Project After 17 Years

In 2008 (2064 BS), GMR secured the contract to build the 900 MW Upper Karnali Hydropower Project through international competitive bidding. On January 24, 2008, a Memorandum of Understanding (MoU) was signed between the Government of Nepal and GMR for the project’s survey and construction.

However, GMR, grappling with its own financial crisis, was unable to proceed with the project’s development. Expectations for progress arose when SJVN, which is also developing the Arun III project, acquired a 34 percent stake in the Upper Karnali project. The two companies jointly secured loan financing for the project in January 2024.

Following a Supreme Court ruling last year that no further extensions for securing investment would be granted, they managed to arrange the investment before the final deadline of January 18, 2025.

In addition to GMR and SJVN, the Indian Renewable Energy Development Agency (IREDA) agreed to invest 5 percent in equity. The equity investment by IREDA has already been approved by India’s central bank. The Investment Board of Nepal stated that IREDA and Power Finance Corporation will provide loans for the project.

Similarly, Nepali banks, led by Nepal Investment Mega Bank, committed to co-financing over NPR 40 billion.

The Investment Board’s CEO, Gyawali, informed that the financial proposal submitted by the company was reviewed by consultants and deemed satisfactory.

In the project, GMR and SJVN each hold a 34 percent share, while the Nepal Electricity Authority (NEA) has been allocated a 27 percent free equity share. IREDA holds a 5 percent share.

A Project Development Agreement was signed between the Investment Board and GMR on October 19, 2014. According to the Detailed Project Report (DPR) prepared in 2011, the project’s cost is estimated at USD 1.05 billion (approximately NPR 150 billion at the current exchange rate). Given that the DPR was prepared around 14 years ago, the project cost is expected to increase.

The project will be financed with 30 percent equity and 70 percent loans.

A writ petition filed in the Supreme Court to invalidate the joint investment agreement between GMR, SJVN, and IREDA was dismissed by the court. However, CEO Gyawali noted that the project’s implementation has been delayed as the full text of the court’s order has not yet been received.

“The Supreme Court has dismissed the writ, but since the full text of the order is still pending, we have sought the opinion of the Attorney General on how to proceed. We will move forward based on that advice,” he said.

Gyawali added that preparatory work is ongoing at the project site, and he expects formal physical construction to begin soon.