Due to the “Take and Pay” provision included in the current fiscal year’s budget, the 4,967-megawatt Power Purchase Agreement (PPA) process initiated by the Nepal Electricity Authority has been thrown into uncertainty. On May 29, the government introduced a new “Take and Pay” arrangement for PPAs in the publicly announced budget.

According to the Authority, the PPAs of 54 hydropower projects that had already been initiated before the budget announcement have now fallen into uncertainty. The Authority has also stated that PPAs for hydropower projects with a capacity of less than 10 megawatts have been halted. “PPAs for hydropower projects with a capacity of less than 10 megawatts were being carried out continuously, but those too have now been stopped,” a source from the Authority said.

Last April–May), the Authority had issued a notice inviting applications for PPAs of hydropower projects with a capacity of more than 10 megawatts. Projects categorized as run-of-river and semi-reservoir type that had completed grid connection agreements by March 25, were called for PPA applications. However, the Authority has stated that the PPA process has been halted after the new “Take and Pay” provision for run-of-river projects was introduced in the budget.

After the introduction of the “Take and Pay” provision in the budget, energy producers raised widespread concerns. Even the ruling coalition partner, the Nepali Congress, expressed dissatisfaction over the issue. Subsequently, in the House of Representatives meeting on June 24, Finance Minister Paudel clarified the provision in the budget, stating, “Power purchase agreements can be made for projects whose energy consumption or export is certain based on financial risk assessment, and for which the Nepal Electricity Authority can ensure payment of obligations.”

Finance Minister Paudel explained that the intention behind the provision was to prevent the wastage of generated electricity, attract private investment in projects with assured energy consumption, reduce the risks for private and banking sector investments, prioritize investment in reservoir and semi-reservoir hydropower projects, address energy shortages during the dry season, manage the government’s potential liabilities, and create financial obligations that are sustainable. However, he did not mention any amendment to the “Take and Pay” provision introduced in the budget. Some interpreted the minister’s remarks as an indication that the budget had been revised and the new PPA provision had been removed.

Finance Ministry spokesperson Shyam Prasad Bhandari stated that the provision introduced in the budget has not been amended. According to him, the Finance Minister merely clarified the new provision without making any changes, and necessary coordination is ongoing with the Ministry of Energy. “Now, based on this, the issue related to ‘Take and Pay’ will be resolved,” he said.

Kamal Acharya, Director of the Electricity Trade Department at the Authority, stated that the budget provision has created confusion regarding how to proceed with PPAs. “There is talk that the budget has been amended, but we are still trying to find out what exactly has changed,” he said. Acharya mentioned that the promoters of all 54 hydropower projects have already submitted applications for PPAs. “We’ve received applications from all of them, but due to the budget provision requiring PPAs for run-of-river hydropower projects to be done under the ‘Take and Pay’ model, we have not been able to move the process forward,” he said.

Under a ‘Take and Pay’ PPA, the Nepal Electricity Authority (NEA) purchases and pays only for the amount of electricity it actually needs. In contrast, under a ‘Take or Pay’ PPA, the NEA is obligated to purchase the agreed amount of electricity from the developer, and if it fails to do so, it must still pay the developer for the unused electricity. Likewise, if the developer is unable to supply electricity as per the agreement, they must pay a penalty to the NEA. The Authority has traditionally been conducting PPAs under the ‘Take or Pay’ model. In cases where hydropower projects are completed but new transmission lines are not yet in place or existing lines lack sufficient capacity, the NEA has set deadlines to shift such PPAs to the ‘Take and Pay’ model for electricity procurement and payment.

The Authority had called for applications to sign PPAs for 1,858.919 megawatts of run-of-river (ROR) and 3,107.434 megawatts of semi-reservoir (PROR) hydropower projects. Shortly after Hitendra Dev Shakya was appointed as Managing Director of the Authority, the 994th meeting of the Authority’s Board of Directors, held on March 25, decided to open the PPA process.

Prakashchandra Dulal, Deputy General Secretary of the Independent Power Producers’ Association Nepal (IPPAN), said that even after two months since submitting the PPA applications along with the details requested by the Authority, they have yet to receive any response. “We submitted all the details and applications as requested by the Authority, but so far there has been no feedback,” Dulal said.

The Authority had issued a notice to developers outlining four conditions to enter the PPA process. First, the PPA process would proceed for hydropower projects capable of uninterrupted power flow through operational or soon-to-be-completed transmission lines and substations. Additionally, projects able to supply electricity based on the N-1 contingency condition (where power supply is possible via an alternative route even if one system fails) would be given first priority in the PPA process. The second condition stated that hydropower projects capable of power flow through under-construction transmission lines and substations meeting the N-1 contingency condition—considering their estimated completion dates—would be given second priority in the PPA process by including this condition in the contract.

Regarding potential hydropower projects to be connected to the proposed transmission lines and substations, the Authority’s third condition was that the PPA process would only proceed after evaluating the financial arrangements and construction progress of the lines and substations. The fourth condition stated that for hydropower projects transmitting electricity through transmission lines and substations that are normally overloaded, the PPA process would proceed only if the developers agree to purchase electricity based on the Authority’s dispatch instructions.