Under the leadership of the Nepal Electricity Authority, a proposal has been made to issue shares worth 12 billion 95 crore rupees to Non-Resident Nepalis (NRNs) and Nepalis working abroad for the construction of the 1,063-megawatt semi-reservoir-based Upper Arun Hydropower Project in Bhotkhola Rural Municipality of Sankhuwasabha.

The financial analysis and financial structure of the project have been prepared by estimating the project cost - excluding interest during the construction period - to be USD 1.5127 billion.
When this amount is converted at the currently applicable regulated exchange rate of NPR 141 per US dollar, the total cost - excluding construction-period interest - comes to NPR 213.29 billion.

The total project cost, including interest during the construction period, is NPR 239.79 billion. Of this, 30% (NPR 71.94 billion) will be equity. The remaining 70% (NPR 167.85 billion) is proposed to be managed through financial arrangements (debt).

The project is expected to have a construction period of 7 years, with an estimated annual interest rate of 7% during that period.

The financial management proposal was approved by the project promoter, Upper Arun Hydro-Electric Limited, and submitted to the Nepal Electricity Authority.

A meeting of the Authority’s Board of Directors, held on Thursday under the chairmanship of Energy, Water Resources and Irrigation; Physical Infrastructure and Transport; and Urban Development Minister Kulman Ghising, approved the company’s proposal and decided to submit it to the government for the necessary decisions.

Minister Ghising said that the financial management of Upper Arun is being arranged through domestic investment so that NRNs, Nepalis working abroad, project-affected communities, and the general public across the country can invest in the project. He mentioned that efforts are underway to complete the financial management as quickly as possible and move the project toward construction.

It has been proposed that 51 percent of the project’s equity will be invested by the promoters, while the remaining 49 percent will be raised through the issuance of ordinary shares. The promoters will invest NPR 36.69 billion, and NPR 35.25 billion will be raised through the issuance of ordinary shares.

Of the 49 percent ordinary shares, 18 percent has been allocated to NRNs and Nepalis working abroad. Likewise, NPR 7.19 billion (10%) is allocated to people from the project-affected area and Sankhuwasabha district; NPR 12.95 billion (18%) to the general public across the country; NPR 1.44 billion (2%) to disadvantaged areas; and NPR 719.4 million to employees of the promoting institutions.

The project promoter company will have a 41 percent promoter share of the NEA, or Rs 29.49 billion. The promoter investment will be Rs 1.44 billion/1.44 billion (2/2 percent) from the NEA’s subsidiaries, Employees’ Provident Fund and Insurance and Reinsurance Companies, Rs 719.3 million/719.3 million (1 percent) from the Citizens’ Investment Fund, HIDCL, provincial and local governments, and Rs 359.7 million/359.7 million (0.5/0.5 percent) from Nepal Telecom and the Social Security Fund.

The project’s construction will be carried out by the Authority’s subsidiary company, Upper Arun Hydro-Electric Limited, which has already been established. All investment arrangements so far, during the pre-construction phase, have been managed by the Authority itself. The project is listed under the public hydropower program, which is why 51 percent of the total equity is held by the founders and 49 percent by ordinary shareholders.

It has been estimated that NPR 167.85 billion in loans will be required to complete the project. The financial management proposal is to arrange funding from internal sources, ensuring that no loan investment comes from the government.

The Authority’s Managing Director, Manoj Silwal, stated that the financial management proposal for the project has adopted a mixed investment system. This approach is intended to facilitate financial arrangements, reduce costs, minimize investment risk, and maximize the use of internal capital from various sources and regions.

It has been proposed that 45 percent of the project’s total loan be invested through concessional co-financing. Under this arrangement, loans could be obtained from the Employees’ Provident Fund, Citizens Investment Trust, Social Security Fund, HIDCL, Nepal Telecom, and insurance and reinsurance companies. This is expected to provide NPR 75.53 billion in investment.

For investment in Upper Arun, it has been proposed to issue energy bonds worth NPR 50.36 billion, equivalent to 30 percent of the required loan, calculated according to the mandatory liquidity ratio for banks and financial institutions, to raise funds.

Additionally, it has been proposed to raise NPR 41.96 billion through co-financing with banks and financial institutions.

It is projected that in the first year of commercial operation of the project, revenue will reach NPR 27.90 billion. Assuming an annual price increase of 3 percent for 8 years, the total revenue over the project period is expected to be NPR 34.59 billion.

The average PPA (Power Purchase Agreement) rate per unit in the first year of commercial electricity production is estimated to be NPR 6.3 per unit. Assuming an annual price increase of 3 percent for 8 years, the average PPA rate over the project period is projected to be NPR 7.8 per unit.

The project is expected to generate 453 million units of electricity annually. Currently, pre-construction work is underway. In this geographically remote and challenging area, a 21-kilometer access road is being constructed from the powerhouse to the dam site.

An access road is under construction from the proposed power house at Chhongrang near Golabazar of Bhotkhola Rural Municipality-4 to the dam construction site near Chepuwa village, ward no. 2 of the same rural municipality in the upper coastal area. The Koshi Highway has reached Chhongrang. A 70-meter-long steel arch bridge is being constructed over the Arun River to leave the Koshi Highway and go towards the project site.