Legal uncertainty halts hydropower projects, causing billions in losses

KATHMANDU: Thousands of megawatts of hydropower projects are stalled in Nepal after the Supreme Court annulled the controversial Forest Act, which was introduced through an ordinance by the government. Although the Act had been passed by Parliament, the Supreme Court deemed it unconstitutional, resulting in a major setback for the energy sector, according to hydropower producers.

Ganesh Karki, president of the Independent Power Producers’ Association of Nepal (IPPAN), stated that nearly 6–7 months have passed without a clear legal framework, preventing any hydropower projects from progressing during this time. This delay has led to significant financial losses, amounting to billions of rupees, he added.

The issue has also affected investment in the energy sector. The capital market, which is another avenue for funding hydropower projects, has not been able to operate effectively due to legal barriers. Karki pointed out that the mandatory requirement to offer 10% of shares to locals and the compulsion to go through Initial Public Offering (IPO) processes have put additional pressure on the projects.

Currently, over 20,000 megawatts worth of projects are stuck due to the inability to sign Power Purchase Agreements (PPA), even though the electricity department has not stopped issuing licenses. Karki criticized the government for its contradictory stance—issuing licenses on one hand while blocking PPAs on the other, raising concerns about the government’s approach to the sector.

Moreover, even though applications for PPAs have been submitted for new projects, with a total capacity of 5,000 megawatts, their future remains uncertain. Karki emphasized that a long-term, clear policy from the government is crucial to resolve the ongoing crisis in Nepal’s energy sector.