Photo: TRN Minister for Energy, Water Resources and Irrigation Kul Man Ghising instructing officials of Kimathanka hydropower project on Tuesday.

In a significant policy and financing shift for Nepal’s power sector, the government has moved forward with a fully domestic investment model to construct the 454-megawatt Kimathanka Arun semi-reservoir hydropower project, positioning it as a test case for large-scale, state-led energy development using Nepali capital.

The project, identified at Bhotkhola Rural Municipality–2 of Sankhuwasabha district, is estimated to cost NPR 97.94 billion, including interest during construction. Unlike previous mega hydropower projects that relied heavily on foreign investment or development partners, the Kimathanka Arun project is planned to be developed entirely through domestic debt and equity mobilization.

According to the proposed financial structure, 70 percent of the total cost - approximately NPR 68.55 billion - will be raised through loans, while the remaining 30 percent, or NPR 29.38 billion, will be mobilized as equity. The project will be developed directly by the Electricity Generation Company Limited, a state-owned entity with the Government of Nepal and other public institutions as promoters.

The loan component is proposed to be arranged through consortium financing involving the Hydroelectricity Investment and Development Company Limited (HIDCL), Employees Provident Fund, Citizen Investment Trust, Social Security Fund, insurance companies, and commercial banks and financial institutions. This approach is being viewed as an attempt to deepen Nepal’s domestic long-term financing capacity, particularly for infrastructure projects with long gestation periods.

Equity financing will be raised by issuing shares to a broad base of Nepali stakeholders, including company promoters, non-resident Nepalis, Nepalis working abroad, local residents of the project-affected districts, ultra-poor households, and the general public. Policymakers say this structure is designed to expand public ownership of strategic energy assets while reducing external financing risks.

Energy, Water Resources and Irrigation Minister Kulman Ghising, while reviewing the proposed investment modality along with its financial analysis, instructed officials to immediately update the project’s cost estimates and proceed with financial closure accordingly. He emphasized that despite holding multiple generation licenses, the Electricity Generation Company has so far failed to initiate construction of any project, weakening its long-term revenue base.

“For institutional sustainability and long-term income security, the company must directly develop the Kimathanka Arun project,” Ghising stated, directing that the investment framework and corresponding institutional equity plan be urgently approved by the company’s board and submitted for further action.

The project has already incurred NPR 731.4 million in study and pre-construction expenses. Land acquisition for the project office and staff housing camp has been completed, while compensation rates for land required for the dam, reservoir, powerhouse, and other permanent structures have also been finalized. Approximately NPR 450 million has been earmarked for land compensation and resettlement-related costs.

Once operational, the Kimathanka Arun project is expected to generate 2,690.97 gigawatt-hours of electricity annually. Of this, winter peak energy will account for 473.1 million units, winter off-peak energy for 353.3 million units, and monsoon-season generation for 1.8646 billion units. Annual revenue from electricity sales is projected at NPR 16.91 billion, strengthening the project’s financial viability.

The current shareholding structure of Electricity Generation Company Limited includes a 30 percent stake held by the Government of Nepal, 10 percent each by the Nepal Electricity Authority, Employees Provident Fund, and Nepal Telecom, 5 percent by the Citizen Investment Trust, 4 percent by HIDCL, and 2 percent by Rastriya Beema Company. A total of 29 percent shares have been reserved for public issuance.

Energy sector analysts note that the Kimathanka Arun project represents more than just an addition to Nepal’s installed capacity. If successfully implemented, it could redefine how large hydropower projects are financed and executed in Nepal - reducing dependency on foreign capital, strengthening domestic financial institutions, and anchoring hydropower as a nationally owned strategic asset.