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The Supreme Court has issued a directive order to increase the proportion of free electricity Nepal will receive from the 480 MW Phukot Karnali Hydropower Project.

In May 2023, a Memorandum of Understanding (MoU) was signed between the government-owned Vidyut Utpadan Company Limited (VUCL) and India’s state-owned National Hydroelectric Power Corporation (NHPC). According to Clause 5, Sub-clause 5.1 of the agreement, Nepal would receive 21.9 percent of the electricity generated free of cost after the project begins commercial operation.

“The government should revisit the agreement under which Nepal would receive only 21.9 percent electricity from a high-return project for which Nepal had already completed construction preparations. Taking into account the Government of Nepal’s investment as well, necessary amendments should be made to the MoU to ensure a fair proportionate return and increase the share of free electricity as much as possible,” the court stated.

Chiranjibi Chataut, who chaired the VUCL board meeting, said the board has already decided to implement the court’s order. Acting Chief Executive Officer of VUCL, Hiraman Waiba, said a letter has been sent to NHPC inviting discussions on implementing the order.

The Phukot Karnali Hydropower Project, to be built on the Karnali River in Kalikot District, has an estimated construction cost of around Rs 92 billion.

On November 29, 2023, Ashuda kumari Baral and Ajay Bahadur Shahi of Kalikot filed a writ petition against the then Prime Minister and the Office of the Council of Ministers, among others. The court order on the petition was issued on September 1, 2025.

The court has also directed the parties to publish a mutually agreed implementation schedule ensuring completion of the project within 12 months, calculated by excluding the period between the date of the MoU and the date the writ petition was filed, and using the date the order was entered into the court’s case management software system as the reference point. According to Vidyut Utpadan Company Limited (VUCL), an additional six months will also be added to compensate for time lost due to the court case.

The Memorandum of Understanding signed between National Hydroelectric Power Corporation (NHPC) and Vidyut Utpadan Company Limited was valid for two years. That term expired in May 2025, and the MoU has not been renewed since.

Clause 5, Sub-clause 5.2 of the MoU states that if the project is found to be commercially unviable, both parties may, in “good faith,” discuss other modalities, including revisiting the free energy provision under Sub-clause 5.1, in order to make the project viable.

Citing the same provision, NHPC has informally maintained that providing 21.9 percent free electricity would make the project commercially unviable. However, the government has now been ordered by the court to increase the proportion of free electricity beyond 21.9 percent.

Former Energy Secretary Dinesh Ghimire said both VUCL and NHPC will need to resolve the matter through negotiations in order to implement the court’s order. According to him, both sides should negotiate and determine the revised proportion of free electricity in line with the court’s directive.

“VUCL should move forward with negotiations by setting its bottom line and determining whether it is possible to provide the additional share of free electricity,” he said.

Dinesh Ghimire said the issue of increasing the proportion of free electricity is also directly linked to the project’s commercial viability.

“It was possible to develop the Arun-3 Hydroelectric Project by providing 21.9 percent free electricity, and the agreement was made accordingly,” he said. “Similarly, the understanding for the Phukot Karnali Hydropower Project was reached on the basis that the free electricity share would not be less than 21.9 percent.”

To ensure the project’s implementation, the court has also ordered the joint venture to submit progress reports on project construction every six months to the Judgment Execution Directorate until the project development period is completed or the project itself is finished.

According to Vidyut Utpadan Company Limited (VUCL), the detailed feasibility study of the Phukot Karnali Hydropower Project has been completed, while the environmental assessment is in its final stage. The company also stated that land acquisition required for the project has already been completed.

By the end of mid-July 2025, VUCL had spent Rs 1.53 billion on studies and pre-construction work for the project.

Kantipur