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The 1,063-megawatt Upper Arun Hydropower Project, being developed in Sankhuwasabha district, has officially received an electricity generation license, paving the way for one of Nepal’s largest hydropower schemes to move into the construction phase.

The project, being developed by Upper Arun Hydro-Electric Limited - a subsidiary of the Nepal Electricity Authority - obtained the production permit from the Department of Electricity Development following a secretary-level decision made by the Ministry of Energy, Water Resources and Irrigation on Baisakh 14, 2083 BS (April 27, 2026).

Located in Bhotkhola Rural Municipality of Sankhuwasabha, the mega hydropower project has already completed most of the preparatory works required before full-scale construction begins.

According to project officials, 413 ropani of land required for the project has already been acquired, while construction of a 21.19-kilometre access road stretching from Chhorang in Bhotkhola Rural Municipality-4 to Ruku Phedi in Ward-2 is nearing completion.

Authorities accelerated road construction beginning Falgun 2081 BS (mid-February to mid-March 2025) by transporting construction materials via helicopter to difficult terrain in the remote Himalayan region.

Infrastructure required for workers, including permanent housing and support facilities, is also in the final phase of development.

The project has already permanently resettled 23 fully displaced households, while 335 economically affected households are receiving compensation and livelihood empowerment programmes. Officials said 98 percent of compensation distribution for acquired land has already been completed.

Power Purchase Agreement and Construction Packages Underway

Preparations for a Power Purchase Agreement (PPA) with the Nepal Electricity Authority are also progressing.

At the same time, authorities are preparing tender documents through separate packages for civil structures, electro-mechanical systems, hydro-mechanical works and transmission line construction.

Under the project design, a 183-metre-long and 100-metre-high dam will be built around 350 metres upstream from the confluence of the Arun River and Chepuwa Khola.

Water from the river will be diverted through an intake system into an 8,362-metre-long headrace tunnel, passing through a surge tank before reaching an underground powerhouse measuring 25 metres wide and 59 metres high.

The underground facility will generate 1,061 megawatts of electricity, while an additional 2.63 megawatts will be produced using environmental flow, taking total installed capacity to 1,063 MW.

The project is designed to operate six peak hours daily throughout the year, with an average annual generation target of 697 megawatts and estimated annual electricity production of 4,531 gigawatt-hours (GWh).

Electricity generated by the project will be evacuated through a 5.8-kilometre 400 kV transmission line connected to the proposed Arun Hub Substation.

Rs 240 Billion Investment Structure

The estimated cost of the project stands at approximately Rs 240 billion, making it one of Nepal’s most expensive infrastructure projects.

Under the financing model, 70 percent of investment will come through debt financing and 30 percent through equity investment.

A co-financing agreement worth Rs 53.341 billion, led by the Hydroelectricity Investment and Development Company Limited, was signed in 2022 to support the project’s financing structure.

Discussions are also underway with the World Bank regarding additional debt investment.

The project’s Environmental Impact Assessment (EIA) report was approved on Poush 19, 2081 BS (January 3, 2025).

Originally studied in 1991, the Upper Arun project underwent a revised feasibility assessment in 2011 and was later updated in 2021, forming the basis for its current development model.

Project developers aim to complete construction within 68 months from the start of construction, positioning Upper Arun as a major contributor to Nepal’s long-term electricity generation, export ambitions and broader energy security strategy.