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The Independent Power Producers’ Association of Nepal (IPPAN) has described the government’s fiscal year 2083/84 budget as a “course correction, reform-oriented and transformative” step for the country’s energy sector, while also pointing out several gaps in implementation clarity, particularly on new Power Purchase Agreements (PPAs) and domestic electricity consumption policies.

Issuing its official reaction to the budget speech presented by Finance Minister Dr. Swarnim Wagle, IPPAN said several provisions related to hydropower and clean energy represent positive and long-awaited reforms for private sector investors in Nepal’s power sector.

Key Positive Energy Sector Reforms Highlighted by IPPAN

According to IPPAN, the budget includes a series of significant reforms aimed at restructuring and liberalizing Nepal’s energy sector, including:

- Restructuring of the Nepal Electricity Authority into three separate companies for generation, transmission, and distribution/trading

- Cancellation of PPAs for projects that have not initiated construction

- Introduction of “take or pay” based PPAs for new projects

- Immediate PPA arrangements for projects below 10 MW capacity

- Allowing private sector participation in international electricity trade

- Legal provisions enabling private developers to build transmission lines and charge wheeling fees

- Adjustment of forest land usage rights and tree-cutting fees during hydropower project transfer

- Incentives for reservoir-based and large-scale hydropower projects

- Provision allowing up to 40 percent IPO issuance in the first year for fully financed reservoir projects

- Introduction of Green Energy Bonds and diaspora bonds

- Utilization of clean hydropower for AI and digital service industries

- Electricity tariff and demand charge discounts for industries

- Long-term fixed interest financing policy for hydropower projects

- Harmonization of conflicting laws related to energy, forest, environment, and infrastructure sectors

IPPAN said these measures collectively signal a strong policy shift toward expanding private investment, improving project bankability, and accelerating Nepal’s clean energy development agenda.

Forestry and Environmental Policy Reforms in Hydropower Sector

The association also welcomed proposed amendments to the Forest Act 2076 and Environment Protection Act 2076, including:

- No requirement for supplementary EIA if forest area or tree-cutting numbers decrease from approved levels

- Streamlining of forest clearance and tree-cutting approval processes

- Integration of land usage rights and tree-cutting fee adjustments in hydropower project transfers

- Digitization and single-window system for forest product permits and logistics

- Economic valuation of forest carbon stock and ecosystem services for integration into planning and budgeting systems

Concerns Raised by IPPAN

Despite welcoming the reforms, IPPAN noted several areas requiring further clarity and policy strengthening.

The association pointed out that the budget did not clearly address new PPAs for future hydropower projects, stating that explicit commitment on this front would have further strengthened investor confidence.

It also said that while the government has mentioned allowing private sector participation in international electricity trade, the issue remains under discussion, and the budget does not provide detailed operational clarity.

IPPAN further raised concern over the decision to impose VAT on electricity consumption above 50 units, warning that it could increase the cost burden on consumers and potentially discourage domestic electricity consumption. The association said the government should have placed greater emphasis on boosting internal electricity demand.

Overall Assessment

IPPAN concluded that the budget represents a “course correction” in Nepal’s energy policy direction and described it as reformist, transformative, and historic, particularly for the hydropower sector.

However, it emphasized that successful implementation and clearer policy execution—especially regarding PPAs, domestic consumption, and market liberalization—will be critical to fully realizing the sector’s growth potential.