Private power producers in Nepal are preparing to launch protests following the government's decision to retain a controversial clause in the upcoming fiscal year's budget that mandates electricity purchases based on a “take-and-pay” model. This shift marks a significant departure from the existing “take-or-pay” model, which obliges the Nepal Electricity Authority (NEA) to either purchase all generated electricity or compensate producers regardless of actual consumption.

The proposed change, included in the budget for the fiscal year 2025/26, has alarmed the Independent Power Producers’ Association Nepal (IPPAN), which argues that the new framework threatens ongoing and planned investments.

According to IPPAN, the take-and-pay arrangement could risk approximately Rs 66.22 billion in investments across hydropower projects totaling 17,117 megawatts as it does not guarantee full payment for generated electricity.

Speaking in Parliament on Monday, Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel signalled no intention to revise the provision, stating that the clause was introduced in the context of a pending electricity bill aimed at broadening the electricity trade framework. He added that once passed, the legislation would open electricity sales beyond the NEA, allowing private producers more flexibility and opportunities.

However, IPPAN argues that the private sector is not yet in a position to independently sell electricity due to unresolved issues such as wheeling charges and a lack of regulatory clearance. “We cannot accept the Finance Minister’s remarks as the private sector still lacks the legal and structural framework to enter direct electricity sales,” said IPPAN representatives at a press conference on Tuesday, announcing plans to move toward protest.

IPPAN General Secretary Balaram Khatiwada stated that the energy and finance ministries had earlier indicated a willingness to discard the take-and-pay provision, which had delayed the prospects of any protest. But with the Finance Minister now confirming the government’s position in Parliament, the association is now preparing for the protest.

Producers also warned that banks and financial institutions may decline to finance projects based on take-and-pay Power Purchase Agreements (PPAs), increasing risk for developers. PPAs for 4,965 megawatts of projects submitted in response to recent NEA calls have already been adversely affected, IPPAN noted.

IPPAN President Ganesh Karki criticized the policy, saying it would drive domestic energy producers away and create conditions favoring foreign investment in hydropower. He pointed to a mismatch between the government’s energy development roadmap and the new budgetary measures, claiming the strategy undermines two and a half decades of private-sector-led growth.

Private developers currently contribute over 2,900 megawatt, which is more than 80 percent of Nepal’s total installed capacity of 3,600 megawatts. Of the 4,200 megawatts now under construction, 4,000 megawatts are led by the private sector. An additional 4,000 megawatts of projects have completed PPAs and are in the financing stage.

IPPAN also warned that the budget provision could affect sub-10-megawatt projects previously covered under take-or-pay contracts. Furthermore, the broader industrial ecosystem, including construction, cement, rebar, and automotive sectors, may also suffer if energy infrastructure development stalls.