Following strong opposition from private power producers, the Government of Nepal has signaled its intent to revise a controversial provision in the budget for the upcoming fiscal year (FY 2025/26) that proposed a shift to a “take-and-pay” model for purchasing electricity from river-based hydropower projects.

Currently, Nepal Electricity Authority (NEA) follows a “take-or-pay” model, which guarantees payment for all electricity generated by private producers, regardless of whether it is consumed. However, the newly proposed “take-and-pay” arrangement, announced in the budget, would require NEA to pay only for electricity it actually uses, raising concerns about market security and bankability.

Independent Power Producers Association Nepal (IPPAN) and investors argue that such a move would disrupt financing, as banks are unlikely to fund projects without guaranteed offtake. In response, Energy Minister Deepak Khadka informed the House of Representatives on Monday that the government is preparing to amend the provision.

“We’ve already written to the Ministry of Finance on June 10 requesting a revision,” Khadka said, noting that hydropower projects up to 10 megawatts and those with assured domestic or export markets would still be eligible for take-or-pay power purchase agreements (PPAs). He added that this recommendation was made based on inputs from NEA.

The proposed policy triggered widespread concern in Nepal’s hydropower sector, which includes over 6 million domestic shareholders and significant investment from the private sector. Independent power producers had met with the prime minister, finance minister, and energy minister multiple times urging the reversal of the take-and-pay policy.

Speaking at an interaction organized by the Society of Infrastructure Journalists (SIJ) on Monday, multiple participants said the provision would severely damage the country’s energy sector. Deepak Bahadur Singh, chair of the Infrastructure Development Committee in Parliament, called the policy unfair and said necessary steps would be taken to protect the industry.

“This policy undermines a sector that has started turning the country from darkness to light. It is not acceptable,” said Singh.

Lawmakers like Urmila Majhi criticized the government for introducing the provision without adequate understanding. “It is shameful that those who drafted the budget were unaware of how take-and-pay would impact the energy roadmap,” she said.

Former National Planning Commission Vice-Chair Govinda Raj Pokharel stated the budget attacks employment-generating sectors, highlighting a lack of sensitivity toward policy infrastructure in the energy domain. “The government should be fostering confidence among investors, not the opposite,” he said.

Ganesh Karki, President of IPPAN, warned that unless Clause 227 of the budget is amended, not a single new hydropower project will move forward. IPPAN also presented a detailed analysis showing the scale of the threat that indicates PPAs worth 17,117 MW would be in jeopardy, current investments of Rs 109 billion would be at risk, future investment potential worth Rs 3.31 trillion would vanish, and the government would lose significant revenue from halted projects.

IPPAN’s Deputy General Secretary Prakash Dulal emphasized that banks would not finance projects without take-or-pay guarantees, squeezing investment opportunities and disrupting what was once considered a safe and attractive sector.

In light of the mounting pressure, lawmakers and stakeholders are now urging the government to swiftly amend the policy to protect domestic investors and maintain momentum in Nepal’s hydropower expansion, which is central to the country’s energy security and economic development strategy.