NHPC seeks Rs 40 billion government support, citing financial challenges in west seti project

Kathmandu: Indian state-owned power company NHPC Limited has requested Rs 40 billion in Viability Gap Funding (VGF) from the Investment Board, stating that the West Seti hydropower project is not financially viable in its initial phase.

NHPC, which secured the West Seti and Seti River-6 (SR-6) hydropower projects without competition, has argued that mandatory provisions such as the supply of free electricity and the reservoir-based nature of the project have limited its immediate financial returns. Based on the Detailed Project Report (DPR), the company has concluded that while the project is profitable in the long term, it faces financial challenges at the outset.

According to the Investment Board, NHPC has formally submitted a proposal seeking VGF after assessing the DPR of the West Seti project. Under the Public-Private Partnership and Investment Act, 2075, the government is allowed to provide VGF for infrastructure projects that are not immediately viable but are expected to generate positive long-term returns. Section 43 of the act provides for the establishment of a supplementary fund to support such projects through grants or concessional loans upon the board’s recommendation.

However, Nepal has yet to implement any project using the VGF mechanism. Previously, both VGF and non-VGF models were developed for the Budhi Gandaki Hydropower Project, but progress stalled due to the Ministry of Finance’s lack of consent.

Sushil Gyawali, Chief Executive Officer of the Investment Board Office, said that although NHPC has claimed a requirement of Rs 40 billion in VGF, no decision has been taken so far. “A proposal has been made stating that VGF is necessary, but it has not been decided how it will be managed,” Gyawali said. “They argue that the project is not financially viable because it is reservoir-based and because 21.9 percent free electricity must be provided under the agreement.”

The 64th meeting of the Board of Investment decided to conduct further studies on the DPR of the Paschim Seti project, which is estimated to cost around Rs 160 billion. Gyawali said an expert team is currently reviewing the DPR and that a decision will be taken only after the study is completed.

The board meeting held on 13 Mangsir 2081 approved an increase in the project’s capacity from 750 MW to 800 MW. Earlier, the government had terminated its agreement with China Three Gorges International Corporation after the project failed to progress for an extended period despite receiving a construction permit.

During the investment conference in Chaitra 2075, the government placed the Paschim Seti and SR-6 projects under the ‘SOCASE’ category to be developed by NHPC. Subsequently, on 2 Bhadra 2079, an agreement for the development of both projects was signed between the Investment Board and NHPC Limited in the presence of then Prime Minister Sher Bahadur Deuba.

As per the agreement, NHPC was required to prepare and submit the DPR to the Investment Board within two years of obtaining survey permission. If the project is approved after analysis of the DPR, a Project Development Agreement will be signed.

Previous studies had estimated the cost of the 750 MW West Seti project at around USD 1.32 billion, while the 450 MW SR-6 project was projected to cost approximately USD 800 million. The agreement also includes a provision requiring the developer to provide 21.9 percent of electricity free of charge after the commencement of commercial production.