Kathmandu. The World Bank has indicated to the Nepal government that it will not invest in the 1063 MW Upper Arun Hydropower Project even thoughThe World Bank had almost decided to invest in it on a concessional loan.

An informal agreement to invest in the project under the leadership of the World Bank was reached in April. Nepal had requested to sign a memorandum of understanding at the investment summit held in April. However, the World Bank could not move forward at that time due to disagreements on some technical issues.

The government has said that it will prioritize the semi-reservoir Upper Arun as a ‘game changer’ project. With an installed capacity of four digits, Upper Arun is the largest project Nepal has ever built. It is said that it can be operated at full capacity for 6 hours a day during the 6 months of winter when electricity demand is high. The project will generate 4.53 billion units of energy annually.

There were preparations to manage the financial management under the leadership of the World Bank with concessional loans from some foreign donor organizations and 70 percent loan investment from domestic banks and an additional 30 percent from own capital. The World Bank was preparing to invest $1.75 billion in the project. The total cost, including interest during the construction period, is estimated at around $214 billion. Of this, an agreement has been reached to invest Rs 53 billion from domestic banks and financial institutions led by the Hydroelectricity Investment and Development Company (HIDCL). It has been decided that 51 percent of the equity will be raised from the Upper Arun Hydroelectric Company, the project promoter, and the remaining 49 percent from shares to be given to the general public.

However, after India, which has been involved in other projects on the Arun downstream of the Upper Arun, expressed its disagreement, it seems certain that the World Bank will withdraw from the investment. This has led to uncertainty in moving the project forward. According to sources in the Ministry of Energy, India has already written to the World Bank not to invest in the Upper Arun project.

Government officials, however, are in favor of not giving this project, which will be built under the leadership of the Nepal Electricity Authority, to India for geopolitical reasons. The government understands that there is a risk of China expressing dissatisfaction when the project, which is to be built 15 kilometers from the Chinese border, is handed over to an Indian government company.

The Sutlej Hydropower Corporation (SJVN), owned by the Indian government, also wants to build the Upper Arun. The same company has already taken over the construction of the 900 MW Arun-3, 490 MW Arun-4, and the 679 MW Lower Arun projects. For this reason, India is also in favor of getting the Upper Arun. Officials from the Ministry of Energy say that the Indian side is insisting that it should get it because the transmission line, land acquisition, and construction of access roads will be easier and cheaper since they are in the same basin. Energy sources say, “SJVN officials are pressuring the Nepali side. They are lobbying heavily to prevent other donor agencies from coming if they do not get it.”

Kulman Ghising, Executive Director of the Nepal Electricity Authority, says that if the donor agencies do not provide loans, construction will start with domestic investment. ‘Upper Arun is a project that can transform the development of the country’s energy sector and economy,’ he says, ‘Nepal alone will have to work a little harder to raise investment. But it is a project that Nepal must build.’ Ghising says that there has been no formal decision from donor agencies including the World Bank on not investing. He said, ‘In addition to the World Bank, ADB, JICA and other agencies are also in discussions for investment. There has only been some delay in financial management.’

Upper Arun Project Chief Phadindra Raj Joshi says that land acquisition, construction of access roads and other works have been completed. ‘The work except financial management is almost complete. Now the government will make the remaining decisions on this.’