A new budget clause could derail 300+ hydropower projects, and the Nepal Electricity Authority is at the center of it. Discover what’s at stake and why it matters.

Let’s say you’re a hydropower developer in Nepal. You’ve spent years studying rivers, planning your project, getting approvals, borrowing money from banks, all based on one promise:

That the Nepal Electricity Authority (NEA) will buy the electricity you produce.

That promise is what made Nepal’s energy boom possible. And it's called the take-or-pay model. Once your power plant is up and running, NEA agrees to pay you for the electricity, whether they use all of it or not. That’s what gives banks the confidence to fund these massive projects. That’s how private companies have been building the future of Nepal’s energy sector 

But now, all of that is at risk.

In the new proposed budget for 2082/83, the government has quietly introduced a major change: NEA will only pay if it actually uses the electricity. This new approach is called take-and-pay. No usage? No payment.

If this budget gets approved in Parliament, it could paralyze over 350 hydropower projects currently in the pipeline. Rs. 66 billion already spent on studies and preparation could go to waste. And Nepal’s ambitious goal of generating 28,500 megawatts in the next decade? That could collapse before it begins.

So who added it? And why?

This one decision could change the future of Nepal’s electricity, economy, and exports — and almost no one saw it coming.

Let’s unpack what’s going on.

Take-or-Pay vs. Take-and-Pay: A Simple Explanation

Imagine you own a momo stall. You sign a deal with a school canteen: they agree to buy 1,000 plates of momo every day for a year, whether or not the students eat all of them. That’s take-or-pay.

Because the canteen promised to pay no matter what, you take a loan, buy better equipment, and hire two extra cooks. Business is booming.

Now suddenly, the canteen says: “Actually, we’ll only pay if we need the momos that day. Some days we’ll take 1,000, some days 100, some days none. Up to us.”

That’s take-and-pay.

Would you still feel safe taking out loans and investing in your stall? Probably not.

That’s exactly the situation Nepal’s private hydropower developers are facing today.

Under the old take-or-pay model, the Nepal Electricity Authority had to pay producers a fixed amount, whether it used the electricity or not. This gave banks and investors confidence that the project would generate steady income.

But with take-and-pay, NEA only pays when it wants to, and only for the amount it actually uses. That means if there’s extra electricity that NEA doesn’t need, or can't handle due to transmission issues, the private company gets nothing. Zero. Nada.

And guess what? These companies can’t sell their electricity to anyone else either. Right now, NEA is the only buyer allowed in Nepal. So, when NEA says “no thanks,” the power literally goes to waste; like your hot momo left untouched at the counter.

This might make sense if we had too much power and nowhere to send it. But Nepal is still exporting power to India, trying to strike deals with Bangladesh, and building a roadmap to produce 28,500 megawatts of electricity by 2035. Switching to take-and-pay now? It’s like cutting the power line halfway through the climb.

Why Was “Take-or-Pay” Introduced? 

Let’s rewind to a time not too long ago. Remember when load-shedding used to be a daily reality in Nepal? We’d schedule our lives around power cuts. No electricity in the morning? No problem, just iron your shirt the night before. Office presentations? Better charge everything before dinner.

Then something amazing happened. The lights started staying on.

Behind this transformation was a big, bold idea: invite private companies to help solve Nepal’s electricity problem. But the twist is: these companies weren’t going to build billion-rupee hydropower projects just out of love for the nation. They needed a guarantee that if they invested big, they wouldn’t go bankrupt waiting for someone to buy their electricity.

That’s where the take-or-pay model came in.

Starting around 2017, the government and the Nepal Electricity Authority began signing power purchase agreements (PPAs) that said: “Even if we don’t use all the electricity you produce, we’ll still pay you for what we agreed.”

This one simple promise changed everything.

Banks started lending to hydropower developers because they could now show future income on paper. Domestic and foreign investors lined up to put money into Nepal’s rivers. Contractors, consultants, engineers, and workers across the country got busy.

Within a few short years:

• Chronic power cuts became a thing of the past.
• Nepal started producing a surplus of electricity, especially in the rainy season.
• We even began exporting electricity to India!

It was a classic win-win: private companies got steady revenue, and the country finally lit up; literally

The Nepal Electricity Authority also benefited. More projects meant more supply, which meant less dependence on expensive diesel plants or imports. And with enough planning, NEA could sell that surplus power to neighboring countries during peak production months.

So, the take-or-pay model wasn’t just about money. It was the backbone of Nepal’s modern energy success story. It helped unlock over Rs. 1.5 trillion in private investment and turned our rivers into engines of growth.

Now, imagine pulling the plug on all that progress overnight. That’s what this sudden shift to take-and-pay risks doing, and why everyone from investors to energy experts is sounding the alarm.

Why Are Hydropower Investors Panicking?

So, what’s the big deal? Why are investors panicking, banks freezing, and hydropower developers losing sleep over this take-and-pay switch?

Let’s say you’re planning to build your dream house. You find a great spot by the river, hire a contractor, and go to the bank for a loan. The banker asks, “How will you repay this?”

You confidently say, “I’ve got a deal. Someone’s promised to rent it for the next 30 years, guaranteed!”

Boom. The bank is in. You get the loan.

Now imagine going back the next day and saying, “Actually, the renter might only stay when they feel like it. They might skip some months. No guarantee.”

What do you think the bank will say?

"Good luck. No loan for you."

That’s exactly what’s happening to Nepal’s hydropower developers right now.

1. The Financing Problem

For the past few years, banks have been happily financing hydro projects because of one major reason: the Nepal Electricity Authority had guaranteed payment under take-or-pay contracts. That meant even if NEA didn’t use all the electricity, they would still pay the developer as agreed.

This “payment guarantee” made the projects bankable. Banks were willing to lend because they saw a steady, predictable cash flow coming in.

But now, under the new take-and-pay model, that guarantee is gone. And with that, so is the confidence.

Right now, there are over 300 hydropower projects either ready to be built or in the final stages of approval. Combined, they can generate 17,000 megawatts of electricity. That’s nearly five times more than what we currently use on an average day!

These projects were all planned, financed, and designed based on the assumption that the Nepal Electricity Authority would buy their electricity under the take-or-pay model, the same one that got us out of load-shedding.

Banks will now become hesitant; even afraid to fund new hydropower projects. Why? Because if NEA decides not to buy the electricity on certain days, the project earns nothing. No earnings means no loan repayment. No repayment means risk of default.

2. The Underlying Risks

Here’s how big the risk is:

• Rs. 66 billion already invested in these upcoming projects.
• Tens of thousands of jobs at risk, from engineers to laborers to support staff.
• Most projects are run-of-river type (RoR), which means they generate electricity as water flows; you can’t store it for later. If NEA doesn’t take the electricity, it’s wasted.
• Many of these projects had foreign investors, banks, and even export plans tied to them.

And these producers can’t even look for alternative buyers. In Nepal, only the Nepal Electricity Authority is legally allowed to buy electricity. So if NEA says no, producers are stuck.

3. FDI and Export Infrastructure

And here’s the part that really stings: Nepal has already invested billions of rupees into transmission lines, access roads, and early-stage project development. All of that is now at risk of going to waste.

What’s even more worrying is that foreign banks and investors, who were just beginning to trust Nepal’s hydropower story, might now back off entirely.

In short, removing the take-or-pay model doesn’t just flip a switch on one policy. It dims the entire future of private hydropower in Nepal. And the Nepal Electricity Authority, instead of being the trusted partner that fuels the energy economy, suddenly becomes a maybe-buyer that no one can rely on.

And when the country’s only electricity buyer starts saying “we’ll buy only when it suits us,” investors start looking for other countries with better guarantees. Curious about Nepal’s Foreign Direct Investment landscape? Here’s a peek-through!

The Legal Contradictions: Is This Even Allowed?

When a new government policy makes the headlines, it’s normal to ask: Is this smart? But in this case, we also need to ask a more serious question:
Is this even legal?

Turns out, the new take-and-pay policy might not just be risky for investment. It may also be going against Nepal’s own electricity laws and policies.

Let’s unpack that.

Nepal has two major legal documents that govern how our electricity sector works:

1. Electricity Act, 2049 (1992)
2. Hydropower Development Policy, 2058 (2001)

Both of these were created to encourage private sector participation in electricity generation, especially hydropower. And both are crystal clear about one thing: the government must provide a stable, predictable, and investment-friendly environment for energy producers.

Here are some key highlights.

1. From the Electricity Act, 2049

• Section 9 allows the government to enter into agreements with electricity producers for bulk purchase of electricity, which is exactly what take-or-pay agreements are.

• Section 21 outlines how generated electricity can be sold to the national grid. It talks about cost recovery, fair pricing, and giving producers enough financial certainty to make their projects viable.

• Section 22 explicitly allows exports, provided agreements are made with the government.

These sections show that the law expects the Nepal Electricity Authority to act as a trustworthy buyer. A sudden shift to take-and-pay, with no consultation, contradicts that spirit.

2. From the Hydropower Development Policy, 2058

This policy focuses on attracting private and foreign investment. To do that, it promises:

• Transparent power purchase agreements
• Risk mitigation strategies where the government shares the burden
• Long-term stability for investors
• Legal and institutional protection to avoid arbitrary changes

In other words, the policy isn’t just about building dams. It’s about building trust.

The recent take-and-pay shift breaks that trust, especially because it was added to the budget without open discussion. Even the Energy Minister has admitted that the clause was not properly vetted or coordinated.

So What’s the Problem?

The new take-and-pay clause directly undermines everything the law was trying to promote.

It discourages investment.

It breaks the government’s promise of revenue certainty.

And it may open the door for legal challenges from developers, banks, and even foreign investors who made decisions based on past legal commitments.

In short, this policy doesn’t just clash with market logic. It may also conflict with the legal foundation on which Nepal’s entire hydropower sector was built.

How Did This Even Make it To The Budget?

When the take-and-pay clause quietly appeared in the budget speech on May 15, it wasn’t just a surprise, it was a shock. Private hydropower developers, ministries, and even high-level officials were left scrambling to understand where it came from and who put it there.

It’s rare for a major policy change, one that directly affects billions in investment and hundreds of energy projects, to show up without clear backing. But that’s exactly what happened.

The strange part? No one in the government wanted to take credit. The finance ministry distanced themselves from the clause, claiming they weren’t even aware it had been included.

That’s not just odd. It’s alarming.

How does a major policy shift that risks billions in investment and hundreds of projects make its way into the national budget without explanation or accountability?

If this was a misstep, it’s a costly one. And if it was deliberate, it’s even worse. Because it means someone quietly made a decision that could derail Nepal’s entire energy roadmap.

The silence only deepened the sense of unease. Developers were left without clarity. The only buyer in the system, the Nepal Electricity Authority, remained bound to a policy that now lets it walk away from the very deals that kept the sector alive.

This isn’t just a bureaucratic error. It’s a crack in the trust that fuels private investment.

And unless it’s addressed publicly and quickly, it could be the reason Nepal’s most promising sector starts pulling back, just when it was ready to take off.

Ripple Effect: Jobs, Industries, and Local Economies

When we talk about hydropower, it’s easy to focus only on electricity. But behind every hydropower project is a long chain of people, businesses, and communities that depend on it.

That’s why the impact of the take-and-pay policy isn’t just technical. It’s deeply economic.

1. No Builders = No Power = No Exports

Nepal has set an ambitious goal: to generate 28,500 megawatts of electricity in just 10 years. That’s nearly 10 times what we currently use on a daily basis. And we’re not just talking about lighting bulbs and charging phones at home. We’re talking about powering industries, running irrigation pumps, and even exporting electricity to other countries.

In fact, Nepal just signed a deal to export 40 megawatts of electricity to India, starting this Asar (mid-June). That’s not just exciting, it’s historic. It shows that Nepal is finally stepping into the regional energy market with real potential.

But here’s the thing: none of this happens unless private developers build the projects. And they won’t build unless they’re sure someone’s going to buy what they produce.

That “someone” is the Nepal Electricity Authority, the one and only buyer of electricity in the country (at least for now).

2. Hydropower Creates Jobs

A single 1 megawatt (MW) hydropower project can create up to 100 temporary construction jobs over two to three years. Once operational, it usually employs around 10 people permanently for maintenance, operations, and safety.

Now multiply that by over 300 upcoming projects currently in the pipeline. That’s thousands of jobs at stake.

If these projects stall because the Nepal Electricity Authority no longer guarantees electricity purchases, those jobs vanish before they even begin.

3. Industries That Depend on Hydropower

It’s not just project developers who are affected. Entire industries support and benefit from hydropower construction:

• Cement and steel suppliers
• Construction equipment and vehicle rental companies
• Transporters and local contractors
• Engineering consultants and surveyors
• Insurance companies and financial institutions

All of these sectors thrive when hydropower grows. When projects get paused or cancelled, the effect ripples outward, hitting everyone involved.

4. Local Communities Left Hanging

In many rural areas, hydropower projects bring more than electricity. They bring roads, infrastructure, and jobs to places that the government rarely reaches.

When a project begins, nearby villages often benefit from improved connectivity, small business opportunities, and employment. It creates a local economy that didn't exist before.

But if a project doesn’t move forward, the promised benefits don’t arrive. And people who were hopeful about progress are left disappointed.

5. A Missed Opportunity for National Growth

Nepal’s plan to generate 28,500 MW of electricity isn’t just about meeting domestic demand. It’s about transforming Nepal into an energy hub for South Asia. That goal is only achievable if private investment continues to grow.

But without a predictable and fair system from the Nepal Electricity Authority, the private sector pulls back, and the national economy loses momentum.

At the very moment Nepal is trying to recover from economic slowdown, this policy risks freezing a sector that was just starting to accelerate.

What India, Bhutan, and Vietnam Got Right

Nepal isn’t the only country trying to build its energy future. Across South and Southeast Asia, other nations have also faced the challenge of attracting private investment into their power sectors.

The good news? We don’t have to reinvent the wheel. There are clear lessons to learn.

India

India uses a mix of power purchase models, but for large-scale hydropower and renewable energy projects, take-or-pay remains the backbone. That’s how India managed to attract billions in private and foreign investment into solar and wind energy.

The Indian model gives long-term certainty to producers while pushing distribution companies to plan ahead. That kind of clarity is what investors want.

Bhutan

Bhutan built its entire hydropower model on take-or-pay contracts with India. With those guarantees in place, the country not only secured foreign loans but also built projects that now supply nearly all of Bhutan’s electricity and generate major export income.

Nepal and Bhutan share similar geography and potential. But unlike Bhutan, Nepal still struggles to provide the same confidence to developers.

Vietnam

Vietnam is one of the fastest-growing clean energy markets in the region. Why? Because it adopted take-or-pay models for solar and wind. The government gave producers clear feed-in tariffs and purchase guarantees, which led to a surge in private investment.

The result? Vietnam now produces more solar power than all of Southeast Asia combined.

All these countries have something in common: they understood that revenue certainty unlocks investment. And that investment creates jobs, infrastructure, exports, and economic growth.

Nepal had already taken a similar path. But with the recent take-and-pay policy, we risk turning back just when we were catching up.

The Nepal Electricity Authority must recognize that its role is not just to manage power lines but to anchor investor confidence. Regional experience shows that when governments step back from long-term commitments, the entire sector slows down.

What Happens Now? And What Needs to Change?

The controversy over the take-and-pay clause isn’t just a policy debate anymore. It’s a crossroads moment for Nepal’s energy future.

So where do we go from here?

1. First, This Clause Needs to Go

Even Energy Minister Dipak Khadka agrees: the take-and-pay clause should never have been in the budget Whether it was a mistake or a quiet shift made without full consultation, it’s now causing real harm.

The easiest fix? Remove or revise the clause immediately and return to the take-or-pay model for power purchase agreements.

That would send a strong signal to investors, banks, and developers that Nepal is still committed to long-term energy development.

2. Open Up the Power Market

Right now, the Nepal Electricity Authority has a monopoly on buying electricity. If NEA decides not to buy, producers are stuck with no other option.

This needs to change.

The government should consider allowing producers to sell electricity to other buyers; industries, provinces, or even export markets, if NEA chooses not to purchase. That would create a more open and competitive market, which benefits everyone in the long run.

3. Restore Investor Confidence

Nepal’s goal to generate 28,500 MW in 10 years, create thousands of jobs, and become a net exporter of electricity will only happen if private investment keeps flowing.

To make that possible, the government must:

• Ensure legal and policy consistency
• Avoid sudden or unexplained changes
• Involve all stakeholders before finalizing major decisions
• Hold the Nepal Electricity Authority accountable to its purchase commitments

Because without trust, no amount of rivers or turbines will bring the lights on.

Final Thoughts

This controversy over the take-and-pay policy isn’t just a debate among energy experts. It’s a moment of reckoning for how we treat investment, development, and public trust in Nepal.

Right now, the 2082–83 budget is still under discussion in Parliament. The Finance Minister has delivered the speech, but it doesn’t become official policy until the budget is approved article by article. That’s where we are today.

There’s still time to act.

This clause; quietly inserted, widely misunderstood, and dangerously disruptive, must not make its way into the final Red Book. Once it’s in there, reversing course will be much harder. But if Parliament removes it now, Nepal still has a chance to protect its energy ambitions and investor confidence.

The take-and-pay clause doesn’t solve a problem. It creates one.

It threatens more than 300 planned hydropower projects, freezes over Rs. 66 billion in potential investment, and undermines a decade of progress made in clean energy.

Worse, it sends the wrong message to the private sector at a time when Nepal is trying to position itself as a reliable energy partner in South Asia. And it raises serious questions about how decisions are being made within institutions like the Nepal Electricity Authority, which has long been the centerpiece of Nepal’s energy landscape.

This moment calls for clarity, not confusion. Stability, not surprises.

Parliament still has a window to fix this. And fixing it means one thing: remove the take-and-pay clause before the budget becomes law.

Nepal’s energy future depends on decisions made in the next few weeks. Let them be the right ones.

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