Energy Budget Priorities: Discussions on Transmission Lines and Authority Restructuring
Summary: The government has announced plans to prioritize the energy and irrigation sectors in the upcoming fiscal year budget, including the division of Nepal Electricity Authority into three separate companies. The Independent Power Producers’ Association Nepal (IPPAN) has responded positively to the budget but highlighted a lack of clarity on reopening new power purchase agreements. Former Deputy Executive Director of the Authority, Prabal Adhikari, expressed optimism about the transmission line budget but raised concerns regarding the division of the authority and the cancellation of permits.
On May 28, in Kathmandu, the government declared a significant investment and structural reforms in the energy and irrigation sectors for the fiscal year 2083/84 (2026/27). An allocation of NPR 8.554 billion has been set aside for energy production, transmission, and distribution, with priority given to implementing the Hetauda–Dhalkebar–Inaruwa 400 kV transmission line and expanding various cross-border transmission lines. Rapid progress will be pursued for hydroelectric projects such as Rahughat, Tanahu, and Upper Trishuli-3B, alongside advancing reservoir-based projects like Budhigandaki and Dudhkoshi.
The budget also includes a declaration to restructure Nepal Electricity Authority into three companies focusing on production, transmission, and distribution/trading. Policies have been formulated to engage the private sector in international electricity trade and transmission line construction. Furthermore, the budget emphasizes promoting green hydrogen, battery storage, electric vehicles, and clean energy-based industries. The government aims to add 670 MW of hydropower and 370 MW of solar energy capacity in the coming year.
In the irrigation sector, the plan sets a target to expand irrigation facilities across an additional 15,800 hectares of land. Significant budget allocations have been made for water resource projects such as Sikta, Babai, Sun Koshi-Mareni, Mahakali, and Rani-Jamara-Kulriya, alongside river control and both underground and lift irrigation expansions.
IPPAN Vice President Uttam Bhulon described the energy budget as a positive step, marking a policy reform and transformative milestone by incorporating forestry-related issues under the energy and hydropower sectors. He characterized the budget as a ‘course correction and transformation.’
However, Bhulon pointed out ambiguity regarding the government’s plan to reopen new power purchase agreements (PPAs), noting that although a 30,000 MW PPA was proposed, no specific timeline was provided. He also highlighted the lack of clarity on how the private sector would be integrated into international electricity trade, calling for further clarification.
Former Deputy Executive Director of Nepal Electricity Authority, Prabal Adhikari, presented a mixed review of the energy and electricity management in the 2083/84 budget. He termed the transmission line budget as ‘extremely positive’ but expressed concerns about the decisions on the authority’s fragmentation and the cancellation of project permits. While some aspects were encouraging, he warned that implementation could be challenging and some policies potentially contentious.
Adhikari identified the budget’s strongest element as the investment in transmission lines. Of the total NPR 8.5 billion energy budget, NPR 7 billion has been earmarked for ongoing transmission line and substation construction, a move he described as ‘highly commendable.’ He emphasized that the transmission line has been Nepal’s biggest energy challenge and that the government’s allocation aligns closely with its energy roadmap target through 2035, which estimates annual needs of NPR 8.5 billion. This budget allocation is expected to significantly aid the private sector and the flow of generated electricity.
Regarding the budget’s proposal to cancel electricity project permits and initiate a new process for power purchase agreements, Adhikari raised concerns. The Nepal Electricity Authority reportedly currently oversees about 134 projects with a combined capacity of approximately 2,900 MW. Adhikari cautioned against revoking permits without analyzing why projects failed to proceed or struggled financially, warning that such actions might waste time. The new permits and PPA procedures could hinder the government’s goal to produce 30,000 MW within ten years. He advocated government support to help projects reach construction.
On the announcement to split the electricity authority into production, transmission, and distribution entities, Adhikari noted that although this idea has surfaced before, dividing a profitable institution—having achieved 97 percent electrification—without proper studies or employee benefit arrangements could cause practical challenges.
For the first time, the budget invites private sector investment for 100 percent ownership in reservoir-based projects, with an arrangement to offer 40 percent shares to the general public. Adhikari welcomed this as a positive start but stressed that without guarantees on who will purchase electricity and at what price, it will be difficult to attract private investment in large reservoir projects.
He also expressed concern that while the budget supports competitive PPAs for dry season electricity, it remains silent on policies regarding monsoon season power. Although the NPR 7 billion allocation for transmission lines raises hope for the energy sector, uncertainties created by the permit cancellation policy and restructuring of the authority remain an issue. For major projects like Budhigandaki, clear modalities for both administrative structure and investment are essential.