KATHMANDU: The Upper Arun Hydroelectric Project (UAHEP) is poised to be one of Nepal’s largest and most strategically important hydroelectric projects. Designed as a run-of-river type facility with an optimized installed capacity of approximately 1,061 megawatts (MW), UAHEP will significantly bolster Nepal’s energy infrastructure.

 Notably, the project features a 6-hour peaking capacity, which means it can generate its full power output during peak demand periods, making it a reliable source of electricity for the national grid.

The Government of Nepal has classified UAHEP as a Game Changer Project (GCP) among hydropower initiatives due to its relatively low generation cost and the availability of abundant firm energy — electricity guaranteed to be available, even during dry seasons.

This project is set in the Arun River basin of eastern Nepal’s Sankhuwasabha district — a location characterized by steep mountainous terrain and abundant water resources, ideal for hydropower generation. UAHEP is expected to play a critical role in achieving Nepal’s ambitious hydropower goals and reducing the country’s dependence on costly imports of electricity and fossil fuels.

Location and Physical Features

UAHEP is situated along the Arun River, a major tributary of the Koshi River, flowing through Sankhuwasabha District in eastern Nepal. The site is located specifically within Bhotkhola Rural Municipality. This area’s unique topography provides a gross hydraulic head of 508.3 meters—the vertical drop the water experiences as it moves through the project’s turbines, which is a critical factor in determining the project’s power generation potential.

Some of the major physical features of the project include:

• Design Discharge: 235 cubic meters per second (m³/sec) of water flow, representing the volume of water the project is engineered to utilize efficiently.
• Dam Height: Approximately 100 meters.
• Headrace Tunnel: 8.4 kilometers long, designed to channel water from the reservoir to the turbines underground.
• Sediment Bypass Tunnel: 1.4 kilometers long, which helps manage sediment transport and prolongs the lifespan of the infrastructure.
• Surge Tank: 20 meters in diameter to regulate water pressure fluctuations.
• Pressure Shaft: A vertical shaft of 484 meters height and 7.3 meters diameter that conveys water under high pressure.
• Penstock: A 39-meter-long pipeline before bifurcation distributes water to the turbines.
• Turbines: Six Pelton-type turbines, each with significant power output capability.
• Powerhouse: An underground structure sized approximately 230 meters long, 25.7 meters wide, and 59.4 meters high, housing the turbines and generators.

The underground design helps protect the powerhouse from environmental factors and preserves the natural landscape above.

Project Development, Timeline, and Approvals

The Upper Arun Hydroelectric Limited (UAHEL), a subsidiary of the Nepal Electricity Authority (NEA), is the implementing agency tasked with the development of UAHEP. UAHEL was established on January 25, 2017 (2073/10/12 Nepali calendar), to specifically oversee this large-scale project.

• The Nepalese Cabinet formally approved the project on September 21, 2018, authorizing UAHEL to lead the project’s implementation.
• A survey license was granted in September 2019, allowing detailed topographical, geological, and environmental studies to proceed.
• The feasibility study was approved in June 2021, validating the technical and economic viability of the project.
• The overall construction period for the project is estimated to be 68 months, or roughly 5 years and 8 months, once full construction begins.

Currently, initial construction works such as a 2-kilometer tunnel road and a 21-kilometer access road are underway at the project site. Additionally, land acquisition and compensation processes for affected local communities have been nearly completed, signaling readiness to advance full-scale construction soon.

Financing and International Support

One of the most significant recent developments is the World Bank’s agreement “in principle” to lead a consortium of international financiers for funding the Upper Arun project. This breakthrough was publicly confirmed by Nepal’s Ministry of Finance after then Finance Minister Barshaman Pun met with Martin Raiser, the World Bank’s Vice President for the South Asia Region, in Washington D.C. during the joint spring meetings of the World Bank and International Monetary Fund held in April 2024.

• The total estimated cost of the project is approximately $1.71 billion.
• The World Bank is expected to contribute up to $550 million of this total.
• Additional funding is anticipated from other international financial institutions such as the European Investment Bank and possibly others, with the consortium aiming to mobilize about $1 billion in international financing.
• The financing structure for the project will follow a 70:30 debt-to-equity ratio, meaning around 70% of the funds will be borrowed, while the remaining 30% will come from equity investments.
• Domestic financing efforts will be led by the Hydroelectricity Investment and Development Company Limited (HIDCL), a government entity tasked with mobilizing capital from Nepali banks and financial institutions.
• In September 2022, an investment agreement was signed between NEA, UAHEL, and HIDCL to coordinate and accelerate the mobilization of domestic resources.
• The project expects to reach financial closure soon, a milestone that will guarantee the availability of funds to carry out construction in earnest.

This marks a historic re-engagement of the World Bank with Nepal’s hydropower sector after a 28-year hiatus. The Bank had previously withdrawn from the Arun III Hydropower Project in 1995 amid controversies, which many experts link to prolonged power shortages in Nepal during the following decades.

Historical Background and Significance

The World Bank’s renewed interest in the Arun River project area after nearly three decades is highly significant for Nepal. The Bank’s withdrawal from Arun III in 1995 was a critical factor behind prolonged load-shedding (power outages) that plagued Nepal until as recently as 2018. The earlier project was abandoned citing Nepal’s inability to manage complex project demands and tariff reforms.

The Arun III project is now being developed by India’s state-owned SJVN Limited, while the Upper Arun project represents a fresh start for the World Bank’s cooperation with Nepal’s hydropower sector. The Bank’s leadership role in UAHEP could encourage other international investors to participate, especially as Nepal aspires to develop 30,000 MW of hydropower capacity by 2035, a goal that requires massive investment and robust project management.

Expected Benefits and Impact

• Reliable Firm Energy: UAHEP is designed to deliver firm energy with six hours of full-capacity generation during the dry season, outperforming the national average of four hours. Firm energy availability is crucial for maintaining grid stability and supporting industrial and commercial growth.
• Economic Development: Reliable and abundant electricity supply from UAHEP will reduce Nepal’s reliance on imported electricity and fossil fuels, lowering energy costs and enabling sustainable economic development.
• Employment and Infrastructure: Construction and operation of UAHEP will create jobs and enhance local infrastructure, including roads and community facilities.
• Environmental Sustainability: As a run-of-river project, UAHEP has a relatively low environmental footprint compared to large reservoir-based hydropower plants, helping Nepal meet its clean energy targets.

Project Output and Electricity Generation

Once operational, UAHEP is expected to generate an annual electricity output of approximately 3.44 billion units (kilowatt-hours), with about 1.36 billion units produced in the dry season and 2.08 billion units during the wet season.

This substantial output will make a significant contribution to Nepal’s electricity supply, helping meet the rising domestic demand and creating surplus for export.

Beacon of Hope

The Upper Arun Hydroelectric Project stands as a beacon of Nepal’s hydropower potential and commitment to sustainable development. With strong government backing, international financing led by the World Bank, and advanced technical design, UAHEP is positioned to become a cornerstone of Nepal’s future energy landscape.

Its successful implementation will not only provide affordable and reliable electricity but also symbolize Nepal’s growing capacity to manage large infrastructure projects, attract global investment, and drive inclusive economic growth.