Investment Board Nepal (IBN) has directed the Forest Ministry to provide forest land to the Arun 3 and Upper Karnali hydropower projects which have lain in limbo due to a dispute between their Indian developers and the ministry over its new guideline which conflicted with past agreements.

On Wednesday, an IBN board meeting chaired by Prime Minister Sher Bahadur Deuba instructed the ministry to grant forest clearance without further delay, removing a longstanding obstacle to the construction of the two hydroelectric schemes. The Arun 3 and Upper Karnali projects have a capacity of 900 MW each, and are located in eastern and western Nepal respectively. The board told the ministry to give forest clearance as per the law prevailing when the project development agreement (PDA) was signed with the Indian developers of the two projects, SJVN Arun-3 Power Development Company and GMR Upper Karnali Hydropower Limited respectively. 

The board has asked the ministry to draft a proposal immediately and present it to Cabinet for approval.

As per IBN’s instruction, the Forest Ministry has to provide forest land to the Indian developers by charging a lease fee determined by the ministry. Also, the developers have to plant two trees for every tree that is cut down and nurture the saplings for a period of five years. 

However, for the forest land which is used to build permanent structures like dam, powerhouse and office buildings, the developers have to provide replacement land or pay cash as per the rate determined by the Forest Ministry. 

“The board’s decision will pave the way for the developers of the 900 MW Upper Karnali and 900 MW Arun 3 hydropower projects to acquire the forest land required for their projects and expedite their construction,” said an IBN official who attended the board meeting. 

The decision by the board has come as a relief to the Indian developers who have been complaining about the Forest Ministry’s recently issued stringent guideline on forest clearance that requires the developer to provide compensation for all the land affected by the project. 

Similarly, the new guideline requires the developer to plant 25 trees for every tree that is cut down for the construction of the project and nurture the saplings for five years. Such provisions will significantly push up the cost of acquisition of forest land and make projects less attractive, said the developers. 

More importantly, the provisions in the guideline conflict with the provisions in the PDA signed by IBN with the two Indian developers. Hence, they had been pressing IBN to honour the provisions contained in the PDA. 

“The guideline issued by the Forest Ministry has given a negative impression of Nepal to potential foreign investors,” said an IBN source. “This decision will be helpful in controlling the damage done by the Forest Ministry’s guideline.”