Indian multinational conglomerate GMR, the developer of the Upper Karnali hydropower project estimated to cost Rs146 billion, said the groundwork for its financial closure has begun in collaboration with two of India’s public-sector undertakings.

The project has been on the drawing board since 2006.

GMR Upper Karnali Hydro Power Limited Nepal, a subsidiary of GMR Energy Limited, is developing a 900 MW project on the Karnali river in the Achham and Dailekh districts.

GMR Upper Karnali Hydro Power Limited Nepal, SJVNL, an Indian public sector undertaking in the Navratna Category, which is involved in hydroelectric power generation and transmission, and Indian Renewable Energy Development Agency Limited (IREDA) have signed a memorandum of understanding for the development of the project through a joint venture (JV) company in Nepal.

According to Indian media reports, the SJVNL and GMR will each hold 34 percent of the shares in the proposed JV, and IREDA will have 5 percent. The Nepal Electricity Authority holds a 27 percent stake.

The collaboration with the two public sector undertakings will provide significant advantages to the project, said Sanjay Barde, CEO-Energy, GMR.

“Financial institutions will have increased confidence in extending debt, and power evacuation will be facilitated through India via two cross-border transmission lines.”

Of the total power generation from the project, approximately 108MW will be allocated to Nepal, 500MW will be sold to Bangladesh under a long-term supply agreement with a dollar-denominated tariff, and the remaining 292MW will be available for sale in India.

“The project's development, operation, and power sale involving three countries for over 25 years will strengthen long-term relations between them,” according to a statement issued by the GMR on Thursday.

The statement reads, "The trilateral project involving India, Nepal, and Bangladesh exemplifies regional economic cooperation and enhances regional power security. It has the potential to accelerate Nepal's hydropower development significantly.”

The project will be developed on a build, own, operate and transfer (BOOT) basis with a 25-year concessional period after commissioning. It is proposed to be funded through a 70:30 debt-equity ratio.

“Following Nepal’s Supreme Court decision in favour of the government of Nepal, we have been actively addressing all issues related to cross-border transmission lines between Nepal and India, as well as Bangladesh and India," said Barde.

The government issued global bids for the 300MW project in 2006.

On January 24, 2008, the government and the GMR signed a memorandum of understanding for the survey and construction of the project. On December 20, 2009, the GMR applied to the Department of Electricity Development to increase the capacity from 300 MW to 900 MW.

On September 19, 2014, the Investment Board and the GMR signed a Project Development Agreement (PDA), giving the Indian company two years to conclude financial closure (generating resources to develop the project).

The deadline was extended further by a year on January 8, 2017. On November 10, 2017, the Investment Board extended the deadline by another year.

The government had last extended the deadline for the financial closure of the project by two years on July 15, 2022. The extension was based on a recommendation by a government task force.

Subsequently, a writ was filed in the Supreme Court challenging the government’s decision.

On November 3, 2022, the top court issued an interim order not to implement the deadline extension.

Later, on May 7, 2023, the Supreme Court’s constitutional bench allowed GMR to continue working on the project. In compliance with the court’s order, the government granted GMR an additional 186 days to compensate for the time lost due to the interim order.

The court, however, ordered no further extensions.

GMR said it has been seeking debt from financial institutions to fund the project, which requires a substantial financial outlay.

While the GMR was progressing on these fronts, SJVNL, with existing projects in Nepal, expressed interest in acquiring an equity stake.

“GMR welcomed the proposal, and SJVNL sought permission from India’s ministry of power to form the JV with a private undertaking,” said Barde. “After due diligence by SJVNL, the ministry of power, and other relevant government agencies, a letter of approval was issued.”

Additionally, IREDA, a leading renewable energy financing agency in India, decided to join with a minority stake of 5 percent, he said.

SJVN is executing three hydroelectric projects in the Arun river basin with a combined capacity of 2,274 MW—the export-oriented 900MW Arun III, 695 MW Arun-IV and 679MW Lower Arun.