Nepal is poised to secure a $580 million loan from the Asian Development Bank for the development of the 635MW Dudhkoshi Storage Hydroelectric Project.

The Asian lender has collaborated with the World Bank to finance this project along with the proposed 1,061MW Upper Arun Project, both of which require substantial funding for their development.

“The Dudhkoshi hydropower project is proposed for ADB financing in 2024, amounting to $580 million, which includes a $30 million grant,” the ADB said in an emailed reply.

“This is subject to satisfactory closure of all studies underway at present and adherence to our safeguard policies, designed to mitigate environmental and social risks and ensure eligibility for funding from other international financial institutions.”

The World Bank has also pledged to fund this project. On December 6, last year, the ADB and the World Bank announced a collaboration to strengthen Nepal’s hydropower sector, specifically in the context of the proposed Upper Arun and Dudh Koshi hydropower projects.

The ADB is taking a lead to finance the Dudhkoshi project while the World Bank is the lead donor to fund the 1,061MW Upper Arun Project. In fact, the World Bank returned to Arun River to finance the hydropower projects along the Arun river after nearly three decades.

“The World Bank is expected to provide around $150 million for Dudh Koshi based on ongoing discussions,” said NEA Managing Director Kul Man Ghising.

These two major development partners of Nepal have come together to inject funding to develop hydroelectric projects in Nepal at a time when the world’s focus is shifting towards clean energy.

Some of the key development partners including the World Bank and the ADB have agreed to help Nepal for its Green, Resilient, and Inclusive Development (GRID).

In November last year, a joint communique to operationalise Nepal’s GRID Strategic Action Plan was endorsed at a high-level event organised by the finance ministry with support from the World Bank and other development partners.

The external financing for the GRID Strategic Action Plan includes grants and other concessional financing such as subsidised loans, and innovative funding such as carbon finance.

The total cost of the project is currently estimated to be about $2.2 billion with the financing cost, according to the NEA. The project is expected to be funded through an optimal mix of sovereign and non-sovereign commercial loans and direct equity, according to the NEA. The NEA and the government will invest the equity portion.

The NEA said that the ADB has committed to lead the arrangement of financing for the project along with the European Investment Bank and Asian Infrastructure Investment Bank. The finance ministry has provided a sovereign guarantee for the loans totalling $1.3 billion, NEA said in its Annual Report 2022-23.

Dudhkoshi, a seasonal reservoir-based project, will span three districts—Khotang, Okhaldhunga and Solukhumbu—of Koshi Province. It is a multi-billion dollar project and highly prioritised by the government.

According to the NEA, whose subsidiary company is developing the project, there is a goal to achieve financial closure by the end of 2024. Financial closure entails securing necessary funding to develop the project. Actual construction is expected to commence from the start of 2025.