Developing a Hydropower Project: Stages, Approvals and Actors

Nine consenting stages, at least six institutions, and no one office able to bind another. Every consent a Nepali hydropower project needs is individually obtainable. The difficulty is that almost none stays valid indefinitely, several are preconditions to others, and the one that decides whether the project has any value at all sits near the end.

The full sequence

Stage	Decided by	Under
Site identification and survey licence	Department of Electricity Development	Electricity Act 2049, ss. 3–5
Feasibility and detailed study	Developer, to Departmental standards	Guidelines for Study of Hydropower Projects 2018
Environmental study and approval	Ministry of Forests and Environment or the concerned body	Environment Protection Act 2076 and Rules 2077
Generation licence	Department of Electricity Development	Electricity Act 2049, ss. 4–5
Land acquisition and forest land use	Chief District Officer’s compensation committee; Ministry of Forests and Environment	Land Acquisition Act 2034; Forest Act 2076; Electricity Act s. 33
Connection and grid compliance	Nepal Electricity Authority, to the Commission’s code	Nepal Electricity Grid Code 2080
Power purchase agreement	Nepal Electricity Authority	Electricity Purchase and Sale Regulations 2076
Foreign investment and foreign loan approval	Department of Industry or Investment Board; Nepal Rastra Bank	FITTA 2075 s. 17; NRB FIFL Bylaw 7
Construction, commissioning, operation, handover	Department of Electricity Development	Electricity Act 2049, ss. 10–12

Read down the right-hand column and the age of the framework is obvious. A 1992 Act, a 1993 rulebook, a 1977 land statute and a 2001 policy sit alongside a 2019 environment act, a 2019 investment act, a 2020 forest rulebook and a 2023 grid code. Nothing reconciles them. There is no consolidated consenting regime, and no single authority that can bind another.

Survey licence

A survey licence is a right to study. It is not a right to build, and section 5(1) caps it at five years. During that period the developer produces the economic, technical and environmental study report that the generation application depends on, working to the Department’s own Guidelines for Study of Hydropower Projects (2018).

Two consequences follow that are easy to miss. Environmental assessment forms part of the licence application rather than a compliance step before construction, so the project’s environmental scope is fixed years before its financing. And the five-year clock runs whether or not the country is issuing power purchase agreements. A licence can expire while the project waits on an offtake decision it does not control.

Generation licence

The generation application triggers a thirty-five day public notice and a forty-five day window for the Department to identify deficiencies. The statutory decision period is 120 days under section 4 of the Act.

The licence, when it issues, normally runs for thirty-five years for a domestic project and thirty for an export-oriented one. That is a policy position rather than a statutory one; the Act itself permits up to fifty. The full licensing sequence and its fee schedule is in survey and generation licensing.

Land, forest and community

Land is where schedule risk concentrates. Section 33 of the Electricity Act lets a licensee apply for land, provides for state land to be leased for the licence term, and allows the government to restrict use of neighbouring land against compensation. Private land runs through the Land Acquisition Act 2034 (1977) and a compensation determination committee made up of the Chief District Officer, the land administrator, the project chief and a district representative.

Forest land runs through the Forest Act 2076 and its rules, which the Ministry of Forests and Environment had out for further amendment in 2082 and 2083. Transmission corridors are usually the forest-heavy component rather than the powerhouse. The detail is in land, forest, environmental and social approvals.

Grid connection

Connection is governed by the Nepal Electricity Grid Code 2080, issued by the Electricity Regulatory Commission and binding on generation, transmission, distribution and trading licensees alike. The Commission has been building out the surrounding market rules quickly. Balancing and settlement directives and a grievance mechanism for open access customers were both posted on 14 August 2026.

The constraint here is physical rather than legal. The Nepal Electricity Authority’s transmission network reached 7,110 circuit-kilometres and 15,541 MVA in FY 2082/83, and around 1,000 MW is reported spilled in the wet season for want of evacuation capacity. A generation licence on a reach with no corridor is a licence to build a stranded asset. Connection is dealt with in transmission, grid connection and open access.

Offtake

Everything above can be completed by a competent sponsor. The power purchase agreement cannot be. A de facto moratorium since 2022 left 281 projects holding 16,425.77 MW of licences without an agreement as at July 2026. Any development programme that treats the PPA as a late-stage documentation exercise has put its risk in the wrong place. See power purchase agreements and the offtake constraint.

Financing and imports

Foreign equity is approved by the Department of Industry up to NPR 6 billion and by the Investment Board above it, under section 17 of FITTA 2075, with a seven-day decision period. Foreign debt needs prior approval from Nepal Rastra Bank, which has fifteen working days to decide. Schedule 10 to the Bank’s bylaw lists energy among the eligible sectors and caps pricing and tenor. It also prohibits giving mortgage, lien, security, surety or bank guarantee over property for a foreign loan, and that single prohibition shapes every offshore structure in the sector. What it does to a security package is set out in financing hydropower.

On the import side, section 12(7) of the Electricity Act lets plant and equipment not produced in Nepal enter at 1% customs duty, with no import licence fee and no sales tax. Locally produced equivalents attract normal rates. The income tax concessions that once sat in the same section have been deleted, and the tax position now lives in the Income Tax Act 2058, covered in foreign investment in Nepali energy.

Construction risk

Nepali construction risk is geological and hydrological before it is contractual. The Department publishes guidelines for estimating explosive quantities for tunnelling, powerhouse design guidelines from 2018 and operation and maintenance guidelines from 2017. That list is a fair indication of where it expects difficulty.

The scale of that exposure was visible on the day this page was verified. A flood in the Bhotekoshi basin on 26 August 2026 took 405 MW of hydropower and 25 MW of solar generation offline across eleven projects, damaging plant and transmission infrastructure alike, and the Ministry of Energy was still collecting damage information. Hydropower share prices on the Nepal Stock Exchange fell the same day. For a lender, that is the argument for insurance scope, contingency sizing and a realistic view of the dry-season revenue a damaged wet-season asset will not earn.

Handover at expiry

Where foreign investment exceeds fifty per cent, section 10 of the Act provides that the structures become the property of the Government of Nepal when the licence term expires. Where foreign investment is fifty per cent or less, the assets may continue with the licensee under a renewed arrangement. The Hydropower Development Policy 2058 puts it more bluntly still: the project transfers to the Government in good running condition at expiry, with no compensation.

A thirty-year licence on a fifty-year asset is a specific commercial fact. It surfaces at year twenty-five far more often than at the outset.

Sources

1. Electricity Act, 2049 (1992) — English text

   Government of Nepal, published by the Department of Electricity Development · 1992 — in force as at August 2026 · Tier 1 — Primary legal instrument

   Supports: Section 4 study report and decision periods; section 5 licence terms; section 10 handover; section 11 royalty; section 12(7) customs concession; section 33 land acquisition and use of state land.

   Accessed 26 August 2026

2. Electricity Rules, 2050 (1993) — English text

   Government of Nepal, published by the Department of Electricity Development · 1993 · Tier 1 — Primary legal instrument

   Supports: Application contents, deficiency notice periods, the 35-day public notice under rule 16, and the fee and renewal schedule.

   Accessed 26 August 2026

3. Guidelines for Study of Hydropower Projects, 2018

   Department of Electricity Development · 2018 · Tier 2 — Official publication

   Supports: That the Department publishes binding study standards for feasibility and detailed design work supporting a generation licence application.

   Accessed 26 August 2026

4. Nepal Electricity Grid Code, 2080

   Electricity Regulatory Commission · Posted to the Commission's website 15 February 2026 · Tier 1 — Primary legal instrument

   Supports: That connection and operating standards for generators, transmission, distribution and trading licensees are set by the Commission rather than by the utility alone.

   Accessed 26 August 2026

5. Foreign Investment and Foreign Loan Management Bylaw

   Nepal Rastra Bank · Consolidated text with amendments; posted by the Bank · Tier 1 — Primary legal instrument

   Supports: Bylaw 7(1) prior approval for foreign borrowing, the 15-working-day decision period in bylaw 7(3), and the Schedule 10 sector list, pricing ceilings, tenor and security restrictions.

   Accessed 26 August 2026

6. Floods take 430 MW of electricity offline, damage 11 hydropower projects

   Republica · 26 August 2026 · Tier 6 — Professional or news source

   Supports: 405 MW of hydropower and 25 MW of solar offline across eleven projects in the Bhotekoshi basin, and the Ministry of Energy's statement that it was still collecting damage information.

   Accessed 26 August 2026