SJVN bags yet another Arun River-based hydro project

The Investment Board Nepal (IBN) has approved another investment proposal from the Indian state-owned enterprise Satluj Jal Vidyut Nigam (SJVN), a joint venture between the Indian Government and the Himachal State of India, to develop the lower Arun hydro project — investment amounting to Rs 92.68 billion in the 679 MW project.

IBN signed a memorandum of understanding (MoU) with SJVN for the 679 MW project on 11 July 2021 subject to submission and the board’s approval of the detailed project report by the SJVN within two years of the MoU.

The lower Arun project will be a tailrace development of Arun-III — meaning it will not have a dam and the project will use water fed by the Arun III. SJVN will develop the project on Build, Own, Operate, and Transfer (BOOT) model.

This makes Arun River now the site for three large hydropower projects — Arun-III (900 MW), Arun-IV (695 MW) and the recently approved lower Arun (679MW), all three under SJVN undertaking as their lead developer and currently under different project stages. Together, they are expected to generate almost 2,100 MW of electricity from the single river situated in the Sankhuwasabha and Bhojpur districts.

Earlier, Nepal signed the project development agreement (PDA) for Arun III, a run-of-river project, with SJVN in 2014 where it granted the license on a BOOT basis for the generation and transmission of electricity for a period of 30 years — five years of the construction period and 25 years of commercial operation.

SJVN formed a wholly-owned subsidiary — SJVN-3 Power Development Company (SAPDC) in accordance with the Nepal Company Act 2063 for the project.

Over 50% of the Arun III project work has been accomplished so far. 

According to the agreement between Nepal and SJVN, the latter will provide 21.9% of the monthly generated energy free of costs, expected to be equivalent to Rs 155 billion, and pay another Rs 107 billion in royalties over the next 25 years of its commercial operation. 

In sum, the project is expected to contribute direct economic benefits amounting to Rs 348 billion in the form of dividends, income tax, VAT, and customs including the 21.9% energy and royalty over the 25 years of commercial operation after which the project ownership will be handed over to the Nepal government.

Arun III is the same controversial project that was conceptualised in the mid-1980s and redesigned in the nineties as a two-stage project of 201 MW each — planned for funding by a consortium of international donors led by the IDA of the World Bank. But severe criticism of multiple aspects of the project — its project design, implementation plan, and negative environmental impacts led to the demise of the project with the World Bank withdrawal. 

More than a decade later, the project was revived with its installed capacity more than doubled from 402 MW to 900 MW.

In May 2022, Nepal and India signed another MoU to jointly develop the Arun-IV — to be co-developed by the Nepal Electricity Authority (NEA) and SJVN with the latter holding 51% of the share and the rest by the NEA. The semi-reservoir project located downstream of Arun III, installed capacity was revised to 695 MW from the previous 490.2 MW capacity. 

Nepal will be entitled to 21.9% of the generated energy free of cost from the Arun-IV project as well, according to the agreement.