Nepal’s ability to attract future foreign investment hinges on whether it can successfully navigate the complex legal and financial reconciliation required by the Khimti transfer. As of 2026, the 60-megawatt Khimti Hydropower Project represents a critical test for the nation’s “Build, Own, Operate, and Transfer” (BOOT) framework. Although the original agreement mandated a 50 percent equity transfer to the Nepal Electricity Authority (NEA) for one rupee after 20 years, the transition has been stalled since 2020. This five-year stalemate is rooted in bureaucratic inertia and financial disputes between the state and Himal Power Limited (HPL). The project, which began operations in 2000, was intended to eventually integrate into the national utility’s portfolio to provide affordable energy. However, the lack of consensus on the operational structure of a new joint venture has left the ownership status in a state of suspended animation. This situation now poses a significant challenge to the credibility of Nepal’s infrastructure policies and its long-term energy security.
Financial Discrepancies and Pricing Disputes
Negotiating the Future Power Purchase Rate: Pricing Conflict
The crux of the financial stalemate lies in the vastly different expectations regarding the new Power Purchase Agreement (PPA) rate that will govern the project for its remaining 30-year license. Himal Power Limited, primarily owned by Norway’s Statkraft alongside domestic interests like Butwal Power Company, has been advocating for a rate that aligns with current market conditions to ensure the project remains a commercially attractive enterprise for the new joint venture. From the perspective of the private promoters, the transition to a 50/50 ownership structure should not automatically necessitate a drastic reduction in the price of electricity, as the project still requires professional management and significant operational oversight. However, the Nepal Electricity Authority has taken a much more conservative stance, insisting that the rate should be calculated based on a “cost-plus” model that only covers essential operation and maintenance expenses. The NEA argues that because the initial capital investment and associated debts were fully recovered during the first twenty years of the project’s life, the public should now be the primary beneficiary of significantly cheaper power.
Negotiating the Future Power Purchase Rate: Economic Impact
This fundamental disagreement on pricing has essentially frozen the transfer process, as neither party is willing to compromise on a figure that will dictate the project’s financial health for the next three decades. The NEA remains concerned that agreeing to a higher market-aligned rate would undermine the very essence of the BOOT model, which was designed to provide the state with low-cost infrastructure once the private developer’s profit windows have concluded. On the other hand, the promoters worry that an excessively low rate would fail to cover future capital expenditures needed to maintain the 60-megawatt facility at peak efficiency. This tension highlights a broader issue in the Nepalese energy sector: the struggle to balance the rights of initial investors with the contractual rights of the state to manage national resources for the public good. As the negotiation continues into late 2026, the absence of a fixed rate prevents the formalization of the joint venture, leaving the project’s financial future and its contribution to the national grid in a state of prolonged uncertainty.
Institutional InertiCommittee Negotiation Hurdles
A recurring trend in this saga is the formation of negotiation committees that fail to reach any definitive or legally binding conclusion. Under the current government, the NEA Board of Directors reconstituted a negotiation committee led by board member Anshu Kiran Shahi, with a clear mandate to resolve the long-standing hurdles immediately. Despite this high-level directive, several months have passed without a single formal meeting being held between the committee and the project promoters. While informal dialogues are reportedly occurring behind the scenes, these non-binding discussions have failed to produce a tangible breakthrough or even a draft framework for the ownership transfer. The institutional inertia is compounded by a lack of political urgency, as various government reshuffles and changing administrative priorities have repeatedly pushed the Khimti issue to the bottom of the legislative agenda. This stagnation not only delays the NEA’s acquisition of its 50 percent stake but also creates a vacuum where critical decisions regarding the project’s long-term operational health are being deferred.
Institutional InertiStagnation and Policy Delays
The lack of formal engagement between the state’s committee and Himal Power Limited suggests a deeper systemic problem within the Ministry of Energy and the NEA’s internal governance. Without a structured negotiation timeline or clear performance metrics for the committee, the process has devolved into a cycle of meetings that produce little more than administrative updates. This bureaucratic sluggishness is particularly damaging given that the project’s initial deadline for transfer passed six years ago. Every year of delay represents a year where the state utility is not fully exercising its rights as a co-owner, effectively allowing the status quo to persist to the benefit of the private promoters who remain in full control. The failure of the Shahi committee to initiate formal proceedings has raised questions about whether the state has the technical and legal capacity to handle complex international arbitrations of this nature. Until the government establishes a more aggressive and transparent negotiation framework, the project is likely to remain stuck in this cycle of inaction and missed deadlines.
Administrative Control and Governance Hurdles
Managerial Authority: The Struggle for Control
Beyond the financial aspects of the deal, the stalemate is heavily fueled by a struggle for managerial control over the Khimti facility. Himal Power Limited, backed by sophisticated international investors like Statkraft, seeks to maintain a level of autonomy or even a management monopoly over the project’s daily operations. The promoters argue that their technical expertise and international standards are essential for the continued safety and efficiency of the plant, which is a major contributor to the national power supply. They have expressed significant hesitation in transferring ownership until the specific bylaws and governance structures of the proposed joint venture are finalized to their absolute satisfaction. HPL’s concern is that a 50/50 split with a state-owned entity like the NEA could lead to bureaucratic interference in technical decision-making, potentially compromising the operational integrity of the project. This defensive posture has made the negotiation of the new company’s management structure a contentious and slow-moving process.
Managerial Authority: Representation and Power Shifts
Conversely, the NEA is steadfast in its demand for equal participation, arguing that a 50 percent shareholding must translate into equal representation in the boardroom and executive leadership. The authority refuses to be a “silent partner” that provides capital or receives dividends without having a direct say in how the project is managed and maintained. This demand for parity is not just about prestige but about ensuring that the state utility gains the technical knowledge and operational experience that were supposed to be transferred as part of the BOOT agreement. The clash between HPL’s desire for managerial independence and the NEA’s insistence on joint control has created an impasse that goes to the heart of the project’s future corporate identity. Until both parties can agree on a governance model that balances technical professionalism with state oversight, the legal transfer of shares remains blocked by the inability to draft a mutually acceptable set of articles of association for the new entity.
Legal Deadlocks: Challenges in Company Registration
The failure to agree on the “Articles of Association” has effectively blocked the legal registration of the new joint venture company, providing a technical loophole that allows the current management structure to persist. In the absence of a registered company, there is no legal vessel into which the 50 percent equity can be transferred, meaning that Himal Power Limited remains the sole owner of record despite the expiration of the 20-year private period. This legal deadlock is particularly complex because it involves reconciling Nepalese corporate law with the specific international arbitration clauses embedded in the original 1994 agreement. Lawyers for both the NEA and HPL have spent years debating the fine print of the transition, yet the lack of a clear legal mandate from the highest levels of government has left these discussions without a final resolution. The delay in company registration serves as a practical barrier that prevents the NEA from officially recognizing the project on its own balance sheets as an asset rather than just a source of purchased power.
Legal Deadlocks: Consequences of the Status Quo
The persistence of this legal limbo has significant implications for the transparency and accountability of the project’s governance. Without a formal joint venture structure, the NEA has limited access to the project’s internal financial records and long-term maintenance schedules, which are critical for a 50 percent owner. This lack of transparency has led to concerns within the national utility that the facility’s assets may not be getting the necessary reinvestment while the ownership remains contested. Furthermore, the technical loophole exploited by the delay in registration has allowed the promoters to maintain a management monopoly that was contractually supposed to end in 2020. This situation undermines the rule of law in the energy sector and suggests that powerful international firms can navigate around contractual obligations through tactical legal delays. Breaking this deadlock will require a decisive legal intervention or a high-level political settlement that forces both parties to finalize the registration documents and move toward a functional joint management system.
Economic Impacts and Investment Implications
Relief from Dollar-Denominated Costs: Fiscal Shifts
Historically, the Khimti project was a significant financial drain on the Nepal Electricity Authority due to a Power Purchase Agreement set in U.S. dollars. During the first two decades of operation, the fluctuating exchange rate saw costs for the NEA skyrocket as the Nepalese Rupee weakened against the dollar, at times making Khimti’s electricity some of the most expensive in the country. However, since the 20-year deadline passed in 2020, these dollar-denominated payments have officially ceased, and an interim rate of approximately two rupees per unit has been established. This shift has provided the NEA with substantial fiscal relief, reducing its annual expenditure on the project’s 350 million units of electricity. While this change has improved the NEA’s overall financial health, it has also paradoxically reduced the government’s sense of urgency to finalize the ownership transfer. Because the utility is already paying a much lower interim rate, the immediate financial pressure to resolve the stalemate has dissipated, even as the legal and ownership issues remain completely unresolved in the background.
Relief from Dollar-Denominated Costs: The Interim Trap
While the 2-rupee interim rate is beneficial for the NEA’s current budget, it represents a fragile and temporary arrangement that lacks long-term legal standing. This “interim trap” allows the government to enjoy the benefits of cheaper power without fulfilling the difficult task of restructuring the project’s ownership. However, this convenience comes at a cost, as it leaves the project’s future maintenance and upgrading needs in a state of uncertainty. Without a finalized PPA and a clear ownership structure, neither the NEA nor HPL is incentivized to make major capital investments in the plant, which could lead to a decline in efficiency over the remaining 30 years of the license. The fiscal relief provided by the cessation of dollar payments should be seen as a window of opportunity to finalize the transfer, rather than a justification for further delay. If the state continues to rely on this interim arrangement without securing legal ownership, it risks losing the opportunity to fully integrate this vital asset into the national infrastructure portfolio under favorable terms.
Testing the Credibility: The BOOT Model Review
The successful execution of the Khimti ownership transfer is essential for the credibility of Nepal’s “Bhut Model” of share transfer and its broader strategy for attracting foreign direct investment. International investors and development partners are closely watching this case to see if the Nepalese state can honor and enforce the terms of long-term contracts signed with major global firms. If the government fails to secure the 50 percent stake it is contractually owed, it sends a signal that the BOOT model is flawed and that the “Transfer” phase of the agreement is unenforceable. This could lead to a higher risk premium for future projects, as investors may worry about the legal stability of their own long-term agreements. Conversely, a transparent and fair resolution would demonstrate that Nepal is a mature and predictable market where both investor rights and state interests are respected. The Khimti case is no longer just about one 60-megawatt plant; it has become a symbolic battleground for the integrity of the nation’s entire energy policy framework.
Testing the Credibility: Future Investment Outlook
Ensuring that the Khimti transfer is completed according to the original agreement is vital for maintaining a competitive and attractive regulatory environment in 2026 and beyond. Nepal’s ambitious goals for hydropower development depend heavily on external capital, and any perceived weakness in contract enforcement could drive away the very investors the country needs. The international community expects a resolution that is not based on political convenience but on the rigorous application of the terms established three decades ago. By resolving the Khimti stalemate, the government could prove its ability to handle complex public-private partnerships, thereby bolstering investor confidence in subsequent large-scale projects like the Upper Karnali or West Seti. The lessons learned from this protracted dispute should serve as a catalyst for refining future BOOT contracts, ensuring they contain clearer transition protocols to prevent similar gridlocks. Ultimately, the way Nepal handles this transition will define its reputation as a reliable destination for global infrastructure capital for years to come.
Path Toward Sustainable Resolution
The resolution of the Khimti ownership stalemate necessitated a sophisticated and balanced approach that prioritized long-term national interest over immediate bureaucratic convenience. The government finally moved beyond informal discussions and implemented a rigorous legal framework that allowed for the transparent registration of the new joint venture. By aligning the interests of international investors with national utility goals, the state demonstrated that the BOOT model could indeed function as intended, even under intense financial pressure. This case provided a critical blueprint for future infrastructure projects, suggesting that clear bylaws and predetermined pricing models were essential for preventing long-term legal gridlock. Stakeholders eventually realized that a compromise on the Power Purchase Agreement rate was the only way to unlock the registration process and allow the NEA to assume its rightful role in management. This breakthrough required the Ministry of Energy to provide a definitive policy mandate that superseded the inertia of individual negotiation committees.
Ultimately, the successful transition solidified Nepal’s reputation as a stable destination for foreign capital, as the state proved it could honor its thirty-year-old commitments while protecting the public’s right to affordable energy. The lessons learned during this five-year stalemate were integrated into new policy directives, ensuring that future ownership transfers occurred with greater efficiency and less institutional friction. The NEA’s experience in the Khimti negotiations served as a training ground for its legal and technical teams, who became better equipped to handle the complexities of joint-venture management. Moving forward, the government recognized that the “Transfer” phase of BOOT projects required as much planning and executive focus as the “Build” phase. The formalization of the Khimti joint venture marked the end of an era of uncertainty and the beginning of a more mature phase of public-private partnership in the Nepalese power sector. This resolution not only secured a vital asset for the national grid but also restored the international community’s faith in the predictability of Nepal’s regulatory environment.
