Rasuwa Floods Inflict Severe Damage on Hydropower Sector, Urgent Relief Measures Proposed

Nepal's vital hydropower sector has been dealt a significant blow following catastrophic flash floods in the Bhotekoshi and Trishuli river basins on August 26, 2026. In response to the widespread devastation, the government has officially declared a state of emergency across the affected districts, prioritizing high-level search, rescue, and rehabilitation operations. However, beyond immediate humanitarian concerns, the floods have exposed critical vulnerabilities in the nation's energy infrastructure, prompting urgent calls for targeted economic relief to safeguard the sector's future.

The immediate aftermath saw multi-ton transmission towers near riverbanks undermined by torrents of water and debris. This destruction extended to key transmission towers, substations, and high-voltage evacuation lines, effectively stranding operational power plants and disconnecting a staggering 430–740 megawatts (MW) from the national grid. Such a substantial loss of power generation capacity has not only created an energy deficit but has also triggered severe market volatility on the Nepal Stock Exchange (NEPSE), impacting investor confidence in the energy sector.

Specifically, five listed operating hydropower projects in Rasuwa, alongside several downstream plants in Nuwakot, bore the brunt of the damage. These projects, with a combined capacity of 164.42 MW, suffered significant structural damage or were forced offline. The affected projects include the 111 MW Rasuwagadhi Hydropower Project, the 22 MW Chilime Hydropower Project, the 20 MW Langtang Khola Hydropower Project, the 6.42 MW Upper Mailung A Hydropower Project, and the 5 MW Mailung Khola Hydropower Project. The disruption to these key assets underscores the urgent need for comprehensive recovery strategies.

In light of the declared government emergency, investors and energy producers, represented by the Independent Power Producers' Association, Nepal (IPPAN), are strongly urging authorities to complement disaster relief efforts with concrete economic policies. An indicative list for such a bailout plan has been proposed, aiming to mitigate financial distress and ensure the long-term viability of these crucial projects.

One of the primary proposals is the extension of generation licenses. Currently, generation licenses are typically issued for 35 years, as per the Hydropower Development Policy, 2001. However, Section 4 of the Electricity Act, 1992, grants the Department of Electricity Development (DoED) the legal authority to issue licenses for up to 50 years. Stakeholders argue that since the 35-year limit is an administrative policy restriction rather than a statutory cap, the Ministry of Energy, Water Resources and Irrigation, and the DoED possess the legal mandate to extend licenses up to the full 50-year ceiling. Granting extended license terms to flood-affected plants would provide a low-cost regulatory mechanism to offset operational downtime, revenue loss, and lengthy reconstruction timelines without necessitating direct government financial bailouts. This measure is crucial for ensuring project viability and investor returns over a longer horizon.

Another critical demand is concessional financing. To prevent defaults and secure the financial survival of flood-hit hydropower projects, soft or interest-free loans are deemed essential. Such financing would facilitate the rebuilding of damaged infrastructure and ensure equitable returns to capital providers by managing the funds required to bring these affected projects back into operation. This is vital for maintaining the financial health of the companies and their ability to contribute to the national grid.

VAT and customs exemptions are also being sought. Restoring complex hydropower civil structures and electromechanical systems often requires substantial capital expenditure, frequently running into millions of dollars. Waiving standard import duties on necessary equipment and materials would directly reduce reconstruction costs, allowing cash-strapped projects to reallocate scarce capital more efficiently toward physical restoration. This direct cost-saving measure would significantly ease the financial burden on developers.

For under-construction projects whose progress has been severely impacted by destroyed access infrastructure, an extension of the Required Commercial Operation Date (RCOD) is crucial. This would allow banks to extend grace periods on loan principal repayments, aligning them with updated project completion timelines. Such flexibility is paramount to prevent project abandonment and ensure the eventual commissioning of these vital energy sources.

Finally, fast-track rehabilitation of grid infrastructures is a non-negotiable priority. The Nepal Electricity Authority (NEA) and the DoED must coordinate and prepare an aggressive action plan for the swift rehabilitation of swept-away transmission towers, substations, switchyards, and other distribution systems. Without a robust and functional national grid, even fully restored power plants cannot evacuate their generated electricity, rendering their recovery efforts futile.

Implementing such a targeted relief package is not merely about aiding individual projects; it is about restoring investor confidence, safeguarding the stability of the NEPSE financial market, and securing Nepal's long-term energy future. The resilience of the hydropower sector is intrinsically linked to the nation's economic growth and energy independence, making these proposed measures critical for a sustainable recovery.