Infrastructure & PPPs in Nepal and Bhutan - Q3 2026 Update
NEPAL and BHUTAN are advancing clean energy, transport, digital infrastructure, and PPP projects to strengthen energy security, regional connectivity, and sustainable economic growth. NEPAL is advancing the USD 1.6 Bn, 900 MW Arun-3 Hydroelectric PPP project for cross-border power export, a USD 305 Mn ADB highway financing package, the Kathmandu–Terai Expressway tunnel breakthrough, and a national policy targeting 80% broadband coverage. BHUTAN is expanding its clean energy mix with a USD 160 Mn ADB loan for 310 MW in solar PPPs, the 920 MW Punatsangchhu-III hydro venture with JSW Energy, a USD 417 Mn Indian credit line, and sustainable urban initiatives like the Gelephu Mindfulness City and Thimphu Structure Plan.
Read more about key developments in Infrastructure and PPPs in these countries in our Q3 2026 insight.
NEPAL
NEPAL PROGRESSES USD 1.6 BN ARUN-3 HYDROELECTRIC PROJECT
The Arun-3 Hydroelectric Project is a 900 MW run-of-the-river power facility located on the Arun River in the Sankhuwasabha District of Eastern Nepal. The infrastructure includes a 70-meter-high concrete gravity dam, an 11.74 Km head race tunnel, and an underground powerhouse containing four 225 MW generating units. Upon completion, the asset will become the largest hydroelectric facility in Nepal, with an estimated annual output of 4,018.87 million units of electricity.
The project is structured under a Public Private Partnership (PPP) framework using the Build-Own-Operate-Transfer (BOOT) model. Development is managed by SJVN Arun-3 Power Development Company (SAPDC), a joint venture between the Government of India and the Government of Himachal Pradesh. Construction work began under a 5-year timeline, with SAPDC holding operation rights for a 25-year concession period before transferring total ownership to the Government of Nepal. Under the concession agreement, Nepal receives 21.9% of the generated electricity free of cost throughout the 25-year operational window.
The total capital investment exceeds USD 1.6 Bn. Surplus power generated by the plant will be exported from Dhalkebar in Nepal to Muzaffarpur in India via cross-border transmission networks.
HUAWEI LAUNCHES FUSIONSOLAR 9.0 AND GRID-FORMING ESS POWER INFRASTRUCTURE
Huawei Digital Power launched its utility-scale FusionSolar 9.0 Smart Photovoltaic (PV) Solution and LUTERRA Utility Grid-Forming Energy Storage System (ESS) in Kathmandu, Nepal. The commercial introduction establishes greenfield power infrastructure capabilities designed to optimize utility solar energy systems and strengthen national power grid stability.
The integrated power solution combines intelligent digital software algorithms with utility-scale solar generation and high-capacity battery energy storage. The LUTERRA grid-forming energy storage infrastructure regulates voltage levels, balances electricity supply and demand, and optimizes renewable energy capture. Platform specifications indicate potential reductions in balance-of-plant infrastructure costs by over 20% and construction deployment timelines by up to 30%. While exact capital expenditure figures and Public-Private Partnership (PPP) concession frameworks were not disclosed, private energy developers will integrate these systems into commercial utility infrastructure.
This technological deployment directly supports Nepal's strategic energy security goals and long-term carbon reduction targets. By incorporating grid-forming storage into the electricity transmission framework, the infrastructure enhances system reliability and allows the national network to seamlessly incorporate higher ratios of intermittent solar energy alongside existing hydro generation. The venture builds on twenty-six years of corporate digital power and enterprise operations within the regional energy sector.
INDIA AND NEPAL SIGN MOUS FOR EIGHT DEVELOPMENT PROJECTS
In August 2026, India and Nepal signed Memorandums of Understanding (MoUs) to execute eight new development projects across Nepal. These initiatives focus primarily on key growth sectors, including education, health, and agriculture, with an estimated total value of NPR 803 Mn (USD 5.3 Mn) funded through Indian grant aid.
The projects are being carried out under India's High Impact Community Development Projects framework, an initiative active since 2003 that has now reached 605 total projects. Unlike top-down programs, these initiatives are identified directly by local Nepalese administrative bodies to address immediate grassroots community needs across all regions.
The newly approved initiatives feature specialized infrastructure improvements, including hospital construction, cold storage facilities, campus buildings, and agricultural centers across various districts. Additionally, India's ongoing assistance under this partnership has supplied over 1,000 ambulances and hundreds of school buses to support healthcare and education access nationwide.
NEPAL UNVEILS DRAFT POLICY TO EXPAND HIGH-SPEED BROADBAND ACCESS
The Nepal Telecommunications Authority has unveiled a draft of its integrated telecommunications policy aimed at streamlining and modernizing the country's telecom sector. The new policy consolidates several existing ICT and telecommunication frameworks into a single structure, while enhancing the implementation of recent guidelines on cybersecurity, radio frequency allocation, satellite usage, and artificial intelligence.
The primary goal of this policy is to drive Nepal’s digital transformation by expanding high-speed broadband coverage to 80% of the population within five years. It also targets reducing the cost of basic broadband services to 2.4% of per capita gross national income in five years, while increasing digital literacy to 60%. Over a ten-year horizon, the targets scale up to lowering broadband costs further to 1.5% of per capita income and boosting digital literacy to 85%.
Additionally, the draft outlines strategic targets to increase the direct contribution of the ICT sector to the national GDP from four% in five years to seven% in ten years. To achieve these goals, the policy proposes expanding infrastructure into remote and rural areas, simplifying licensing and frequency distribution, and encouraging private sector as well as foreign investment to build a secure, competitive, and reliable telecom market.
BREAKTHROUGH ACHIEVED ON NEPAL’S LONGEST EXPRESSWAY TUNNEL
The breakthrough of Nepal's first and longest tunnel under the Kathmandu–Terai/Madhesh Fast Track Expressway, a national pride project, has been successfully achieved. Digging through the MahadevDanda area, the completion of this 3,486-meter-long tunnel marks a significant and historic milestone in the country's infrastructure development.
The complex construction of the tunnel was carried out by China State Construction Engineering Corporation Limited. Joint technical teams comprising both Nepali and Chinese specialists played a vital role in executing and completing this major project phase.
ADB COMMITS USD 305 MN FOR MAJOR NEPAL HIGHWAY UPGRADES
The Asian Development Bank (ADB) is providing approx NPR 47 Bn (USD 305 Mn)—consisting of USD 285 Mn in loans and USD 20 Mn in grants—to finance the expansion and safety enhancement of three major highway projects in Nepal. Official loan agreements between Nepal's Ministry of Finance and the ADB are expected to be signed in November. A major portion of the funding, USD 245 Mn, is earmarked for widening the 70-kilometer Narayanghat-Hetauda section of the East-West Highway to four lanes, with bidding already in progress. The plan includes a USD 20 Mn grant specifically allocated for constructing a 2-kilometer viaduct through the Tikoli forest area to safely facilitate wildlife movement.
Another USD 30 Mn will fund the expansion of the Mugling-Aanbukhaireni section along the Prithvi Highway, which involves expanding roads on both sides of the river due to challenging terrain and the nearby Marsyangdi Hydropower station. Bidding for this stretch awaits final document approval from the ADB following cabinet authorization of the route's new alignment.
The remaining USD 10 Mn loan is dedicated to improving safety along a 73-kilometer segment of the Karnali Highway. Funding for this 682-kilometer, highly challenging corridor will cover essential upgrades, including road widening, curve corrections, and the installation of safety barriers.
NEPAL SECURES OVER USD 73.4 MN IN FDI COMMITMENTS
Nepal received Foreign Direct Investment (FDI) commitments of NPR 11.12 Bn (USD 73.4 Mn) for 328 projects in the first two months of fiscal year 2026/27. Data from the Department of Industry shows that between mid-August and mid-September alone, 136 projects were approved with a capital pledge of NPR 6.35 Bn (USD 41.9 Mn). These combined developments are expected to generate 3,447 jobs, with 983 positions created during the second month.
Tourism secured the largest share of overall capital commitments at NPR 3.74 Bn (USD 24.7 Mn) across 70 projects, followed by the service sector with NPR 3.30 Bn (USD 21.8 Mn) for 26 projects. The energy sector attracted NPR 2 Bn (USD 13.2 Mn) for a single project, while manufacturing received NPR 1.24 Bn (USD 8.2 Mn) across 18 projects. Information and Communication Technology led in project volume with 212 approved proposals, totaling NPR 816.9 Mn (USD 5.4 Mn).
Small-scale industries accounted for almost all applications, comprising 323 of the 328 proposed projects alongside two medium-scale and three large-scale ventures. Additionally, foreign investors repatriated NPR 622.01 Mn (USD 4.1 Mn) in royalties, along with INR 3.97 Mn (USD 791,717). Business visas were also recommended for 85 investors and 62 representatives during this two-month period.
KATHMANDU UNIVERSITY AND HIDCL SIGN MOU FOR RENEWABLE ENERGY
Kathmandu University and Hydroelectricity Investment & Development Company Limited have signed a five-year agreement to collaborate on renewable energy and hydropower research. The partnership focuses on technical due diligence, knowledge sharing, and creating practical research opportunities for students.
A separate agreement was also finalized to produce a preliminary study on green hydrogen production in Nepal. This research aims to assess the technical feasibility and future development potential of hydrogen energy across the country.
By connecting academic research with industry and investment, the joint initiative seeks to accelerate the commercial development and implementation of renewable energy technologies in Nepal.
BHUTAN
ADB APPROVES USD 160 MN LOAN FOR 310 MW SOLAR PROJECTS IN BHUTAN
The Asian Development Bank has approved a USD 160 Mn loan to construct at least 310 MW of solar power capacity across three Greenfield facilities in Bhutan. The development includes the 120 MW Wobthang and 40 MW Pedseling plants in Bumthang, built by Druk Green Power Corporation, alongside the 150 MW Dramthang plant in Lhuentse, developed via a joint venture with Tata Power Renewable Energy. Bhutan Power Corporation will construct 46 Km of transmission lines to integrate these plants into the national grid.
The overall initiative establishes the country's first private-majority Public Private Partnership (PPP) in the energy sector, mobilizing appro. USD 68.7 Mn in private equity and commercial debt. Additional grant funding includes USD 500,000 from the Innovative Finance Facility for Climate in Asia and the Pacific to support green job training programs for women and youth, as well as a USD 1 Mn technical assistance grant from the Asian Development Bank to enhance institutional capacity.
This project addresses Bhutan's severe winter power deficit caused by reduced river flows affecting hydropower output. Peak winter demand expanded from 487 MW in 2021 to 1,477 MW in 2025, with deficits projected to cross 1,000 MW by 2030. By scaling solar capacity, the initiative reduces dependence on electricity imports and supports the national energy target of reaching 5,000 MW of solar power capacity by 2040.
BHUTAN SIGNS USD 417 MN DEVELOPMENT AGREEMENT WITH INDIA
India and Bhutan have formally reviewed their bilateral development partnership, advancing key public infrastructure initiatives under Bhutan's 13th Five-Year Plan. The green infrastructure effort features the virtual inauguration of two urban development projects—the Thimphu Ecological Park and Olakha Park—designed to increase public green space. Additionally, to support clean regional transport networks, 45 electric vehicles were transferred to the Royal Government of Bhutan as part of green mobility initiatives. A Memorandum of Understanding was also established between the All-India Institute of Medical Sciences and Khesar Gyalpo University of Medical Sciences to expand joint social infrastructure through medical education and research.
To further bolster economic and infrastructure growth, an agreement for a concessional line of credit worth USD 417 Mn was exchanged between the Export-Import Bank of India and Bhutan's Ministry of Finance.
India remains Bhutan's primary development partner, consistently providing financial and technical assistance across various sectors over the decades. These key areas include major infrastructure, regional connectivity, healthcare, education, and institutional capacity-building projects. The latest commitments reflect a continued effort to strengthen bilateral cooperation and drive sustainable socio-economic progress in the Himalayan nation.
JSW ENERGY SIGNS PACT WITH BHUTAN’S DGPC TO JOINTLY DEVELOP 920 MW HYDRO PROJECT
JSW Energy, through its subsidiary JSW Neo Energy, has signed a shareholders’ agreement with Bhutan’s Druk Green Power Corporation (DGPC) to jointly develop the 920 MW Punatsangchhu-III hydroelectric project in Bhutan’s Wangdue Phodrang district. Under the joint venture, DGPC will retain a controlling 51% stake, while JSW Neo Energy will hold the remaining 49%. The agreement was finalized in the presence of Bhutan’s Prime Minister, with both parties currently preparing the Detailed Project Report for the site.
This partnership marks JSW Energy’s first power generation project outside India, leveraging the combined expertise of both organizations in executing large Himalayan hydro assets. The initiative aligns with efforts to expand clean energy generation within Bhutan, one of the world's few carbon-negative nations. It further strengthens cross-border energy cooperation while supporting sustainable development across the region.
BHUTAN DEVELOPS WORLD’S FIRST ANTI SMART CITY
Gelephu Mindfulness City (GMC), located in southern Bhutan across the Indian border, is being developed as the world's first "anti-smart city." Spanning 2,500 square Km, this Special Autonomous Region was established in 2024 to offer a development model rooted in Buddhist principles, sustainability, and human well-being. Unlike major global hubs focused on dense concrete high-rises, the city's design ensures that no building stands taller than the surrounding trees, balancing spirituality with green economic growth.
The autonomous city operates under an independent legal and judicial system separate from Bhutan’s central government, designed to attract sustainable global investment and curb youth brain drain. The region features its own international airport with flight connections to Paro and Kolkata, along with accessible road routes through Assam. The administration enforces strict regulations to maintain regional security, while welcoming eco-conscious international development.
The region blends Bhutanese traditions, administrative efficiency, and green technology, serving as a peaceful destination for sustainable living while driving economic reform across the country.
SOLAR-POWERED LIFT IRRIGATION IN BHUTAN
Bhutan has launched two pilot solar-powered lift irrigation systems in the villages of Humpathang and Tempakha in Punakha dzongkhag under the Women Empowerment through Renewable Energy-powered Lift Irrigation Systems (WERELIS) project. Costing USD 54,200, the initiative aims to address severe water scarcity in mountainous farming regions—where only about 20% of arable land is currently irrigated—while reducing reliance on expensive fossil-fuel pumps.
The project tests two distinct ownership models to evaluate how renewable energy solutions can be scaled across the country. Humpathang operates as Bhutan's first individually owned pilot serving over three acres, whereas Tempakha uses a community-managed model covering over nine acres and supporting eight farming households. If these pilots succeed, officials plan to expand the initiative with 17 additional systems across Punakha, Paro, Wangdue, and other southern and eastern regions.
BHUTAN COMMITS USD 8.8 MN TO ROLL OUT THIMPHU STRUCTURE PLAN
The Bhutanese government has committed USD 8.8 Mn in the current fiscal year to initiate the phased implementation of the Thimphu Structure Plan. Designed to guide the capital city’s urban development through 2047, the comprehensive redevelopment initiative aims to modernize transport networks, expand public green spaces, and upgrade drainage systems across the valley. The plan shifts focus from long-term conceptual planning to immediate, concrete infrastructure projects that enhance public safety and urban livability.
A major portion of the current budget cycle is allocated directly toward resolving mobility and public space deficits across Thimphu. The Changlam Public Transport corridor received the largest single allocation of USD 2.75 Mn to upgrade transit infrastructure and optimize traffic flow along a major city artery. Additionally, USD 2.19 Mn is designated for a new public park in the Babesa district, alongside further investments in Bebena Park, the Clock Tower area, Norzin Lam, and riverbank ecological restorations.
The urgent rollout is driven by two decades of rapid urban migration, which has strained municipal utilities and elevated landslide and flood risks due to unregulated hillside development. Developed with international urban planning consultancies, the revised master plan enforces defined zoning regulations and land-pooling arrangements to promote compact neighborhood growth. By prioritizing higher residential density around existing utility networks, the city aims to curb suburban sprawl while safeguarding surrounding agricultural and forested areas.
BHUTAN TARGETS 5,000 MW OF SOLAR TO SECURE ITS HYDROPOWER GRID
Bhutan is diversifying its energy mix by targeting 5,000 MW of solar capacity by 2040 to address severe seasonal drops in electricity generation. Despite having an installed hydropower capacity of around 3,700 MW, river flows decrease significantly during the dry winter months, causing power output to drop by up to 80%. With peak domestic demand surging from under 400 MW to 1,500 MW, the country is forced to import electricity from India to cover seasonal deficits.
To overcome these shortages, the government unveiled a comprehensive roadmap covering ground-mounted installations, rooftop photovoltaics, agrivoltaics, and energy storage. While the Sephu solar project will become the country's largest site at over 22 MW, terrain constraints in the Himalayas limit large-scale land development. Consequently, state-owned energy developers are prioritizing rooftop installations across urban public buildings and commercial sites to meet intermediate targets.
Hydropower remains the core of the nation's long-term strategy, supported by major projects like the 1,125 MW Dorjilung plant intended to boost national generation by 40%. However, rapid economic diversification—including power-intensive data centers and cryptocurrency mining—continues to drive up domestic demand. Incorporating solar energy ensures a more reliable power grid, reducing dependency on imports while insulating the economy against climate-driven hydrological shifts.
List of key transactions - Nepal and Bhutan Q3-2026
Source: YOG INFRA analysis
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