| Abstract | This study attempts to identify the risks perceived by various parties such as the promoters, lenders, purchasers and the government in the Hydropower Project Financing in Nepal. The financial structures practiced in Nepal and other developing countries are also studied A framework based on the literature review is formulated, which suggests that for a successful project financing, it requires three things: mitigation of all the risks, availability of sufficient funds and investment environment. On the basis of this framework, exclusive interviews with the officers, managers and chiefs of the various parties has been taken. This study identifies that the country risk, tariff structure, country's legal system, market risk and technological risk are the most prominent risks. Besides that, environmental problem, infrastructure development, county's economic condition, bureaucratic problems of the developing country are also considered The participation of multilateral agencies is found as one of the key success factors for the power project financing. Development of local capital markets helps a lot to arrange funds in local currency, which is almost 25% of the total project cost. As a power purchaser, Nepal Electricity Authority finds private power more costly. Private power is found very irregular and uneconomical for the NEA. The government is not well equipped to evaluate the right promoters. So far, it is unable to promote the well-studied projects and there is no competition and transparency in the system. The author suggests that the development of local capital markets, the government's active participation in getting the various loans, especially from the multilateral agencies, and in providing the guarantees and protections can help this infant industry grow. |