The endorsement of the bill from the parliament will pave the way for the private sector into power trading.
the HRM
In late August and early September, Nepali private power producers received two big news they had been eagerly waiting for. First, the government approved the new Electricity Bill and sent it for parliamentary endorsement. Second, the Indian government formally ratified the 10,000 MW power trade agreement with Nepal. If these two developments come to fruition, they will bring about significant changes in the Nepali energy sector.
It’s been two years that power producers have been waiting for the Electricity Bill to be endorsed and presented at the parliament. After the bill receives approval from the parliament and receives the Presidential stamp, the Nepali private sector, which has thus far been exclusively engaged in electricity generation, will have the opportunity to participate in power trading. Currently, power trading is monopolized by the state-owned power utility, Nepal Electricity Authority (NEA).
The Electricity Act of 1992 does not include any provisions for permitting the private sector to participate in electricity trading. The new Bill has expanded the scope as it marks a substantial transformation within the energy industry, enabling private entities to play an active role in both purchasing and selling electricity. The proposed legislation is designed to establish a framework that not only permits private sector participation but also fosters competition within the power trading sector. Besides granting trading licenses to the private sector, the Bill also provisions open access to the transmission infrastructure.
The Nepali private sector and IPPs have long been advocating for inclusion in power trading. This demand stems from the fact that the NEA currently holds a monopoly on power purchase agreements (PPAs), leaving no other entity in the country authorized to sign such agreements.
The IPPs have welcomed the government’s move. “The government’s decision to approve the new electricity bill and submit it to parliament deserves commendation. This approval is a significant step toward enabling the involvement of the Nepali private sector in the power trading industry. However, it is crucial that this process is carried through to completion, ensuring that it doesn’t encounter the obstacles of the past,” said Ganesh Karki, president of the Independent Power Producers Association, Nepal (IPPAN).
The Bill proposes that the Energy Ministry should issue licenses to entities registered for the purpose of engaging in power trading. Members of the private sector acknowledge that the inclusion of private players would expand the opportunities for power trading both domestically and internationally. At present, NEA exclusively handles electricity trading with India.
The government has introduced the electricity bill, which includes provisions preventing a single entity from engaging in electricity generation, transmission, and distribution simultaneously. This provision necessitates the restructuring of NEA. The Bill specifies that any entity currently involved in both electricity generation and transmission must undergo unbundling within a five-year timeframe.
A Two-Year Wait
The proposed Electricity Bill, aimed at amending the Electricity Act of 1992, had previously reached the parliament but remained in a prolonged state of limbo for over two years without receiving approval. It was eventually withdrawn from the parliament by the then Energy Minister Pampha Bhusal in September 2022.
During the tenure of Prime Minister Sher Bahadur Deuba, efforts were made to facilitate private sector participation in power trading by introducing an ordinance in the previous year. This move involved withdrawing the long-pending Electricity Bill from the National Assembly and replacing it with an ordinance.
In October 2022, the Deuba government successfully passed an ordinance to amend the Electricity Act of 1991, intending to grant licenses to the private sector for power trading. However, the ordinance was not authenticated by the then President, Bidya Devi Bhandari, as it awaited her endorsement.
IPPs Already Prepared
IPPs have been preparing for power trading licenses by establishing power trading companies. According to the Department of Electricity Development (DoED), Nepal Power Exchange Ltd (NEPEX) and Power Trading and Energy Exchange Ltd (PTEEL) have submitted applications for these licenses. Likewise, the Nepal Infrastructure Bank has made an application to the Ministry of Energy on behalf of the Power Trading Company (PTC), and the Himalayan Trading Company is in the process of preparing to submit their application for the license.
While private sector players in Nepal are eagerly awaiting trading licenses that would enable them to sell electricity both domestically and internationally, some private entities have already taken steps by signing memoranda of understanding (MoUs) with Indian firms for cross-border power trading. For instance, Nepal Power Exchange Limited (NPEL), a subsidiary of the Independent Power Producers’ Association, Nepal (IPPAN), has already inked an agreement with Manikaran Power Limited in India to facilitate cross-border electricity trade. Under the terms of this MoU, the Indian company will not only purchase 500MW of electricity from Nepal Power Exchange Limited but also invest in the Nepali company itself.
During the Power Summit 2023, Nepali and Indian companies forged initial agreements for the sale of 2,200 MW of electricity to India. Manikaran Power Limited signed an MoU to directly purchase approximately 200MW of electricity from hydropower projects. Additionally, Vedanta Resources, a sister company of Vedanta Limited, initiated the process to acquire 2,000MW of hydropower from Nepal over the next five years.
According to the private sector, while delays in obtaining Indian approval have been cited as a reason, the primary issue lies in the complexity of government processes. And, if they are allowed to enter the power trade business, they could play a major role in facilitating power exports. “The Nepali private sector has the potential to collaborate with its Indian counterparts to expedite electricity export approvals,” said Ashish Garg, vice president of the IPPAN, “The growth in Nepal’s electricity production has largely been driven by private sector participation. Consequently, private sector engagement in the power trading industry marks a significant step forward for Nepal’s electricity sector.”
Competitive Bidding for Project License
The government is also taking a new approach to granting generation licenses to hydropower projects, emphasizing competition. Presently, DoED issues survey licenses for an initial five-year period, during which power developers are required to conduct studies and then submit applications to obtain generation licenses. Under the proposed change, the government will take on the responsibility of conducting project assessments and will invite private sector participation in acquiring hydropower projects through competitive means.
The draft of the Electricity Bill outlines several important provisions aimed at regulating the electricity industry. One such provision mandates that entities holding licenses must submit an annual statement of their electricity-related business activities to the licensing authority within three months from the end of the fiscal year.
