The government has finally approved the Electricity Bill from the Council of Ministers, which once approved by the parliament, will pave the way for the private sector to engage in power trading.
The much-awaited bill by the Nepali private sector will be tabled at the federal parliament by Energy Minister Shakti Basnet for parliamentary endorsement.
Once the bill is endorsed by the parliament and authenticated by the President, the Nepali private sector which has been solely involved in electricity generation till now, will be allowed to be involved in the power trading. As of now, the state-owned power utility Nepal Electricity Authority (NEA) has a monopoly in power trading.
This signifies a significant shift in the power sector, allowing private entities to actively participate in buying and selling electricity. The proposed law aims to create a framework that enables private sector involvement and facilitates competition in the power trading market.
The Nepali private sector, including independent power producers, has been advocating for their involvement in power trading. This demand stems from the fact that the Nepal Electricity Authority (NEA) currently holds a monopoly on power purchase agreements (PPAs), leaving no other entity in the country authorized to sign such agreements.
In the bill, it has been proposed that the Energy Ministry should grant licenses to the entities that have been registered with the purpose of power trade.
The government has brought forward the electricity bill with provisions that a single entity cannot be involved in the generation, transmission, and distribution of electricity. This provision means the state-owned NEA has to be unbundled.
It is mentioned in the bill that if any entity is currently involved in the generation and transmission of electricity, it has to be unbundled within five years.
The government has also proposed to issue generation licenses for hydropower projects through competition. Currently, the Department of Electricity Development (DoED) initially issues survey licenses for a five-year period, during which the power developers will have to complete the study and then submit the application to get generation licenses. Now the government will study the projects itself and invite the private sector to get hydropower projects through competition.
While the Electricity Bill to amend the Electricity Act 1992 had reached the parliament earlier, it got stuck for more than two years and failed to get endorsed. The then Energy Minister Pampha Bhusal withdrew the bill from the parliament in September 2022.
The Sher Bahadur Deuba-led government did make efforts to facilitate the entry of the private sector into power trading by introducing an ordinance last year. The Deuba government withdrew the long-pending Electricity Bill at the National Assembly and opted for an ordinance instead.
In October 2022, the Deuba government passed an ordinance to ratify the Electricity Act 1991 to give licenses to the private sector for power trade. However, the then President Bidya Devi Bhandari did not endorse the ordinance sent by the government for authentication.
The Nepali power producers have been gearing up for power trading licenses by establishing power trade companies. According to the Department of Electricity Development (DoED), Nepal Power Exchange Ltd (NEPEX) and Power Trading and Energy Exchange Ltd (PTEEL) have applied for power trading licenses. Similarly, Nepal Infrastructure Bank has applied to the Ministry of Energy, on behalf of the Power Trading Company (PTC) Ltd, and the Himalayan Trading Company is also preparing to register an application for the license.
While the private sector in Nepal is still awaiting the trading license to sell electricity in both domestic and foreign markets, some private entities have already signed the memorandum of understanding (MoUs) with Indian companies for cross-border power trading.
The Nepal Power Exchange Limited (NPEL), subsidiary of IPPAN has already signed an agreement with Manikaran Power Limited, India to carry out cross-border electricity trade. As per the MoU, the Indian company will buy 500MW of electricity from the Nepal Power Exchange Limited besides investing in the Nepali company itself.
During the Power Summit 2023, Nepali and Indian companies signed initial deals for selling 2,200 MW of electricity to India. Manikaran Power Limited signed a memorandum of understanding (MoU) to purchase around 200MW of electricity directly from the hydropower projects. Vedanta Resources, a sister company of Vedanta Limited, also initiated the process to buy 2,000MW of hydropower from Nepal in the next five years.
