Government revising law to allow private sector to engage in power trade

The government is working to revise the law to allow the private sector to engage in electricity trade, after its earlier attempt to give such permission through an electricity transmission directive and a new set of guidelines failed.

The Electricity Act-1992 does not allow the private sector to engage in power trade. So, the Ministry of Energy, Water Resources and Irrigation had earlier held inter-ministerial consultations on a draft electricity transmission directive and set of guidelines to allow the private sector to engage in trading (domestic trading, export and import) of electricity.

But the Ministry of Law, Justice and Parliamentary Affairs poured cold water on the plan, arguing that the existing law does not have any provision to allow the private sector to trade in electricity.

In this context, the private sector demanded that the government give a way out in whatever way possible.

Accordingly, the energy ministry is currently working on an option of providing a way out through an amendment to the Electricity Act.

“We have sent a draft of an amendment under the ‘Some Nepal Act Amendment Bill’ to the law ministry to facilitate energy trade by the private sector,” Madhu Bhetuwal, spokesperson at the energy ministry told the Post.

The ministry should not have gone for this option if a Bill to Amend and Integrate Existing Electricity Laws, which remains stuck in the National Assembly since mid-July 2020, was passed.

As per Section 29 of the bill, Nepali private sector companies can be licenced for trading electricity within and outside the country.

“Currently, we are looking for a solution either through the bill already registered in the National Assembly or the ‘Some Nepal Acts Amendment Bill,’” said Bhetuwal.

The budget session of parliament began on May 17. Bhetuwal said his ministry expects the new parliamentary session will do something on the issue.

According to him, the ministry also worked to find a solution through an ordinance after it became apparent that the electricity transmission directive and the new guidelines are no solutions. “An ordinance can still be the option if the parliament fails to endorse either a bill registered at the parliament or the proposed Some Nepal Act Amendment Bill,” said Bhetuwal.

A number of private sector companies have already approached the energy ministry seeking trading and export licences. And some of them are engaged in negotiations and consultations with Indian and Bangladeshi companies for power trade.

For example, Nepal Power Exchange Limited, a Nepali private sector firm that aims to engage in power trade, and India’s Manikaran Power Limited, signed a memorandum of understanding (MoU) on energy trading on January 10.

Manikaran, which is also set to become an investment partner at Nepal Power Exchange Limited, has also agreed to purchase 500 MW of electricity from the Nepali company, as per the MoU.

Similarly, the Nepal Infrastructure Bank, the country’s only bank dedicated to financing infrastructure projects, has also proposed to establish a power trading company as its subsidiary.

“We are also in discussions with Indian and Bangladeshi companies for a power trading partnership and arrangements among Nepal, India and Bangladesh,” Ram Krishna Khatiwada, chief executive officer of the Nepal Infrastructure Bank, told the Post in March.

The government is also keen to allow the private sector to engage in power trading, particularly to export power to India as Nepal is set to have surplus energy during the wet season, and India is eager to provide market access to Nepal’s power more than ever.

The Nepal Electricity Authority has, so far, received approval from India for selling 364MW of electricity at any time in the Indian market at competitive rates. In November last year, the NEA was allowed to sell 39MW of electricity from two hydropower projects—Trishuli (24MW) and Devighat (15MW). Currently, only the NEA is authorised to sell electricity in the Indian market.

As per the ‘Procedure for Approval and Facilitating Import/Export (Cross Border) of -Electricity’ introduced by India’s Power Ministry in February last year, it is mandatory for Nepali companies interested in selling power to India to first get an export licence from Nepali authorities.

So, the Nepali private sector wants the government to make necessary arrangements.

“As the power production in the country has been growing, it is not sure whether the government [government entity] can buy and sell all the power,” said Ganesh Karki, a vice-president of the Independent Power Producers’ Association of Nepal (IPPAN), a grouping of private sector electricity developers. “So, the government needs to open the door for the private sector at some point and it is better to do it sooner than later.”

He also requested the government to speed up the licensing process so that private companies can start trade negotiations with foreign buyers. “Foreign buyers won’t trust us if we don’t have an export licence,” he added.

For example, Manikaran has agreed to invest in the Nepali company–Nepal Power Exchange Limited–as per the MoU. “But Manikaran will not put in money until the Nepal Power Exchange Limited has an export licence,” said Karki.

Experts say that participation of the private sector in power trade is essential also for creating a single sub-regional electricity market involving Bangladesh, Bhutan, India and Nepal, commonly known as BBIN, as envisioned by the Joint Vision Statement on Power Sector Cooperation between Nepal and India.

Posh Raj Pandey, executive director of the South Asia Watch on Trade, Economics and Environment (SAWTEE), a South Asian think tank headquartered in Kathmandu, told the Post in a recent interview that rules, regulations and policies of the government in the sub-region must be harmonised for creating an integrated market.

In Nepal, the private sector is allowed just to produce electricity while the Nepal Electricity Authority has the monopoly in the areas of transmission, distribution and trading. But India has liberalised the power market with many private sector companies engaged in production, procurement and distribution, Pandey told the Post.

“It is hard to integrate a monopolistic market and a liberalised market. So, if we want to benefit from the integrated market of BBIN, we have to harmonise our policies, rules and regulation towards a liberalised market.”

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