Four months after rejecting a request for permission by independent power producers to engage in cross-border energy trade through a separate power trading company, the Energy Ministry has done little to make good on its assurances to pass legislation which will allow them to do so.
Private developers building hydropower schemes with a combined capacity of around 600 megawatts in the Tamor River basin in eastern Nepal had formed Nepal Power Exchange in June as preparation to sell energy to Indian and Bangladeshi power markets.
“We applied for a licence to secure a market and export power through the firm at the Department of Electricity Development, but the Energy Ministry rejected our application saying that there was no legal provision to allow intermediary firms to participate in cross-border electricity trade,” said Kumar Pandey, vice-president of the Independent Power Producers’ Association of Nepal.
The Electricity Act 1992 only allows individual entities with a generation licence to export electricity. "The licensee desiring to export electricity generated on its own to the foreign country may do so by entering into an agreement with the government of Nepal on such matters," states the act.
In September, the ministry drafted an Electricity Bill to replace the 27-year-old law governing electricity trade in a bid to end the state-owned power utility’s monopoly on energy exports and allow private developers to become exporters too.
The bill, which proposes to allow intermediary firms to obtain permission to import and export electricity, is yet to be endorsed even though a year has passed since India relaxed its provisions to facilitate cross-border trade between the Indian government and public institutions and private entities of neighbouring countries.
According to Pandey, despite entering into a power trade agreement with India in 2014, Nepal has done little to reform regulatory aspects in favour of private power producers who are growing anxious over the possibility of losing electricity worth billions for lack of initiative from the government.
In 2014, Nepal and India had agreed to allow non-discriminatory access to cross-border interconnections for all authorised and licensed participants in the common electricity market.
Ministry officials say the process to send the draft bill to the cabinet for approval might take some more time.
“We are holding stakeholder consultations and will also seek comments from authorities in the seven provinces and forward them to the Finance Ministry and law commission before sending the bill to the cabinet for approval,” said Dinesh Ghimire, secretary of the Ministry of Energy, Water Resources and Irrigation.
According to Ghimire, power producers need not be worried by delays in fixing the legal aspects, and the Energy Ministry will work in the spirit of the power trade agreement between Nepal and India.
Projections made by the Nepal Electricity Authority, the sole off-taker of electricity in the country, show that electricity generation in the country will surpass domestic power demand by around 1000 megawatts within the fiscal year 2021-22, highlighting the need to secure markets for the surplus electricity.
In view of the forecast, power producers have also time and again urged the government to reform legal measures and instruments to ease power trade between Nepal, India and Bangladesh, and resolve market access issues currently being faced by them.
“Nepal and India have already entered into an agreement to allow the Nepal Electricity Authority to book the proposed New Butwal-Gorakhpur Transmission Line for 25 years, and once the Energy Ministry and the regulator finalise the modalities of energy export by power producers, they will be allowed to use the lines under the holding of the power utility,” said Ghimire.
The move by independent power producers to establish a power trading firm followed the relaxation of energy trading provisions by India in March, recognising tripartite arrangements between governments and also allowing private entities in its neighbouring countries to participate in cross-border power trade.
Earlier, the southern neighbour had allowed only state-owned hydropower projects or companies with a minimum 51 percent Indian stake to trade power with India or other countries using its transmission lines.
Apart from judicial matters, technical reforms which are required before Nepal and India engage in a smooth exchange of electricity are yet to be resolved.
Despite multiple meetings, Nepal and India have only recently agreed to enforce technical reforms on strengthening and protecting the existing and under-construction cross-border transmission lines and operate their grids in synchronous mode within six months.
Without operating the grids in synchronous mode, the two countries cannot ensure a reliable supply of electricity back and forth through the cross-border connections.