Kathmandu, Oct. 17: The private sector has, for the first time, been given a formal assent to prepare for cross-border electricity trade in Nepal.
Minister for Energy, Water Resources and Irrigation Biraj Bhakta Shrestha on Friday decided to issue Letter of Intent (LOI) granting in-principle consent to private companies to prepare for cross-border electricity trading, opening the way for them to explore markets and engage in electricity trade.
The ministerial-level decision is being viewed as an important step towards expansion private investment and bringing structural reforms to Nepal’s energy sector.
It allows the private sector, which has so far been largely confined to electricity generation, to explore electricity markets, identify potential domestic and foreign partners, and prepare the necessary agreements for electricity purchase and sale, according to the Ministry.
The decision opens up new business opportunities for private companies, which have long been demanding permission to participate in cross-border electricity trade. Although private companies have been allowed to develop hydropower projects and generate electricity, a clear pathway for their direct participation in cross-border electricity trading had not been established.
Under the new arrangement, companies meeting the conditions prescribed by the government will be able to conduct feasibility studies, identify potential markets, hold discussions with prospective partners and prepare agreements on the basis of the letters of intent.
The letters of intent will provide in-principle consent for companies to undertake the necessary preparations before formally commencing cross-border electricity trading, said the Ministry.
Companies receiving the letters will be permitted to conduct technical, financial and commercial feasibility studies in accordance with prevailing laws, identify potential trading partners, hold necessary discussions and coordination meetings, and prepare agreements.
However, to formally commence electricity trading, implement power purchase and sale agreements, book transmission capacity and use open access, companies will have to fulfil the licensing, approval, consent and technical requirements prescribed by the relevant laws.
The government has thus allowed the private sector to enter the preparatory stage of electricity trading. However, the letters of intent alone will not authorise companies to conduct transactions without complying with the applicable provisions governing open access and the use of transmission systems.
Alongside opening up opportunities for the private sector, the government has introduced several conditions to prevent the misuse of the letters of intent.
Companies will have to declare that they have not been blacklisted under prevailing laws, that the information and documents they have submitted are authentic, and that they have no intention of misusing the letters of intent.
The letters will not create any entitlement to obtain a licence, nor will agreements between companies and their partners create any liability for the Government of Nepal.
The companies receiving the letter of intent will be required to submit progress reports to the ministry within 15 days of the end of each quarter, said the ministry.
The reports must cover completed activities, achievements, progress against set targets, challenges encountered and future action plans. The ministry may also seek additional documents or clarifications whenever necessary. Companies will be required to obtain prior approval, where necessary, under prevailing laws, before making changes to their ownership or shareholding structures.
The government may suspend, revoke or amend the letters of intent in accordance with the law if companies violate the stipulated conditions, if the information they provide is found to be false or misleading, or if such action is deemed necessary in the public interest or for the safe operation of the electricity system.
The letter of intent will remain valid for the period prescribed by law or for a maximum of two years from the date of issuance. If an extension is required, companies must submit an application to the ministry, along with progress details and reasons for the extension, at least 30 days before the expiry date.
The government expects that allowing private companies to participate in preparations for cross-border electricity trading will create opportunities for new investment and commercial initiatives in the sector.
By identifying potential buyers and trading partners, private companies will be able to obtain more information about market demand, prices, trading conditions and associated risks. This could also help link future investment decisions in electricity generation with actual market opportunities.
Similarly, broader participation by private companies in electricity trading could help strengthen the foundation for transforming Nepal’s electricity sector from a generation-oriented structure towards a more market-oriented one.
The decision opens up the possibility of linking existing efforts to attract private investment in electricity generation with market development and expansion of electricity trading.
By addressing a long-standing demand of the private sector, the government has established a formal pathway for private companies to participate in preparations for cross-border electricity trade.
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