KATHMANDU: The Independent Power Producers’ Association, Nepal (IPPAN) has submitted a comprehensive set of reform proposals to the government aimed at protecting private-sector investment in the energy sector, reducing administrative delays in project development, and making the country self-sufficient in electricity.
IPPAN identified problems related to the Ministry of Energy, Water Resources and Irrigation; Ministry of Agriculture and Livestock Development; Ministry of Forests and Environment; Ministry of Land Management, Cooperatives and Poverty Alleviation; Ministry of Finance; Nepal Rastra Bank; Securities Board of Nepal; and Ministry of Home Affairs, and proposed legal and procedural reforms. The proposals range from amendments to several laws to a 50-year guarantee for hydropower licenses.
The association said clear legal provisions, fixed deadlines and a one-window system are needed to remove procedural complexities in the construction and operation of energy projects.
Call for Private-Sector Participation in Electricity Trading
IPPAN has called for legal provisions to ensure private-sector participation in electricity trading.
It said the lack of an adequate legal framework for private-sector power producers to sell and trade electricity has created a situation in which generated power could go to waste, putting investments in the energy sector at risk.
IPPAN has proposed amending Section 4(1) of the Electricity Act, 1992, to add the word “trade.”
According to the association, this would protect existing private-sector investments and encourage further large-scale investment in the energy sector.
Private Sector Should Be Allowed to Build Transmission Lines
IPPAN said that despite growing electricity generation capacity, inadequate transmission infrastructure has created a situation in which generated electricity cannot be evacuated.
It has called for the immediate implementation of open-access procedures and a provision for charges to be paid for the use of transmission services.
The association has proposed allowing private companies to construct and develop transmission lines alongside generation projects, arguing that private-sector capital should be mobilized because the government alone would require huge investments to build all the necessary transmission infrastructure.
IPPAN has also proposed preparing river-corridor-level transmission master plans and allowing private or joint companies to construct shared transmission lines for projects located along the same river corridor. It said this would reduce both construction time and costs.
More Than 17,000 MW of Projects Awaiting PPAs
According to IPPAN, projects with a combined capacity of around 17,000 MW are awaiting power purchase agreements (PPAs) with the Nepal Electricity Authority (NEA).
The association said project development has been stalled because PPAs have not been concluded and called on the NEA Board of Directors to make immediate decisions on all pending agreements.
It has proposed that the Ministry of Energy issue the necessary policy directives and that a clear PPA template be prepared so that developers can secure bank financing, with a specific deadline for decisions.
According to IPPAN, substantial investments have already been made in projects totaling around 17,000 MW at the PPA application stage and around 6,000 MW at other stages of development.
Call to Review Electricity Purchase Rates
IPPAN said electricity purchase rates have not been adequately reviewed since 2011.
It said inflation, construction material prices, foreign exchange rates and financing costs have increased during this period, making it difficult to financially manage projects if they are developed and operated at existing rates.
The association has therefore proposed linking electricity purchase rates to the Nepal Rastra Bank’s inflation index, construction material prices, foreign exchange rates and financing costs.
It expects the measure to facilitate project financing and help provide returns to investors.
Hydropower Licenses Should Be Valid for 50 Years
IPPAN has called for hydropower project licenses to be valid for 50 years.
It said that although the Hydropower Development Policy, 2001, provides for a 35-year license period, the Electricity Act, 1992 allows licenses to be issued for up to 50 years.
As the Act takes precedence over the policy, IPPAN has proposed a 50-year license period for reservoir-based, peaking run-of-river and other types of hydropower projects.
It said the longer period is necessary considering the long construction period, debt repayment, impacts of climate change, project complexities and the need to ensure returns on investment.
Extension of Project Deadlines for Delays Beyond Developers’ Control
IPPAN said delays in obtaining government approvals, completing forest- and land-related procedures and developing transmission infrastructure often prevent projects from meeting their scheduled commercial operation dates.
It has proposed that when such delays are caused by factors beyond the developer’s control, the commercial operation date should be automatically extended.
The association said this would help prevent projects under construction from falling into financial difficulties before they begin generating electricity.
Special Priority for Solar Energy
IPPAN said solar energy should receive special priority to make the country self-sufficient in electricity within the next two years.
Considering rising international prices of solar equipment and problems related to land management, it has proposed flexibility in revising the geographical boundaries specified in survey licenses for solar projects.
It has also called for solar projects to receive at least nine opportunities for tariff adjustments, similar to hydropower projects.
NEA Monopoly Should Be Ended
IPPAN said concentrating electricity generation, transmission, distribution and trading in a single institution could create conflicts of institutional interests.
It has therefore proposed separate institutional structures for generation, transmission, distribution and trading, along with an autonomous Load Dispatch Centre.
According to IPPAN, this would help create a competitive electricity market.
Environmental Approval Process Should Be Simplified
IPPAN has called for reforms to address delays in obtaining environmental impact assessment (EIA) approvals.
The association said that even after an EIA is approved, developers have to approach different ministries and agencies separately for tree-cutting permits and land compensation, delaying project construction.
It has proposed amending the relevant provisions of the Environment Protection Regulations, 2020, to allow EIAs to be approved at the secretary level.
IPPAN has also called for tree-cutting and land-compensation procedures to automatically move forward after EIA approval and for environmental studies to be completed within a maximum of one year.
It has proposed an integrated system for obtaining environmental opinions and technical assessments from different agencies. It also wants local governments and relevant sectoral offices to be deemed to have given consent if they fail to provide their opinion or recommendation within 15 days.
Repeated Public Hearings Should Be Eliminated
IPPAN said repeated public hearings and collection of suggestions under the current EIA process have unnecessarily prolonged project development.
It has proposed combining public hearings and written feedback into a single public consultation process.
It has also called for the 35-day deadline for EIA approval to be made mandatory, with additional documents or clarifications allowed to be requested only once.
No New Environmental Study for Minor Technical Changes
IPPAN said projects are affected by requirements to conduct new EIAs or initial environmental examinations even when minor technical changes during construction do not increase environmental impacts.
It has proposed clearly defining “significant changes” and “minor technical changes” and allowing developers to proceed by revising only the environmental management plan when a change does not increase environmental impacts.
Forest and Environmental Procedures Should Be Integrated
IPPAN said separate procedures under environmental and forest laws increase project timelines because developers have to complete overlapping processes.
It has proposed integrating forest-area use, tree cutting and biodiversity assessments into the EIA process and providing approval through a single procedure.
Clear Legal Basis for Energy Infrastructure in Conservation Areas
IPPAN said legal provisions for constructing energy infrastructure in national parks, wildlife conservation areas and other protected areas are unclear.
It has proposed clear legal provisions allowing nationally prioritized hydropower projects, transmission lines, substations and access roads to be constructed if they comply with approved EIAs, initial environmental examinations and environmental management plans.
It has also called for clear criteria, decision-making deadlines and specified periods for corrective measures when authorities exercise their power to halt work in conservation areas.
Sustainable Infrastructure Framework
IPPAN said infrastructure development has been affected because conservation areas, national parks and wildlife reserves are treated under the same strict legal framework.
It has proposed a separate legal framework for developing “sustainable infrastructure” in conservation areas.
The association has called for a clear policy allowing hydropower projects and transmission lines to be constructed where environmental assessments establish that their impacts remain within acceptable limits.
Land Ceiling Restrictions Should Be Relaxed for Energy Projects
IPPAN has called for the resolution of land-ceiling and land-subdivision problems related to land required for energy projects.
It has proposed exempting land identified as part of a project area through an EIA from land ceilings when purchased for the project.
It has also called for automatic relaxation of restrictions on subdividing land acquired in the name of a project and a separate land-ceiling exemption for national infrastructure projects.
The association has proposed an integrated legal mechanism under which disagreements over land acquisition and compensation can be resolved quickly through the chief district officer.
Special Energy Fund Proposed
IPPAN has called for the establishment of a special energy fund, saying large hydropower projects, transmission lines, energy storage and green hydrogen require substantial long-term capital.
It has proposed establishing the fund with the participation of the government, Nepal Rastra Bank, banks and financial institutions, development partners and climate-finance sources.
According to IPPAN, the fund would help mobilize concessional financing for the energy sector.
One Percent Customs Concession Should Continue
IPPAN has called for the continuation of the one percent customs duty concession provided under the Electricity Act, 1992.
It has also proposed allowing an additional six-month extension to the existing six-month deadline for returning project equipment sent abroad for repairs.
For projects damaged by floods, landslides and earthquakes, the association has called for temporary customs exemptions on imported reconstruction materials and refinancing facilities.
Long-Term Foreign Exchange Risk Management
IPPAN said energy projects that have borrowed in foreign currencies face significant risks from fluctuations in exchange rates.
It has proposed establishing a long-term mechanism to manage foreign exchange risks by exercising the authority provided under the Nepal Rastra Bank Act, 2002.
The association has also called for a mechanism allowing the principal and interest on foreign loans to be paid directly from income generated through electricity exports.
Ordinary Shares Should Be Issued During Construction
IPPAN has called for simplifying procedures for issuing ordinary and rights shares to facilitate capital management for energy projects.
It has proposed retaining the existing provision allowing ordinary shares to be issued after a project reaches 50 percent physical progress, arguing that requiring shares to be issued only after project completion would make it difficult to raise additional capital during construction.
It has also called for rights share approvals to be provided within the shortest possible timeframe.
Similarly, it has proposed that the Securities Board of Nepal introduce clear and streamlined procedures allowing hydropower companies to raise capital through debentures and preference shares.
Clear Policy Needed for Project Security
IPPAN said projects in remote areas have suffered significant financial losses due to shutdowns, strikes and local disruptions affecting dams, tunnels, powerhouses, transmission lines and construction equipment.
It has called for a clear security policy to ensure security at hydropower project construction and operation sites as required.
Explosives Supply Should Be Facilitated
IPPAN said developers face difficulties because they have to repeatedly obtain approvals for the import, transportation and use of explosives required for tunnel and other infrastructure construction.
It has proposed that the Nepal Army either produce sufficient explosives or establish arrangements to encourage the private sector to produce them.
The association has also called for arrangements to facilitate the transportation of explosives from neighboring countries and for the validity of permits required for their use to be extended from six months to at least one year.
‘One Project – One Approval File’ System Proposed
IPPAN has put forward the concept of a “One Project – One Approval File” system as one of the key reforms needed in the energy sector.
The association said project construction time and costs have increased because developers currently have to complete separate procedures with various agencies, including the Department of Electricity Development, forest and environmental authorities, land authorities, local governments, the Nepal Electricity Authority, the Ministry of Industry and the Investment Board.
To address this, IPPAN has proposed implementing a one-window approval system under which all approvals and procedures for a project would be processed through a single file.
It has also proposed setting specific deadlines for each approval and establishing a legal provision under which an approval would be deemed granted if no decision is made within the prescribed timeframe.
IPPAN has called for a shared electronic system connecting all relevant agencies to eliminate the need for projects and investors to repeatedly submit the same data and documents to different offices.
The association said energy-sector development is not limited to increasing electricity generation but is also linked to transmission infrastructure, electricity trading, financial management, environmental approvals, land acquisition, investment protection and institutional structures.
IPPAN expects that implementing the proposed legal and procedural reforms would help reduce project construction time and costs, lower risks to private investment, and facilitate the expansion of electricity generation and electricity trade.
Nepalpurbadhar
