Kathmandu: Senior Vice-President of the Independent Power Producers’ Association, Nepal (IPPAN), Uttam Lama, has welcomed the Ministry of Energy, Water Resources and Irrigation’s decision to open the door to private sector participation in electricity trading for the first time.
Energy, Water Resources and Irrigation Minister Biraj Bhakta Shrestha decided on Friday to issue letters of intent (LOIs), granting in-principle approval to private companies to prepare for cross-border electricity trading. The decision has opened the way for private companies to explore electricity markets and engage in trading preparations. It is being viewed as an important step towards broadening private investment and bringing structural reforms to Nepal’s energy sector.
According to Lama, every journey of a thousand miles begins with the first step. He said the government’s decision to issue LOIs to private companies for electricity trading was that first step.
“This is a special Dashain gift for the energy sector. Good initiatives should be welcomed. We are grateful to the government,” he said, expressing hope that licences for electricity trading would also be issued soon.
The ministerial decision made by Shrestha on Friday provides private companies, which have so far been limited largely to electricity generation, with an opportunity to explore electricity markets, identify potential domestic and foreign partners, and prepare the necessary agreements for electricity purchases and sales.
The decision has opened up new business opportunities for the private sector, which has long been demanding permission to participate in cross-border electricity trading. Previously, private companies were allowed to develop hydropower projects and generate electricity, but a clear pathway for their direct participation in cross-border electricity trading had not been established.
Companies that meet the conditions prescribed by the government will now be able to conduct feasibility studies, identify markets, hold discussions with potential partners and prepare agreements on the basis of an LOI.
The LOI provides in-principle approval for companies to undertake the necessary preparations before commencing cross-border electricity trading. Companies receiving an LOI may 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, formal commencement of electricity trading, implementation of power purchase and sale agreements, transmission capacity booking and the use of open access will require the necessary licences, approvals, consents and technical arrangements under applicable laws. The government has opened the door for private companies to prepare for trading, but an LOI alone does not authorise them to conduct transactions without fulfilling the applicable requirements, including those governing open access and the use of transmission systems.
Alongside the decision to provide opportunities to the private sector, the government has introduced several conditions to prevent misuse of the LOIs. Companies must declare that they have not been blacklisted under prevailing laws, that the information and documents they submit are accurate, and that they have no intention of misusing the LOI.
An LOI will not create an automatic entitlement to obtain a trading licence. Similarly, agreements between a company and its partners will not create any liability for the Government of Nepal.
Companies receiving an LOI will be required to submit progress reports to the ministry within 15 days of the end of each quarter. The reports must include completed activities, achievements, progress against established targets, problems encountered and plans for the coming period. The ministry may also request additional documents or explanations if necessary.
Any changes in a company’s ownership or shareholding structure will require prior approval in accordance with prevailing laws. The government may suspend, revoke or amend an LOI in accordance with the law if its conditions are violated, submitted information is found to be false or misleading, or such action is deemed necessary in the public interest or for the safe operation of the electricity system.
The LOI 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, the company must apply to the ministry at least 30 days before expiry, providing a progress report and reasons for the extension.
The government believes that involving the private sector in preparations for cross-border electricity trading will create opportunities for new investment and business initiatives in the sector.
As private companies begin identifying potential buyers and trading partners, they will be able to obtain more information about market demand, prices, transaction terms and risks. This could also help link future investment decisions in electricity generation with actual market opportunities.
Furthermore, broader participation and competition in electricity trading could strengthen the foundation for shifting Nepal’s electricity sector from a generation-focused structure towards a more market-oriented system.
The decision has opened up the possibility of linking existing efforts to attract private investment in electricity generation with the expansion of electricity trading and market access. 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 trading.
Nepalpurbadhar