Nepal Government Proposes Electricity Bill to Prevent Monopoly and Foster Competition in the Electricity Sector

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Kathmandu, September 5th – The government has taken steps to amend the Electricity Act, with the aim of preventing a single entity from controlling the entire process of electricity production, transmission, and distribution. In the draft ‘Electricity Act 2080,’ approved by the Council of Ministers, a provision has been included that prohibits a single company from engaging in all three aspects simultaneously. At present, the Nepal Electricity Authority holds a monopoly over all aspects of electricity generation, transmission, and distribution.

If the draft is approved by the Council of Ministers and subsequently passed by Parliament, the Nepal Electricity Authority will be required to establish separate entities for electricity production, transmission, and distribution. The draft specifies that these separate entities must be formed within five years.

Section 18 of the proposed amendment states, “For the development and operation of power projects, the same organization will not be granted permission for more than one task.” However, this section will not apply to areas where the national transmission grid is inaccessible, or where there are technical limitations on supplying electricity.

The draft of the Act also addresses a long-standing demand from the private sector for electricity trading. It outlines provisions for private sector participation in electricity trading and transmission lines.

Section 34 of the draft specifies, “Under this Act, organizations that have obtained a business license will be able to engage in electricity trading.” The draft allows for the purchase of electricity produced by organizations with permission to generate electricity, as well as the buying and selling of electricity among licensed organizations, wholesale or retail electricity sales, and international electricity trading. Additionally, the draft incorporates the concept of ‘open access’ in areas such as transmission and distribution.

“Open access” is defined in the provision as allowing organizations with licenses for electricity production, business, or customer service to utilize the national transmission grid, distribution system, and related infrastructure without discrimination.

The draft also emphasizes the need for competitive practices in the development and operation of power generation projects, as well as electricity transmission, distribution, business, or customer service. Competitive procurement of electricity is encouraged, especially for domestic consumption.

The draft reduces the permit period for hydropower projects from the previous 50 years to 45 years, with a production period of 25 years. Additionally, it permits a 25-year period for electricity transmission, distribution, and trade. For projects intending to export electricity directly to foreign markets, a 40-year permission period is provided for hydropower projects and 35 years for other projects. The government reserves the right to grant a five-year extension in cases of project-related challenges or obstacles to development and operation.

Regarding authority allocation, the draft grants municipalities the power to oversee projects with a connected capacity of up to five megawatts and those related to alternative energy. Up to 25 megawatts of power falls under the jurisdiction of the states, with capacities exceeding that under the control of the central government. Provincial governments have the authority over two or more projects up to five megawatts within municipal boundaries. Projects located on the borders of two or more provinces will be under central government jurisdiction.

The draft further provides that for projects connected to the national grid, the central government holds authority, and projects of any capacity can be conducted in cooperation with provinces and municipalities. It also allows for the establishment of separate organizations for the construction, management, and operation of dams in multipurpose or reservoir projects.

Ganesh Karki, Chairman of the Independent Power Producers’ Association, Nepal (IPPAN), has expressed the private sector’s long-standing demand for electricity trading permits, emphasizing that it would enable private companies to sell electricity in the international market. He believes that granting this permission is essential, especially considering some privately-produced electricity remains unsold until the necessary permits are obtained.

Former Energy Secretary Devendra Karki underscores the importance of separating electricity production, transmission, and distribution to avoid monopolies. He notes that when a single entity controls all three aspects, it can lead to a lack of competition, emphasizing the need for differentiation among these functions.

IPPAN General Secretary Balram Khatiwada also highlights the importance of breaking the monopoly by assigning electricity production, transmission, and distribution to different companies to foster competition in the market.