KATHMANDU — Nepal Power Exchange Limited (NEPEX), established eight years ago with the objective of trading electricity, has received the first letter of intent (LOI) from the government to prepare for electricity trading. The Ministry of Energy, Water Resources and Irrigation issued the LOI to NEPEX on Tuesday.
Last month, the government decided to issue LOIs to private-sector companies to prepare for cross-border electricity trading. Following the decision, NEPEX has become the first company to receive an LOI. A total of 12 companies have applied to the ministry for permission to trade electricity.
According to NEPEX, the company has been preparing to trade electricity in India and Bangladesh for the past eight years. During this period, it has held discussions with various companies and signed memorandums of understanding (MoUs) to facilitate electricity purchase and sale agreements.
With the issuance of the LOI, companies will be required to submit reports to the ministry every three months detailing their preparations and progress towards electricity trading. The government plans to issue trading licences only after reviewing the reports and determining that the companies have made sufficient progress.
NEPEX has stated that it has completed the necessary preliminary preparations for electricity trading. However, the government has yet to decide whether to amend existing laws or introduce provisions through an ordinance to issue electricity trading licences to private-sector companies.
The issuance of the LOI is being viewed as an important step towards enabling the private sector to enter electricity trading. However, receiving an LOI does not guarantee that a company will obtain a licence.
Meanwhile, the Independent Power Producers’ Association, Nepal (IPPAN) has welcomed the government’s decision to issue LOIs to private-sector companies for preparing to trade electricity, while calling for a guarantee that eligible companies will receive trading licences.
In a statement issued on Tuesday, IPPAN said the government’s decision marked an important initial step towards addressing a demand that the private sector has been raising for more than two decades. According to the association, the decision gives companies that have so far been limited to electricity generation an opportunity to explore markets in neighbouring countries, identify trading partners and prepare electricity purchase and sale agreements.
However, IPPAN clarified that an LOI provides only in-principle approval for preliminary preparations and therefore does not fully address the private sector’s demands. The association said the lack of a guarantee that companies would receive licences even after fulfilling the LOI conditions increases investment risks.
IPPAN President Mohan Kumar Dangi thanked the government for taking steps to address the private sector’s long-standing demand. However, he warned that companies making substantial investments in preparations after receiving an LOI could lose their investments if they ultimately fail to obtain licences. They could also face legal disputes with foreign partners, he said.
IPPAN has called for a clear provision in policy or law requiring the government to issue licences to companies that fulfil the LOI conditions and complete the necessary preparations. It has also urged the government to immediately publish the criteria, procedures and timeline for issuing licences and to grant them to private-sector companies without delay.
To make electricity trading operational, IPPAN has stressed the need to promptly establish the legal and technical frameworks for open access to the transmission system and transmission capacity booking. The association said that without non-discriminatory access to transmission lines, transparent capacity-booking procedures and clearly defined transmission charges, companies would face difficulties in conducting electricity trading even after obtaining licences.
Besides NEPEX, the following companies have also applied to the Ministry of Energy for permission to trade electricity: Green Energy Power Trading, Trans Asian Power Trading, Nepal Power Trading and Management, Bhatbhateni Power Trading, Himalayan Power Trading, National Power Trading, Energy Exchange Nepal, Quantum Power Trading, Electricity Trading Company, NIFRA Trading and Energy Exchange, and International Power Trading and Exchange Company.
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