Talk resurfaces for unbundling the Nepal Electricity Authority

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Currently, it is under the purview of the state-owned power utility to generate, transmit and distribute electricity

September 4, 2019

Talk about unbundling the Nepal Electricity Authority, which was on-again, off-again for more than a decade, has resurfaced with the Energy Ministry proposing to segregate the state-owned power utility into new business entities in the draft bill to amend the Electricity Act.

As per the draft bill, an entity currently undertaking more than one of the tasks of generation, transmission and distribution of electricity must form different entities to carry out the tasks within three years after the enforcement of the act.

“The integrated entity shall carry out the valuation of property and liabilities within two years and hand over the financial and organisational capacity to a new entity,” states the bill. “After being conferred with the responsibility, the new entity must obtain permits to carry out either one of the tasks related to generation, transmission, distribution or trade of power.”

Currently, it is under the purview of the state-owned power utility to generate, transmit and distribute power by planning, constructing and operating both interconnected and isolated facilities.

According to Energy, Water Resources and Irrigation Minister Barsha Man Pun, the Nepal Electricity Authority, with increasing generation capacities anticipated in the days ahead, requires precise planning, implementation and operation modality of power system components.

“With the Electricity Regulatory Commission in place and operational, and continued efforts in reforming the power sector, the ministry is now in the process of formulating a new act that will pave the way for institutional reform in the power sector,” said the minister. “In this context, Nepal Electricity Authority should now prepare itself for such reform allowing it to make a smooth transition from vertically integrated utility to restructured unbundled entities.”

The government has been mostly unsuccessful in dismantling the power utility, the country’s sole off-taker of power, into different entities despite envisioning the unbundling process in the hydropower development policy in 2001.

In 2007, similar efforts to amend the act and unbundle the power utility under the pretext of enhancing performance through reforms were thwarted by the power utility’s employee union which termed it a ploy to benefit cronies in the power sector.

Also, in 2015, the then government forced a move forming Rastriya Prasaran Grid Company conferring it with duties related to transmission line studies and development amid strong reservations from the power utility management.

Despite gaining shape in July 2015, Rastriya Prasaran Grid Company has remained mostly ineffective till date with only minor transmission lines in its portfolio while the power utility oversees expansion and management of the national grid.

“Over the years, the country has seen tremendous growth of the private power sector while the electricity market still has inefficiencies of imperfect competition,” said Anup Kumar Upadhyay, former secretary at the Ministry of Energy. “In the prevailing situation, the electricity authority must be unbundled into new entities to create a market with a level playing field.”

According to Upadhyay, it is challenging to gauge inefficiencies in transmission, distribution and generation if a single entity oversees all the tasks, but it remains to be seen how authorities will take up the responsibility given the record of previous attempts being thwarted by opposing officials.

This time, the situation is no different.

“At a time when the power utility is extricating itself from a decade of organisational inefficiency, financial strain and administrative malpractices, the idea of unbundling, if implemented, would reverse the situation,” said an anonymous official at the power utility.

The power utility has been seeing profits only for the past three years after a decade of losses as it was able to reduce system loss and ensure regular supply of electricity. The net profit of the once-troubled state-owned utility stood at Rs 7.20 billion in the fiscal year 2018-19, a 149 percent increase compared to fiscal 2017-18.

“The utility should be allowed to build its capacity for the next four to five years and develop robust transmission and distribution infrastructure before it is asked to hand over the roles to new entities,” said the official.

Also, the proposed provisions have given rise to uncertainty as the draft bill to amend the Electricity Act comes at a time when the power utility is gearing up to form entities in line with the federal setup.

According to Nepal Electricity Authority Managing Director Kulman Ghising, he is unaware of the proposed provisions in the bill although talks are on to set up provincial entities to govern power distribution.

The Nepal Electricity Authority was formed in 1985 by merging the Department of Electricity under the Ministry of Water Resources, Nepal Electricity Corporation and related development boards.

Back then, the idea of merging separate entities emerged out of an initiative to remedy inherent weakness associated with fragmented electricity organisations with overlapping tasks. This time, the purpose remains the same, but the idea is to segregate entities that were once merged.

Prahlad Rijal

Source: The Kantipur Post