Amid much fanfare on January 10, Energy Minister Janardan Sharma announced the Power Purchase Rates (PPR) at which the Nepal Electricity Authority (NEA) would buy electricity from reservoir, peaking and run-of-the-river type projects. The motive was to boost investment in hydropower development.

The new rates were fixed as part of the government’s decision to implement the National Energy Crisis Reduction and Electricity Development Decade Guideline which aims to generate 10,000 MW of energy within 10 years. A Cabinet meeting held last February had endorsed the guideline.

In a way, Minister Sharma’s action was aimed at reminding the NEA about the Cabinet decision. The move also clarified the process as the new rates were also fixed. And this has boosted the optimism of private sector players.

But in the 10 days since the minister’s announcement, virtually nothing has happened as the Ministry of Energy is at loggerheads with the NEA over the procedure to be followed to move ahead.

While the state-owned power utility is awaiting a formal directive from the ministry for the implementation of the new rates, the ministry, on the other hand, is of the view that since the decision has been endorsed by a Cabinet meeting, and a directive has been sent to the NEA, it is up to the authority to implement the decision.

“The NEA is a fully government owned entity. As per the Electricity Act 1992, we are compelled to abide by the decision of the Energy Ministry once we get a formal directive,” NEA spokesperson Prabal Adhikari said.  According to him, the NEA will then take the matter to its board and then endorse it, opening the way for hydropower project developers to seal Power Purchase Agreements (PPA) under the new terms.  

As per the rates made public by the ministry, reservoir type projects will get Rs12.40 per unit during the dry season (December to May). The PPR for the wet season (June to November) has been fixed at Rs7.10 per unit.

Likewise, the PPR for peaking run-of-the-river projects has been fixed at Rs10.55 per unit during the dry season and Rs8.40 per unit during the wet season. Similarly, run-of-the-river projects with a capacity of more than 100 MW will get Rs8.40 per unit during the dry season and Rs4.80 per unit during the wet season.

These rates will be raised at the rate of 3 percent annually for a period of eight years, according to the ministry. The ministry has, however, said return on equity of individual projects that generate revenue by selling electricity to the NEA should be equivalent to or less than 17 percent.

According to Gokarna Raj Panta, deputy spokesperson for the Energy Ministry, the ministry is of the view that since the Cabinet has endorsed the guideline, there is no need to issue a fresh directive for the NEA to take the matter to its board. “We can send a copy of the decision sent earlier if the NEA needs it now,” Panta said.

The divergence of views between government agencies on such a petty matter has put private developers in a fix.

“The decision now seems like a populist move,” said Shailendra Guragain, president of the Independent Power Producers’ Association of Nepal (Ippan).

According to him, if the ministry had the intention of implementing the past decision, it could simply have directed the NEA to make a board decision and move ahead. He added that the recently published PPR might not encourage investors if implementation takes time.

“It takes seven to 10 years to build a storage type project. If the plan isn’t implemented on time, it will not attract developers,” Guragain said.

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