The Energy Ministry has prepared a draft Electricity Bill which requires authorities to issue licences for hydropower development and operation to private developers through open competition.

After the bill is enacted into law by the House, it will replace the existing provision of giving licences on a first-come, first-served basis.

Currently, the Department of Electricity Development allows private producers to develop hydel schemes based on applications without competition based evaluation.

"The development and operation of hydropower projects can be carried out through open competition either by setting prequalification standards or without setting terms of qualification," states the bill. "The promoters qualified for competition should be allowed to vie for licences without any discrimination."

Independent power producers say the notion of open competition is healthy for the electricity market, but it remains to be seen how the government addresses issues facing private producers after the bill becomes law.

“The energy sector has licences for survey and generation of schemes with a combined capacity of 18,000 megawatts, and there is lack of clarity on what will happen to those private producers who are studying the schemes,” said Kumar Pandey, vice-president of the Independent Power Producers’ Association of Nepal. “Also, no points have been made on the standards for qualification or how competition can be free of preferential treatment or discrimination-free.”

As per the draft bill, the rule of open competition will not be applied to companies who have received survey licences and have applied for generation licences before the enactment of the new law.

“However, the schemes failing to receive a generation licence within the time frame of the survey will be developed through open competition," states the bill.

The proposed modality for receiving licences requires the Department of Electricity Development to publish a notice calling private promoters to apply and vie for the licences mentioned by the department.

As per the provisions of the bill, local governments will be responsible for issuing permits for power generation, transmission, distribution and trade for hydel schemes with an installed capacity of up to 3 megawatts. Provincial government will hold the authority to issue permits for schemes of 3 to 20 megawatts while the ministry will issue permits for schemes above 20 megawatts.

However, the projects identified to be developed and operated by the government or entities with 51 percent government stake or more shall not be required to obtain generation licences through open competition. Also, projects funded by joint or single financing by foreign governments or donor agencies will not be subject to open competition.

Following the competition, the responsible authorities will be required to issue generation licences within 15 days of receiving the application, transmission or distribution licence within 120 days and electricity trade or customer service licence within 45 days.

Also, the new provisions, if implemented, will bar government authorities from renewing generation licences.

The draft also incorporates provisions allowing local levels to survey hydel schemes of up to 3 megawatts and provincial governments to study and survey schemes of 3 to 20 megawatts while the ministry will hold survey rights of plants above 20 megawatts.