Furthermore, the National Water Resource Strategy 2002 laid out key policy directives for the NEA, such as the NEA was to become commercially viable through corporatisation, improved management, and separation of its rural electrification operations; the NEA was to be unbundled by creating a separate transmission/load dispatch centre; generation would be the responsibility of a separate corporation; distribution operations would be sold or contracted out to municipal or private operators; and, the NEA would operate as a holding company.

Unbundling the NEA

In an updated version of the Interim Plan 2011-2013, the Government of Nepal’s long-term strategy for the power sector included an increase in private, community/cooperative investment in electricity generation and transmission for domestic use, the extension of transmission as a high priority, and an increase in overall electricity generation to minimise loadshedding. Similarly, the Ministry of Science, Environment, and Technology has its own set of upcoming policy guidelines catering to rural and urban energy issues. The Investment Board of Nepal too has now become a new stakeholder in the energy market given its mandate for projects above 500 MW, along with the massive infrastructure projects being planned, which are bound to be energy intensive.

In a latest development, the Ministry of Energy has begun to separate transmission from the NEA in the initial stage. The Ministry is also working to create a Public Generation Company to separate generation from the NEA, which will only have a distribution department within it after separate companies are formed for generation and transmission. Similarly, power trading companies will be formed to procure and trade electricity. A National Electricity Regulatory Commission will also be formed to regulate the energy sector.

These latest developments in Nepal’s energy sector signify interest from the government to move towards reform. However, the policy pushed forth, with possible new structures to be created by the Ministry of Energy, could simply add more layers within the administration, which may or may not lead to the overall reform needed in the sector for the creation of a sustainable electricity market. Latest trends symbolise the interest of the ministry to retain control over all functions of the electricity market without a convincing justification of how these changes in the existing government structure can unleash the electricity market in an inclusive manner.

A more comprehensive act

There have been many recent macro and micro trends in Nepal’s electricity market, like the signing of a Power Trade Agreement (PTA) with India, two Power Development Agreements (PDA) brokered by the Investment Board Nepal, and the Saarc Framework for Energy Cooperation signed in 2014 in Kathmandu. Once the new constitution is promulgated, changes in the structure of governance will take place, which will need to be accounted for. Similarly, Nepal’s burgeoning trade deficit due to oil imports and the progress made in other forms of energy, such as solar, wind, and biogas with the help of the Alternative Energy Promotion Centre under the Ministry of Science, Environment and Technology, and the establishment of an Energy Development Council, an epic body to lobby for energy, must all be considered. It is important to question if existing, scattered legal frameworks and policy directives from various government stakeholders might be limiting the potential of Nepal to optimally harness its energy sources,

not only in the area of hydro but also other forms of energy available in the country.

The fragmentation seen in the existing acts, policy directives, and strategies from various government stakeholders is leading to policy paralysis and uncertainty in the electricity market. Thus, there is a need to work towards reforming the Electricity Act 1992 to lay out clear policy directives and set out roles for all cross-institutional stakeholders within each component of the electricity market—sources of energy, generation, transmission, distribution and retail, captive generation, tariff, export/import, role of regulator, rural/urban electrification, irrigation, infrastructure and transport, consumer and environmental protection, and judicial services for energy issues.

Further, understanding energy sources is a vital component of any energy act. In Nepal, this is doubly important because fresh water from 6,000 rivers and streams is a very valuable commodity. Similarly, the presence of renewable energy resources—such as solar (sunny country equals an average of 5.5 hours of sunlight a day), wind (3,000MW from the Annapurna Conservation Area alone, with the total potential still unknown), forestry (covering 39.6 percent of the country), and natural gas and oil (lacks credible data)—require a new, forward-looking act.  

Understanding the market

Nepal’s electricity market can be unleashed if a common act is created for electricity, which can be endorsed by all relevant, cross-institutional stakeholders to create policy clarity and consistency. In today’s context, an act needs to create an electricity market in Nepal to cater to the interests of local, national, and international market players with the government as a guardian to safeguard all of these interests equally. It is highly important to acknowledge that sources of energy, latest developments in technology, the government structure, market location, and the unique history of Nepal’s electricity market require a legal framework that suits the local context and the government’s capacity.

Hence, there is a need to procure a massive multidisciplinary, cross-institutional, and comparative study to understand the role and reform of the electricity markets in various countries across the world to lay out the best practices that could provide analytical support for Nepal. An act resulting from such a study can provide much-needed policy clarity for all stakeholders to harness the electricity market, opening up a much wider space for the private sector and helping the government achieve sustainable economic growth at a much faster pace.

 Saroj is the President of 8848 Inc