The government has for the first time allowed private companies to engage in electricity trading, issuing Letters of Intent (LOI) to 12 firms. This decision, made by Minister for Energy, Water Resources and Irrigation, विराजभक्त श्रेष्ठ, on Friday, marks a significant shift in Nepal’s energy policy, opening new business opportunities for the private sector.
For a long time, the private sector, which has primarily invested in hydropower project construction and electricity generation, lacked a clear legal framework to directly participate in cross-border electricity trade. This new policy enables private companies to explore domestic and international markets, identify potential buyers and trading partners, and prepare power purchase agreements.
Among the companies that received LOIs are Green Energy Power Trading, Nepal Power Trading and Management Limited, Power Trading and Energy Exchange, Nifra Trading and Energy Exchange, Himalayan Trading Electricity Limited, Asian Power Trading Company, Nepal Power Exchange (NEPEX), Everest Power Trading, and Power Trading and Eco Energy.
Several of these companies are associated with established business groups and energy sector investors. Green Energy Power Trading is linked to Butu Lamichhane and Ganesh Karki’s BG Group. Nepal Power Trading and Management Limited involves Bhatbhateni Group, while Nifra Trading and Energy Exchange is part of Vishal Group. Nepal Power Exchange (NEPEX) includes energy entrepreneurs Krishna Acharya, Uttam Vlon, and Ashish Garg. Asian Power Trading Company, founded by Sunil KC, is chaired by Lal Krishna KC. Power Trading and Eco Energy is associated with Bhawani Rana, former president of the Federation of Nepalese Chambers of Commerce and Industry.
Why this matters
This decision is seen as a crucial step towards structural reform in Nepal’s energy sector and an expansion of private investment. With increasing private investment in electricity generation, ensuring a market for the produced electricity has become a significant challenge. Engaging the private sector in trade preparation will provide early insights into market demand, electricity prices, terms of sale, and commercial risks, which can help in making informed decisions for new hydropower projects.
Uttam Vlon, senior vice-president of the Independent Power Producers’ Association, Nepal (IPPAN), stated that this new arrangement injects fresh energy into the private sector. He emphasized that it diversifies investment for those in the energy sector, opening avenues for infrastructure development and new areas of investment beyond just electricity production. Vlon urged the government to expedite the final licensing process for these companies, noting that the LOI allows them to begin office setup and technical preparations.
What happens next
While the LOI grants theoretical consent for companies to undertake necessary preparatory work for cross-border electricity trade, it does not immediately permit them to commence import, export, or trading activities. To formally operate trade, implement power purchase agreements, book transmission capacity, and utilize open access to the transmission system, companies must fulfill all required permits, approvals, consents, and technical arrangements as per relevant laws.
The government has also imposed various conditions to prevent misuse of the LOI. Companies must declare that they are not blacklisted under prevailing laws, that the submitted details and documents are true, and that they do not intend to misuse the LOI. The LOI does not create a right to claim a license, and agreements between companies and their partners will not create any liability for the Nepal government.
LOI recipients are required to submit progress reports to the Ministry within 15 days of the end of each quarter, detailing completed work, achievements, progress against targets, identified problems, and future action plans. The Ministry may also request additional documents or clarifications. The LOI is valid for a maximum of two years from its issuance date, or as specified by law, with provisions for extension upon application.
Background and context
Hydropower development in Nepal began in 1968 BS with the construction of the 500-kilowatt Pharping Hydropower Project. The private sector entered the energy sector after the government adopted an open economic policy for electricity in 1992. The Khimti Hydropower Project, developed after 1993, is considered Nepal’s first privately promoted project. The private sector has long advocated for the right to trade electricity. The government’s strategy to involve the private sector in electricity trade was prompted by the wastage of 500 megawatts of electricity during the last monsoon season, while large industries faced power shortages.
The Ministry of Energy, Water Resources and Irrigation had formed a 10-member ‘Electricity Trade Study and Recommendation Committee’ on Ashar 26 (BS) 2082, under the coordination of former Energy Secretary Dinesh Kumar Ghimire. This committee submitted its report to then-Energy Minister Deepak Khadka on Bhadra 10 (BS) 2082, recommending that the private sector be allowed to trade electricity. Minister श्रेष्ठ had previously indicated that preparations were underway to grant permission for private sector electricity trade before Dashain.
