Nepal Power Exchange Limited and Indian company Manikaran Power Limited signed a memorandum of understanding on energy trading on Monday.

The agreement ends the monopoly of the state-owned electricity company, the Nepal Electricity Authority, in energy trading.

Observers see Monday’s development as a landmark deal that could pave the way for the country’s private sector to sell electricity into the Indian market. The pact was signed during the Nepal Power Market Summit 2022 held in Kathmandu.

Nepal Power Exchange Limited is a company promoted by many members of the Association of Independent Power Producers of Nepal (IPPAN), the private sector body that promotes and encourages the development of electricity.

The signing of the agreement between two Nepalese and Indian private companies follows the approval by the Indian government of the Nepal Electricity Authority to sell its electricity in the Indian Electricity Exchange market.

Experts and representatives of the private sector say that the entry of the private sector into the energy trade would encourage more investment in electricity generation and allow more electricity to be exported to some energy-intensive countries like the United States. India and Bangladesh, which could help reduce Nepal’s growing trade deficit.

The surge in imports has become a major concern for the government as its foreign exchange reserves are depleting at a faster rate. The current business scenario shows that imports could reach the trillion rupee mark in the first half of the current fiscal year 2021-2022 which began in mid-July of last year.

The trade deficit, which occurs when the value of a country’s imports exceeds the value of its exports, jumped 54.70% to Rs 735.48 billion in the first five months. [mid-July to mid-December] of the current fiscal year. Total trade – exports and imports – amounted to Rs 838.40 billion in the first five months of the current fiscal year.

Experts say private sector engagement in energy trading would also reduce the risk of “energy wastage”, especially during the peak period of power generation or the rainy season.

Nepalese private sector power developers are expected to produce around 3,000-4,000 MW of power over the next few years.

IPPAN chairman Krishna Prasad Acharya told the Post in October that the Nepal Electricity Authority has signed a power purchase agreement with private sector developers for around 3,500 MW and that many projects are underway. under construction, while projects with a combined capacity of 7,000 MW are waiting to sign electricity. purchasing contracts with the authority.

Ganesh Karki, vice chairman of IPPAN, told the Post that the Indian company has committed to acquire a 15 percent stake in Nepal Power Exchange Limited in accordance with the agreement.

“Likewise, Manikaran has also agreed to purchase 500 MW of electricity from Nepal Power Exchange Limited, where the Indian company will also hold a stake,” he added. “This is just the beginning.”

Officials and experts say, however, that the private sector still has a long way to go when it comes to energy trading.

It is also questioned whether the Nepalese private sector would be able to sell electricity competitively in the Indian electricity market.

“First, there is no law authorizing the government to allow the private sector to engage in electricity trading even if it is willing to provide a license for electricity trading to companies in the private sector, “said Madhu Bhetuwal, spokesperson for the Ministry of Energy and Water. Resources and irrigation. “The private sector company may not be immediately cleared to enter the electricity business. ”

The government had made a provision to allow the private sector to engage in the electricity trade in the Electricity Bill. The bill has been blocked in the National Assembly since mid-July 2020.

According to article 29 of the bill, private sector companies can also obtain a license to trade in electricity and these authorized companies can engage in trade in electricity between countries.

Article 30 of the bill states that a company authorized to market electricity must obtain another license from the Department of Energy for international trade or the export and import of electricity. “If this bill passes parliament, it will pave the way for the government to issue business licenses to private companies,” Bhetuwal said.

Energy Minister Pampha Bhusal has frequently assured the private sector that the government is ready to issue energy trading licenses to them.

“The government asked for credible land so that we could sell electricity to India before providing a license,” said Acharya, the chairman of IPPAN. “With the signing of a memorandum of understanding with an Indian company, we have shown such ground. Now the government must keep its promise.”

At the end of December last year, Bidhyut Byapar Company, a subsidiary of the Nepal Electricity Authority, received government permission to trade cross-border electricity.

Karki said the private sector wanted the electricity bill passed as soon as possible.

“If not, the government should open the door for the private sector to enter the electricity business through any other legal provision,” he added.

He said the government should speed up the process to allow private sector companies to enter the electricity business, even to ensure that excess energy is not wasted.

After registering the Nepal Power Exchange Limited in 2019, the private sector lobbied the government for permission to enter the electricity business.

India had authorized the Nepal Electricity Authority to sell electricity on the Indian electricity market in early November. After receiving approval from the Indian authorities, the authority sold the electricity produced by the 24 MW Trishuli hydroelectric project and the 15 MW Devighat hydroelectric project to India Energy Exchange Limited (IEX).

This was the first time Nepal sold electricity on the Indian forex market where prices are determined on a competitive basis.

“We sold power to India for over a month and quit in early December after entering an energy deficit situation due to the reduction in power generation from hydropower projects over the years. water, ”said Suresh Bahadur Bhattarai, spokesperson for the authority. “We are now buying electricity from India. “

The authority is, however, struggling to gain approval from Indian authorities to sell electricity to India from power projects other than Trishuli and Devighat Hydropower Projects, both of which were developed with government assistance. Indian.

“We are making efforts to get approval to sell electricity from other projects as well,” Bhattarai said.

The authority has also sought approval from the Indian authority to sell electricity from Upper Tamakoshi, Upper Bhotekoshi and Marshyangdi with a combined installed capacity of 582.1 MW.

IPPAN vice chairman Karki, however, said the private sector could more easily gain approval from Indian authorities due to their relationship with Indian companies.

“For example, Manikaran will have a stake in our electricity trading company. As a company with Indian ownership, it may be easier for our company to get the necessary approval from the Indian government, ”he said.

According to him, a few other Indian companies have also expressed interest in purchasing power from Nepal Power Exchange Limited.

The Indian Ministry of Energy introduced a “Procedure for Approval and Facilitation of the Import / Export (Cross-border) of Electricity” in February last year, setting the criteria for the export and import of electricity. Electricity from neighboring countries This clearly showed how Indian entities could purchase electricity from neighboring countries.

The procedure has imposed certain restrictions on the trade in electricity if there are investments from a country with which India shares a land border in the production of such electricity, which Nepalese officials say is aimed at Chinese investments in Nepal’s power sector given the strained ties between the two geopolitical rivals.

Nepal Electricity Authority officials said Indian authorities were very sensitive to potential Chinese components of hydropower projects that Nepal wanted to sell to India.

However, Bhetuwal said India has at least established all procedures for supplying electricity to neighboring countries, although there are some bottlenecks.

Officials said that selling electricity in the Indian electricity market would not be problematic after the necessary approval from Indian authorities.

“We could sell electricity unhindered in the Indian market after getting approval from the Indian authorities,” said Bhattarai of the Nepal Electricity Authority. “You must have electricity to sell and approval from Indian authorities. “

But officials said the issue of the national license must first be resolved.

The question also arises as to which transmission lines the private sector would use if the Nepal Electricity Authority had a monopoly on transmission lines.

The private sector can sign an agreement with the Nepal Electricity Authority for the use of its transmission lines.

“They should pay transportation costs to the Nepal Electricity Authority and the Indian company also for the transportation of electricity through the Indian transmission system,” Bhattarai said. “The question is whether they can afford to sell electricity by paying transmission costs in Nepal and India.”

According to him, the Nepal Electricity Authority recently received an average price of just over INR 3 per unit for the sale of electricity.

“Will the private sector be able to sell electricity profitably if prices stay lower?” Bhattarai asked.

But Karki, the vice president of IPPAN, said the private sector would be free to decide whether or not to sell the electricity based on cost and benefit estimates.

“We want the necessary approval from the Nepalese government first,” Karki said.