Govt opens door for private sector to prepare for cross-border electricity trade

Kathmandu, October 16

The government has, for the first time, agreed in principle to allow private companies to prepare for cross-border electricity trading, opening up new opportunities for the private sector beyond power generation.

Energy, Water Resources and Irrigation Minister Biraj Bhakta Shrestha decided on Friday to issue letters of intent to private companies, allowing them to explore potential markets and prepare for electricity trading.

Under the ministerial decision, companies receiving letters of intent will be able to identify potential electricity buyers and business partners in Nepal and abroad, assess market feasibility, and prepare the agreements required for electricity trading.

The decision is expected to create new business opportunities for private companies, which have long sought permission to participate in cross-border electricity trade.

Until now, the private sector has been able to invest in and operate power generation projects, but a clear process for direct participation in cross-border electricity trading had not been established.

The new arrangement will allow private companies to explore markets and identify trading partners alongside their power generation activities. This could help investors assess potential demand, prices, market conditions and trading terms before committing to new electricity projects.

Letter of intent does not permit immediate trading

A letter of intent provides in-principle approval to prepare for cross-border electricity trading. It does not automatically authorise a company to begin trading or buy and sell electricity.

Companies receiving the letters can conduct technical, financial and commercial feasibility studies, consult potential trading partners and prepare the necessary agreements in accordance with existing laws.

However, they must obtain the required licences and approvals and meet technical requirements before commencing actual trading, implementing electricity purchase and sale agreements, booking transmission capacity or accessing the transmission system.

The arrangement therefore allows private companies to enter the preparatory stage of cross-border trading, while leaving further legal and technical requirements in place before transactions can begin.

Letters of intent valid for up to two years

The government has also set conditions to prevent misuse of the letters of intent.

Applicants must declare that they are not blacklisted under applicable laws, that the information and documents they submit are accurate, and that they do not intend to misuse the approval.

A letter of intent cannot be used as grounds to claim an automatic right to obtain a trading licence. Agreements between a company and its business partners will also not create any liability for the government.

Companies must submit progress reports to the ministry within 15 days of the end of each quarter. The reports must detail completed activities, achievements, progress against targets, challenges and future plans. The ministry may request additional documents or explanations when necessary.

Companies must obtain prior approval where required by law before changing their ownership or shareholding structure.

The government may suspend, revoke or amend a letter of intent in accordance with the law if its conditions are breached, submitted information is found to be false or misleading, or action is considered necessary in the public interest or to ensure the safe operation of the electricity system.

The letters will remain valid for the period prescribed by law or for a maximum of two years from the date of issuance. Companies seeking an extension must apply to the ministry at least 30 days before expiry, providing reasons and a progress report.

Private sector participation shifts towards market development

The decision could broaden investment and commercial participation in Nepal’s energy sector by linking private power generation with market development and trading preparations.

By engaging with potential buyers and business partners, companies will be able to assess demand in different markets, the prices at which electricity could be traded, and the terms and risks involved.

Such information could help investors make better-informed decisions about developing new power projects based on market prospects.

As Nepal expands its electricity generation capacity, finding domestic and international markets for its output is becoming increasingly important. Allowing private companies to prepare for cross-border trading could help the country gradually shift from a generation-focused energy sector towards a more market-oriented model.

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