Nepal opens door to private power traders, but legal hurdles remain

Nepal’s Energy Ministry has decided to issue letters of intent to private companies interested in trading electricity across the country’s borders. This marks a possible shift from a system led by the Nepal Electricity Authority. Private firms could eventually participate in electricity trading, alongside their existing role in power generation. However, the decision is only a preliminary step, not permission to trade.

The letters will help companies study markets, find potential partners, assess investment opportunities and prepare their businesses. Twelve companies have applied, including Nepal Power Exchange, NIFRA Trading and Energy Exchange, Green Energy Power Trading and Trans Asia Power Trading. They may also discuss cooperation with Indian partners and establish offices.

Actual trading must wait for an amendment to the Electricity Act, 1992. The proposed bill has gone to the Ministry of Law and must then reach the Cabinet. Companies will also need formal licences and relevant approvals before buying, selling or transmitting electricity.

A letter of intent signals that the government is willing to let a company prepare for a possible future activity. In this case, it is a preliminary approval for private firms considering cross-border electricity trading. It does not give them the legal right to buy or sell power. Its purpose is to help the sector demonstrate readiness before the full legal framework exists.

Companies receiving letters can identify potential markets and partners, assess investment opportunities and make business preparations. They can discuss arrangements with Indian partners, establish offices, increase paid-up capital and hold annual general meetings. They must also submit progress reports to the Energy Ministry every three months.

The letters remain valid for a maximum of two years. They do not allow companies to sign power purchase agreements, book transmission capacity or use open access. The ministry also says the letters do not guarantee licences or make the government responsible for company agreements.

Twelve companies have applied for letters of intent to enter Nepal’s electricity-trading business. The applicants include Nepal Power Exchange, NIFRA Trading and Energy Exchange, Green Energy Power Trading and Trans Asia Power Trading. Their applications show that private firms are preparing for a market that could eventually extend beyond electricity generation into cross-border trading.

The letters allow these companies to identify potential markets and business partners. They can assess investment opportunities, establish offices, increase paid-up capital and hold annual general meetings. They can also begin discussions with Indian partners. These steps help companies understand the market and demonstrate readiness while lawmakers work on the licensing framework.

The preparations do not amount to commercial trading. Companies cannot implement power purchase agreements, reserve transmission capacity or use open-access transmission based only on a letter. They must provide progress reports every three months, and each letter can last no longer than two years.

Private companies cannot yet buy, sell or transmit electricity because Nepal’s current legal framework does not give them the required trading licences. The Electricity Act, 1992 must first be amended to create a licensing system for private electricity traders. Until that happens, letters of intent remain preparation documents rather than permission to conduct transactions.

The government has sent a proposed amendment to the Ministry of Law for consent. After that approval, the bill must be endorsed by the Cabinet before implementation. Companies also cannot use their letters to sign power purchase agreements, book transmission capacity or access the transmission grid. The ministry will not accept responsibility for agreements companies make on the basis of the letters.

Even after Nepal issues licences, more barriers remain. Traders need access to transmission infrastructure, and exports to India or other countries through the power exchange require approval under India’s cross-border electricity trade guidelines. Transmission charges and technical rules are also still being clarified.

The Nepal Electricity Authority currently holds the official coordinating role for cross-border electricity trading. It is Nepal’s only designated nodal agency for power trade between Nepal and India. This means private companies do not yet share the authority’s formal position in arranging or coordinating cross-border transactions.

The government designated the NEA as the nodal agency on February 28, 2020. Its responsibilities include formulating plans for electricity imports and exports, transmission lines and electricity trading. The NEA carries out this work in coordination with India’s designated authority. This arrangement provides the official channel for cross-border power activity.

Nepal also exports hydropower to Bangladesh using India’s transmission infrastructure. The government’s new letters of intent may prepare private companies to participate in future trading, but they do not replace the NEA’s current role. Private firms must still wait for legal amendments, Nepalese licences, relevant approvals and access to transmission systems.

A private company first needs Nepal to amend the Electricity Act and issue it a formal electricity-trading licence. It must then secure access to transmission infrastructure, because electricity cannot cross borders without a usable grid route. The article also notes that transmission charges, voltage-level rules and responsibility for losses are important technical matters still being clarified.

For exports to India through the power exchange, the company must obtain approval under cross-border electricity trade guidelines issued by India’s Central Electricity Authority. It also needs grid access and the ability to use transmission capacity. A Nepalese licence alone is therefore insufficient. The company cannot book transmission capacity or use open access merely because it has a letter of intent.

Nepal exports hydropower to Bangladesh using India’s transmission infrastructure. The article does not specify a separate Bangladeshi approval process. It does establish that cross-border trading depends on Nepalese licensing, India’s approval framework and available transmission infrastructure, especially where Indian networks carry the electricity.

A transmission wheeling charge is a fee paid for using electricity transmission lines. It matters because a power trader may arrange electricity but still need another entity’s network to move that power between locations or across borders. The charge helps establish a cost for access to Nepal’s transmission system.

Nepal’s Electricity Regulatory Commission fixed the charge at 57 paisa per unit in October. This is the first time Nepal has fixed a charge for using transmission lines. However, the commission still had not issued related directives specifying charges at different voltage levels or assigning responsibility for transmission losses, even after introducing the open-access directive.

Energy promoters have asked for the rate to be revised because they consider it too high. The uncertainty over voltage-level charges and losses adds another practical issue for future private traders. Even with a licence, companies would need clear access rules and workable transmission costs before cross-border transactions could operate smoothly.