IPPs have progressed from implementing small-scale projects of 2-3 MW to undertaking ventures of up to 100 MW, and are now expanding their capacities to projects exceeding 100 MW.
Nepal has witnessed a remarkable transformation in its energy sector since the economic liberalisation of the 1990s, with significant involvement of the private sector emerging since 2003. Today, Nepal has a total installed capacity of around 3,300 MW. The private sector contributes a substantial 70% share in the country’s total energy output. Additionally, projects totaling an additional 3,000 MW are currently under construction. Nepali independent power producers (IPPs) have progressed from implementing small-scale projects of 2-3 MW to undertaking ventures of up to 100 MW, and are now expanding their capacities to projects exceeding 100 MW. Nepali IPPs possess the capacity and expertise to undertake a 500 MW project utilising local contractors and capital. This transformation extends beyond just constructing hydropower projects. Significant technical upscaling has occurred with Nepali workers now handling 100% of tunnel excavation. The growth is not just limited to tunnelling, there are now around two dozen hydro-mechanical companies in the country. This surge in local expertise extends beyond primary construction, with numerous supportive industries emerging to strengthen the energy ecosystem.
This year, Rs 200 billion worth of projects initiated by the private sector are slated for execution, with more than 1,000 MW of electricity scheduled to be added to the national grid. The Independent Power Producers' Association Nepal (IPPAN) has proposed designating the upcoming decade as the 'Energy Decade', urging the government to focus on energy development by declaring it an energy emergency period. IPPAN has proposed generating 30,000 MW of electricity, out of which 20,000 MW would be exported to neighbouring countries, including India. The government has set an ambitious target of generating 28,500 MW of electricity, with 13,500 MW allocated for domestic consumption and the remaining 15,000 MW earmarked for export to neighbouring countries. However, achieving this target requires a substantial investment of Rs 4,600 billion.
IPPs are facing challenges in securing funds for project investments due to the current NRB provision, which restricts banks from lending more than 10% to the energy sector.
IPPAN has been insisting that Nepal can successfully generate 10,000 megawatts within a decade. To realise this, we need substantial investment from Nepal's banking sector, making it mandatory for banks to invest 20% in the energy sector. Additionally, it is also necessary to access funds from the global market, but this hinges on political reforms to facilitate the process. The financial commitment required for this endeavour is significant, with an anticipated expenditure of over Rs 400 billion annually over 11 years, including Rs 200 billion for importing equipment from abroad. Such investments strengthen the country's economy, revitalise industries and create employment opportunities for thousands of individuals. The cement industry is currently operating at only 30% capacity. With enhanced energy production, industries reliant on energy incentives could operate at full capacity.
However, achieving these ambitious goals necessitates legal reforms. If acquiring 28,000 permits within a decade already requires 5-7 years, achieving ten similarly ambitious goals within the same timeframe seems implausible. Nepal has secured a long-term power trade agreement with India, paving the way for the export of 10,000 MW of electricity, following Prime Minister Pushpa Kamal Dahal's visit to India last year. Nepal is also on the brink of finalising an agreement with Bangladesh to export 40 MW of electricity. These progressive initiatives bode well for Nepal's aspirations in energy exports. IPPs are facing challenges in securing funds for project investments due to the current NRB provision, which restricts banks from lending more than 10% to the energy sector. IPPAN has been requesting the government to increase this limit to 20% to facilitate greater access to financing for IPPs and accelerate energy project developments.
The government urgently needs to amend the Land Acquisition Act to streamline the land acquisition process and revise the Forest Act's stringent regulations, which often result in prolonged delays in obtaining permissions for felling trees. This bureaucratic red tape significantly hampers project timelines. Furthermore, the government's reluctance to permit the private sector to construct transmission lines, coupled with its limitations in doing so, exacerbates the issue. Additionally, the government's reluctance to permit the private sector to construct transmission lines, coupled with its limitations in doing so, exacerbates the issue. Furthermore, the provision that automatically revokes project approval if financial closure is not achieved within two years should be reevaluated and corrected to accommodate realistic project timelines and challenges.
Navigating through 14 ministries to obtain various permissions for a single project is a cumbersome process. IPPAN proposes implementing a streamlined "one-door policy" until Nepal reaches a production capacity of at least 18,000 MW, designating the energy ministry as the final authority for all matters concerning energy projects. Currently, energy developers need to visit multiple entities such as the Ministry of Home Affairs, Ministry of Defense, Ministry of Foreign Affairs and the Indian Embassy for tasks like importing explosives. Simplifying this process would expedite project implementation significantly.
The proposed electricity bill requires urgent revision, as it threatens to deter private-sector investment in the energy sector. Several key incentives outlined in the Electricity Act 1992 have been notably diminished in the proposed bill, including a reduction in the licence period from 50 years to 35 years, and the provision allowing for the revocation of licences at any time creates uncertainty for investors. Therefore, the bill must be passed with amendments to address these concerns and foster a conducive environment for private sector participation in the energy sector.
(Karki is the President of the IPPAN - Independent Power Producers Association, Nepal)
