Kathmandu. The current government has adopted a policy of further tightening the PPA (Power Purchase Agreement) policy in the name of reforms in the energy sector. The government has indicated that it will tighten the PPA policy from the upcoming fiscal year's budget. Although the budget announced that PPAs for projects up to 10 megawatts will be done immediately on a take-and-pay basis, the government has remained silent on large projects and the previous 5,000 megawatts projects of the authority. The Ministry of Energy, Water Resources and Irrigation had formed a high-level committee to study the PPA. That committee has also submitted a report to Energy Minister Biraj Bhakta Shrestha in line with the policy taken by the government in the budget. The policy has also indicated tightening of the license for a long time in Nepal's hydropower sector. The government has started tightening the policy to discourage the tendency of obtaining licenses for electricity generation for a long time without moving forward. The high-level committee formed to review the current status, progress, and effectiveness of hydropower project licenses has pointed out the need for reform. Based on that, the government seems to be taking a new step on the issue of PPA. The government's budget policy and the committee's report recommendations match, which indicates that the ministry will get more strength to end the irregularities in the hydropower sector. However, energy producers have expressed disagreement with this tightening, although they have welcomed the government's prioritization of the hydropower sector. They believe that the government aims to produce 30,000 megawatts of electricity in 10 years, but tightening the PPA will cause some problems. Ganesh Karki, former president of the Independent Power Producers' Association Nepal (IPPAN), said that it is necessary to open new PPAs by immediately resolving the problems seen in PPAs. He emphasized that while the government's prioritization of the hydropower sector is positive, it should be made systematic rather than tightened. 'Since it is clear in the budget, we need to move forward by clarifying it. The authority had opened PPAs for 5,000 megawatts, but that has not moved forward either. The government needs to move that forward as well,' he said. He said that although the Ministry of Energy formed an internal study committee and recommended canceling some projects, not all projects are solely due to the private sector. He said that while it is right to cancel those who do not work, there are many projects that have been delayed for a long time due to the government, and the government should think about them. Meanwhile, Energy, Water Resources and Irrigation Minister Biraj Bhakta Shrestha said that he would rather be scolded for the delay in the PPA issue than be blamed for mistakes. Energy Minister Shrestha said that he is taking some time to study and break the irregularities seen in the hydropower license and PPA process. He said that the ministry itself does not have enough information about the basis on which past PPA agreements were made. 'What I feel is that it is better to be scolded for working slowly. But it is not good to be scolded for making a mistake. I am being scolded for working slowly now, I can tolerate that. But I don't have to be scolded for giving licenses and PPAs only to your own people,' said Minister Shrestha. He said that the suggestions included in the report will be implemented immediately after legal and technical evaluation. Minister Shrestha said that the government has adopted a policy to involve the private sector not only in production but also in electricity trade and transmission line construction. He said that legal provisions will be made to allow the private sector to export electricity to the international market and to charge 'wheeling charges' by building transmission lines with private investment.
- 38 projects with 1388 megawatts to be canceled
Based on the recommendation of the high-level committee formed by the ministry, the licenses of 38 hydropower projects with a capacity of 1,388 megawatts, which have signed power purchase agreements (PPAs) but have not started construction, have been recommended for cancellation. Based on that recommendation, Energy Minister Shrestha also said at an energy entrepreneurs' program that the government's policy is to end the 'license raj' that has persisted in the energy sector for years. He said that the tendency to hold onto projects without working will be discouraged. Minister Shrestha said that such licenses obtained without constructing projects and holding onto projects with various excuses are hindering the country's energy development. He clarified that the government will move forward by giving opportunities only to genuine investors and controlling the tendency to capture projects. 'The government will be strict with those who take licenses, do not work, and hold onto projects with various excuses,' said Minister Shrestha. 'We expect this to end the license raj and create an environment for genuine entrepreneurs to work.' However, former IPPAN president Karki expressed confidence that the budget will be implemented as it addresses the problems of the private sector. 'What we have been raising for 23 years and what is included in the manifesto has also come in the budget. Therefore, we believe that the work will be done now,' Karki said. 'It is said to do PPA on a take-or-pay basis. We hope that work will be done.' Karki said that the government said it would do PPA in 180 days, and now it has not even been 100 days, so the private sector has expectations rather than criticism. He also expressed confidence that the things mentioned in the budget will be implemented. 'Many things from the past also came in the budget but could not be implemented. But this time, a government close to Rasuwapa has come with a two-thirds majority. What we have been raising has also come in the policy and programs and the budget,' Karki said. 'We hope it will be implemented this time.' Karki also said that the extension of the RCOD (the final date by which the project must start commercial electricity generation) is necessary. 'We have been requesting an extension of the RCOD for a long time, but even after going to the board several times, the deadline has not been extended. The government needs to extend the deadline.' According to the committee's report, 11 projects with a capacity of 169 megawatts, which obtained production licenses before 2076 BS but have not made any progress so far, have also been recommended for cancellation. The committee concluded that these projects did not fulfill the conditions set at the time of obtaining the license and did not work according to the prevailing legal provisions, so their licenses should be canceled. The committee has suggested distributing survey licenses based on national needs and competition. The report states that various policy and legal reforms are necessary to make the license distribution system more transparent, competitive, and in the national interest. The committee has suggested amending the conflicting provisions in the Electricity Act, Electricity Regulations, Hydropower Development Policy, and Licensing Directives to ensure uniformity. It appears that the ministry will proceed according to the suggestion to cancel the licenses of projects with zero or very low progress after reviewing the licenses issued by the Department of Electricity Development. In the study conducted under the government's 100-point governance reform action plan, 15 projects with a capacity of 220 megawatts that have achieved more than 50 percent progress within five years have been placed on the priority list. Similarly, it has been suggested to encourage 131 projects with a capacity of 5,642 megawatts that have achieved about 50 percent progress. The committee has given the opinion that 38 projects with a capacity of 1,124 megawatts, which are under construction but could not work as targeted due to various reasons, should be facilitated and completed quickly. However, it has concluded that the progress of 75 projects with a capacity of 4,121 megawatts is very weak and has recommended placing these projects on the problematic list and proceeding with the action process.
- 176 projects with less than 10 megawatts eligible for immediate PPA
The report has also identified 176 hydropower projects with a capacity of less than 10 megawatts that can be immediately subjected to PPA. The total capacity of these projects is 1,164 megawatts. The committee has also suggested preparing a five-year electricity development plan for the long-term development of the energy sector and advancing production, transmission, distribution, consumption, and export in an integrated manner. It has also pointed out the need for legal provisions to remove the existing ambiguities regarding project ownership transfer, operation management, and revenue collection after the production license expires.
- PPA for 10 megawatts opened, uncertainty remains for large projects
The government has made arrangements in the budget to immediately open PPAs for small hydropower projects up to 10 megawatts. The Nepal Electricity Authority had decided in February 2080 BS to open PPAs for projects up to 10 megawatts and abolish the quota system to encourage domestic small investors. However, energy producers are concerned about the future of large projects above 10 megawatts. Currently, about 16,000 megawatts of projects are waiting for PPA, of which the capacity of small projects up to 10 megawatts is only about 1,000 to 1,200 megawatts. The budget's silence on whether to do PPA on a 'take or pay' basis for large projects with a capacity of the remaining 15,000 megawatts has created some uncertainty in the private sector. The committee's report also states that the current first-come, first-served system in the licensing system needs to be modified and transformed into a competitive bidding system. This is expected to pave the way for competitive PPAs in the future.
