Location Map - Nepal Nepal

Source:Great Rivers of the World, National Geographic Society, 1984

Hydropower Potential of Nepal Average annual flow: 225 Billion m 3 Theoretical generation capacity : 83,000 MW Economically feasible capacity: 44,000 MW Number of feasible sites: 66 Existing, under construction and committed capacity: 666 MW Potential to meet national and regional needs

Major River Basins and Hydropower Projects in Nepal

Nepal: Power Demand and Supply Demand by 2005:622 MW Existing Capacity: 535 MW Committed additions : 23 MW Private Sector16 MW Public Sector7 MW -20 % population have access to electricity Total generation by 2005:660 MW

Scenario of Generation by 2002/03 Peaking Capacity : 604 MW Expected Peak (annual) : 482 MW Max. Surplus (wet season): 154 MW Surplus Capacity (dry season): 41 MW Average Energy: 3260 GWh Demand Energy: 2110 GWh Surplus Energy: 1150 GWh

Policy & Legal Framework Hydropower Development Policy Industrial Policy Foreign Investment & One-Window Policy-1992 Electricity Act (Regulations – 1993) Electricity Theft Control Act Industrial Enterprises Act Foreign Investment and Technology Tfr. Act,1992 Environment Conservation Act (Regulation-1997) National Environmental Impact Assessment Guidelines

Legal Framework Survey license issued within 30 days Period of such licence up to 5 years Project license issued within 120 days Period of such license up to 50 years Exclusive water rights Public consultation before issuance of Project license Government land provided on lease or acquisition of private land

Major Players in Water and Energy Sector Ministry of Water Resources (MOWR) l Line Ministry responsible for development & Protection of Nepal’s Water and Energy Resources l Overall regulatory authority for Power Sector l Oversight of operation of Public and Private Power sector development Water and Energy Commission & its Secretariat (WEC/WECS) l Formulation policy and Strategy l Analyzing Bilateral and Multilateral Projects l Reviewing multipurpose large & medium projects l Coordinating national sectoral policies Tariff Fixation Commission (TFC) l Review on electricity tariff levels l Fixation of tariff structures l Fixation of charges for all consumers

Major Players in Water and Energy Sector Tariff Fixation Commission (TFC) Composition: Person nominated by His Majesty’s Government from non-governmental sector Chairman Representative, Ministry of Water Resources Member Economist nominated by His Majesty’s Government from non-government sector Member Person nominated by His Majesty’s Government among the licensee of the electricity generation, transmission or distributionMember Representative, Federation of Nepal Chamber of Commerce and Industry Member Person nominated by His majesty’s Government from among the ConsumersMember Director General, Department of Electricity DevelopmentMember Secretary

Major Players in Water and Energy Sector Department of Electricity Development (DoED) l Study and Development of Multipurpose, Bilateral and Major Hydropower Projects l Promotion and Development of Private investment in Power Sector including Licensing l Preparation of Standards for Transmission and Distribution of electricity and Inspection & Monitoring for its compliance l Advisory assistance to MOWR l Acts as secretariat of Tariff Fixation Commission. l Department of Electricity Development (DOED) has been established as “One Window” for Issuance of survey & project licenses Providing concessions & incentives Assistance in importing goods Assistance in obtaining land Assistance in obtaining permits, approvals Acts as a Regulatory and monitoring body

Institutional Aspect contd… Nepal Electricity Authority (NEA) l An HMG/N undertaking established under NEA ACT 1984 l Generation of Electricity l Transmission of Electricity l Distribution of Electricity

Market Domestic:Nepal Electricity Authority Foreign: India Huge power demand Under Power exchange arrangement Present - 50 MW. Agreed MW 132 kV links available at two points, three additional identified Under Power trade agreement signed in June Regional: Under Growth quadrangle concept within SAARC.

Present Tariff Structure Meter CapacityMinimum chargeStreet lamp Up to 5 AmpRs Rs AmpRs Rs AmpRs Rs AmpRs Rs Three PhaseRs Rs Energy Charge per unit: up to 20 units Rs per unit; 21 to 250 units Rs per unit; above 250 units Rs per unit.

HMGN/NEA Policy on Power Purchases from Small Projects Rate: Rs 3 per unit during mid April-mid November Rs 4.25 during mid December-mid April - an annual escalation of 6 percent per annum for five years and will be reviewed thereafter. - PPA for 25 years - 100KW to 1000KW will be purchased by NEA with - an immediate effect

Basis of Tariff Fixation -Rate of Depreciation, -Reasonable profit -Mode of the operation of the plant -Change in the consumer’s price index, -Royalty and the policy adopted by His Majesty’s Government to the development of electricity -Marginal cost of electricity generation -The exchange rate of convertible foreign currency -The cost of fuel to be used for the production of electricity

Tariff Fixation contd. -Review the financial agreement entered between the licensee and the financial institution providing loan or investing capital in the concerned electricity project -Types of Consumers -Social Liability -Cross Subsidies -Potential for demand side management -Organizational Efficiency

Issues and Challenges: tariff Affordability and Tariff Rationalization Tariff design should give due considerations for the economic standards of people Subsidy to the needy, effective mechanism to be devised and needs to be made transparent Tariff should be based on only prudent investments and efficient operations Independent Tariff Fixation Commission ( Consumer protection) Appeal provision on TFC decision.

HMGN/NEA Policy on Power Purchases from Small Projects Rate: Rs 3 per unit during mid April-mid November Rs 4.25 during mid December-mid April - an annual escalation of 6 percent per annum for five years and will be reviewed thereafter. - PPA for 25 years - 100KW to 1000KW will be purchased by NEA with - an immediate effect

Issues and Challenges: hydropower Producing Cheap Power Increasing Accessibility Improving Efficiency Mobilization of Resources Affordability and Tariff Rationalization Improving the selection process of projects Addressing Environmental concerns Improving the policy and Regulatory framework Establishment of Institutional set up

New Hydropower Policy Approved by HMG/N in October 2001 Emphasis on Expansion of Power System and Rural Electrification Develop Electricity as Export Commodity Increased participation of private sector Restructuring of power sector to create an enabling environment for private sector participation

New Hydropower Policy Major Deviation From Existing Legal Provision: Duration of Generation License Maximum of 35 years as against 50 years Royalty Rs /kW/Year in capacity as against Rs. 100/kW/Year % /kWh in energy as against 2%

New Hydropower Policy Income Tax Corporate Tax max. 20% as per Income Tax Act Institutional Arrangement Regulatory body Promotional body Electricity Energy Management Study Institution Unbundling of Nepal Electricity Authority

New Hydropower Policy: Institutional Regulatory body: The present TFC to be developed into a Regulatory body Functions: To fix the electricity tariff and wheeling tariff To monitor the safety of electricity system and regularity in supply, to supervise and monitor the quality of electricity, to set standards for the safety of electricity system and regularity in supply, To protect consumer’s interest To prepare a grid code To set standards and develop criteria for quality control

New Hydropower Policy To review the basis of electricity purchase as per understanding reached between buyers and sellers To fix the electricity tariff rates to be sold to consumers

New Hydropower Policy Promotional body: Department of Electricity Development Functions: To organize competitive bidding in the process of issuing license To provide facilities to be available under One Window Policy and attract private sector investment for hydropower development To encourage private sector participation in hydropower projects To process and approve the hydropower projects above 1MW for its best use

New Hydropower Policy To conduct feasibility study of hydropower projects and study of multipurpose projects To perform activities pertaining to promotional measures and monitoring and also render assistance to the private sector in the implementation of projects.

New Hydropower Policy Water and Energy Commission Secretariat Functions: To conduct study pertaining to national electricity demand forecast and system planning To conduct the preliminary identification of the hydro projects To conduct various policy research works for the development of electricity sector.

New Hydropower Policy Electricity Energy Management Study Institution To conduct research works pertaining to financial, legal, environmental and technical aspects in the field of electricity To provide training in the above matters Unbundling of Nepal Electricity Authority - A proper institutional arrangement shall be made after the gradual unbundling of generation, transmission and national grid system presently under the ownership of NEA

New Hydropower Policy -The national grid system shall be handed over to an autonomous public entity - Local agencies, communities/ cooperative institution and private sector shall be encouraged in the distribution of electricity.

Consumers Protection Act, To protect the interest of consumers from illegal business activities Consumers Protection Council of 13 members headed by Minister of supplies -Provision of imprisonment along with fines in violation of the activities as mentioned in the Act -His Majesty’s Government will be the plaintiff in the cases under this Act -Cases to be filed in District Court

Consumers Protection Act, Complaint can be filed for compensation for the loss suffered as a result of activities prohibited by this Act before the Compensation Committee -Compensation Committee in each district headed by Chief District Officer -Appeal can be filed before the Appellate Court against the decision of Compensation Committee