Madhab Raj Ghimire
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The article proposes improvement of sector specific Nepalese regulation in the areas of generation, transmission, supply and investment to ensure competition within energy market. This task is not easy to implement wide-range of secondary-law adjustments in energy sector while country is hanging on constitutional and political limbo. Therefore, the aim of a work cannot be confined to merely presenting the existing problems. It also presents the possible solutions even implementation might not be easy to process ahead.
Foreign Investment: - Nepalese hydropower development cannot achieve its ultimate goal without foreign investment regulation. The major challenge of this type of investment is dispute settlement procedure. The two examples of Mid-Marsyandi and West Seti Hydropower cases demonstrate that the dispute settlement procedure was far from being adequate. To go one step forward, West Seti Project which has condition like project will operate under Nepalese law but dispute issues are going to settle down by British court. It shows that future dispute settlement will be hard, lengthy and costly for country like Nepal. It is therefore of utmost importance that the national regulatory framework and the regulatory authorities are well equipped to deal with investment related issues; in this way Nepal can assure donor agencies, foreign constructors and consultants that the relevant matters are dealt with in a professional and fair manner, providing additional incentives for the investment and avoiding possible legal confrontations.
Private (local) Investment:- There are still some barriers left for private sector involvement. On the infrastructure side finances and costs are vital. The infrastructure issues, such as road access to remote hilly areas are other challenges for the investors. Similarly, transmission networks and high investment costs for their construction remains a problem yet to be solved by the regulatory provisions.
Difficulties related to the measurement of performance efficiency - due to lack of competitive market forces which could be used for yard-stick assessments, especially on the production level another obstacle for private investors and regulatory bodies. In addition, the price of the whole-sale energy traded to downstream markets should be subject to regulation; alternatively, a fair procurement procedure could be used to determine relevant market price.
Government may introduce risk mitigation mechanisms in order to assure investors. In addition, government can build the necessary networks in support of the projects carried out by investors. Finally, in order to avoid disputes related to infrastructure, a clear and detailed regulatory framework is required.
Access Regulation and unbundling: - In Nepal, to improve the unbundling procedure, an Independent system Operator (ISO) should be established. For example, a supply company (such as NEA) can own the physical network whereas the investment, operation and maintenance of network would be delegated to an independent company (ISO). Along with this, regulation for the third party access and protection of their interests would be efficient mechanisms to introduce open and transparent market procedure.
At the same time, the incumbent / owner of the transmission network holding a significant market power (SMP) shall not abuse its position on the market. This does not mean that those operators are not allowed to hold a share of particular sector; this share, however, shall be small enough to ensure that the company holding it does not distort the competition on the market. These conditions apply both to public and private companies. So, NEA or other private companies would benefit from these transparent regulations.
Tariff Regulation: - In a liberalized market, regulating energy tariff does not guarantee a decreased price. However, experience shows that in a liberalized market tariffs become more affordable than in a pre-liberalized market. In Nepal, there is not separate tariff regulation, and the provisions of other legislative instruments do not significantly influence prices on the downstream level. Tariff regulation could be efficient in the market provided that there is more than one supplier which enables consumers to choose their favourite scheme offered by service providers. On the other hand, government has obligation to ensure that service to the public is provided as fairly, transparently and without discrimination as possible. In addition, state has responsibility to serve vulnerable consumers to ensure they receive the service of energy supplies. These goals can be achieved only on a regulated market. Generally, monopolists have to undertake an obligation to provide service of general economic interest (SGEI). However, even Europe has experienced cases where the respective regulator has disrespected the principle of price cap regulation. All in all, an efficient competition combined with provision of SGEI and regulated network can provide better services and pricing.
NEA can introduce peak/base load pricing to meet demands of energy. This pricing method would mostly affect the supply level, thus contributing to its efficiency and more rational power generation.
On other hand, the calculation of the wholesale and retail prices has not been transparent in the electricity sector. Even in developed countries efficient supply is provided at a price which covers total costs of investment and marginal profit for investors. Likewise, by making use of energy more efficient could influence the total price of energy, energy consumption levels and load management.
Cross country transmission: - Cross-border trade in electricity has been assumed long time back by SAARC (South Asian Association of Regional Cooperation). Considering various obstacles of ineffective transmission and lack of interconnection capacity, it has not brought about positive results as expected. On the other hand, cross-border co-ordination between Transmission Systems Operators is not well developed. Third party involvement to this type of transmission has not been practiced so far. These are the problems to be tackled, including the issues related to the load-shedding and congestion management. In this aspect, SAARC has not contributed a lot to economic progress of the region. However, some progress has been made in creating regional grid network for the whole region. In the mean time, NEA has been working on building 220 kV cross-border transmission line with Indian Electricity Authority. Should these projects be implemented in the future, they could serve as examples of an efficient cross-border trade in the SAARC region.
Considering the above mentioned, it is obvious that GoN has to work on a cross border transmission system. For these purposes, harmonization of regulation with India is essential, so it is responsibility of Indian side as well. Issues to address are, among others, pricing, security of supply and provision of services of general economic interest. In south Asia, the regulatory authorities are not as efficient as European regulatory agencies. Thus, to handle these issues, there must be efficient and independent regulatory authority to solve the disputes between two countries.
In SAARC countries, a common grid for the whole region may become reality within some years. Cross-border transmissions between Nepal and India, as well as between Bhutan and India already take place, although no effective competition exists. Furthermore, cross-border trade among Bangladesh-India-Pakistan and India-Sri Lanka is currently being negotiated.
Nepal Electricity Authority (NEA):- Nepal Electricity Authority (NEA) is vertically integrated, state owned company with a monopolized position. Its capacity as a sole buyer of produced energy, has an exclusive authority to conclude all the agreements with investors (also foreign investors) in the energy sector.
Without competition in the market, it is difficult to preserve the goals of energy efficiency. Thus, infrastructure and distribution services should be unbundled and brought into different ownership. On the other side, providing opportunity to build the infrastructure and network only to NEA and certain foreign companies, cannot create fair market. In fact, this will create duel-monopoly in the electricity production. Hence, the Nepalese government should liberalize the electricity market in order to achieve lower prices, efficient and effective services. In doing so, it can learn from the European experience in the fields of energy production and supply strategies, as well as from its knowledge in dealing with unequal, non-transparent and unfair market practices.
The question of ownership of this transmission line remains the key issue in creating a market. For the time being there the competitors cannot get an access the distribution sector. This does not ensure fair market of electricity supply on the downstream level.
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