-Madhab Raj Ghimire
Improved first law and secondary regulatory framework requires for Nepalese energy market to liberalize, achieve economic efficiency, reduce monopoly, achieve cost effective prices and nominal profit to the producers or service providers. Implementing these steps, it is necessary to liberalize the market for competition. All these steps can be taken for simplifying hydro law and regulation in Nepal.
At the time while Water Resources Act (WRA) 1992 enacted, it was too early to expect WRA to provide a boost for hydropower generation or supply sectors. However, WRA recognised hydropower within primary law, though without emphasising the issue of new foreign investment. It put hydro electricity on the priority list, just like drinking water, irrigation and etc. Nonetheless, WRA gave a clear mandate to the license office to conduct a licensing process and to conduct a survey, research for new proposed projects.
After WRA, Electricity Act (EA) 1992 promulgated. In pre-liberalized era, EA opened doors for the private and foreign private investment. EA was essential for Nepal as it laid down clear and harmonized regulatory provisions in line with other relevant legislations. At the time, EA was introduced, 60% of population had no access to existing electrical grid. Thus, prime emphasis was to be put on the power generation rather than issues related to liberalization/privatization or state monopolies in energy sector. Therefore, EA did not have significant effects in promoting competition in the energy sector.
Electricity Regulation(ER) 1993 designed to promote generation, transmission and supply sector of electricity market. Eventually, ER concentrated on to provide license in generation level. Therefore, other licenses got second priority levels of the electricity chain, such as transmission services. On other hand, ER was trying to make responsible those energy producers with a capacity up to 1000 kilowatt for the transmission and distribution. Despite all these efforts, procedures of awarding license become rather ineffective.
Obtaining WRA, EA and ER revolutionised the regulatory development in Nepal. Therefore, Foreign Investment and Technology Transfer Act (FITTA) 1992 enacted to mobilize private capabilities of international investment to confront hydropower related problems. It was believed that international technology and investment can be beneficial step for energy production to combat excessive level of load shedding. At the time, FITTA was not exactly a law for the investment enhancement, but it provided an easy access for foreign companies to launch technical development projects. Due to major emphasis on hydropower production, FITTA received significant attention from international donors and investors. Unfortunately, rather incomplete structure of this legislation, it helped to create confusion in technically specialized electricity market.
All in all, to improve hydro licenses and simplifying sector specific hydro law and regulation, there need to be following improvements; first, total days of registration of the company need to be reduced. Second, financial incentives need to be provided to the developers. Third, it needs to be simplifying the procedures for the establishment, expansion of hydro industries. Fourth, all necessary services to be provided to developers through one window system. Fifth, Benchmarking of new developments projects should be introduced in regulation. Sixth, electricity others chain; transmission and supply sectors shall allow new entrants to enter into those sectors to obtain effective competition. Seventh, income tax exemption to the developers needs to be increased for more years. Eighth, PPA (power purchase agreement) needs to introduce incremental cost harmonising average rate within regulation. Ninth, price cap regulation might be introduced minimum/maximum use of electricity to ensure generators as investment. Finally, simplifying law, regulation and license need to be concentrate on improving livelihood people of Nepal so that both stake holders (consumers and developers) will be in win-win situation.
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