Energy, Water Resources and Irrigation Minister Biraj Bhakta Shrestha decided on Friday to issue letters of intent (LoI) providing consent in principle to eligible private entities. Until now, private sector involvement in Nepal's power sector was strictly confined to generation.
This historic decision breaks new ground, allowing private companies to explore domestic and international markets, identify potential buyers and foreign partners, and lay the groundwork for power purchase and sale agreements.
Expanding Horizons for Private Investment
For years, private energy developers have pushed for direct access to inter-country electricity transactions. Under the new framework, qualified companies can conduct technical, financial, and commercial feasibility studies, coordinate with business partners, and prepare partnership agreements.
However, the Ministry emphasized that the LoI serves strictly as a preparatory instrument. Companies cannot execute actual power transactions based solely on the letter of intent. Formal operations, power purchase agreements (PPAs), transmission capacity booking, and open access usage remain subject to all prevailing legal requirements, technical approvals, and licensing procedures.
Strict Safeguards and Conditions
To prevent misuse, the government has established a stringent regulatory framework for companies receiving the LoI:
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Self-Declaration: Applicants must formally declare they are not blacklisted, all submitted details are accurate, and they harbor no intent to misuse the permit.
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Government Indemnity: The government holds no liability for agreements struck between private companies and their partners, and the LoI does not guarantee the eventual issuance of a formal trade license.
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Regular Reporting: LoI holders must submit quarterly progress reports to the Ministry within 15 days of each period's close, detailing completed tasks, milestones, challenges, and future action plans. The Ministry retains the authority to request additional documents or clarifications at any time.
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Ownership Restrictions: Prior legal approval is mandatory for any changes to a company's ownership or share structure.
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Strict Term Limits and Revocation: The LoI will remain valid for a maximum of two years. Companies must apply for renewals or progress reviews at least 30 days before expiration. The government holds the right to suspend, amend, or revoke any LoI in case of rule violations, false submissions, or if deemed necessary for the public interest and grid safety.
A Market-Oriented Transformation
Ministry officials believe that integrating private energy developers into cross-border trade preparation will stimulate fresh investments and business initiatives across the sector. By engaging directly with international buyers and assessing market demand, pricing, and risks, private developers can better align their future generation investments with actual market realities.
Analysts view the reform as a crucial stepping stone toward shifting Nepal's power industry from a strictly production-oriented model to a dynamic, market-driven structure.
