The World Bank Group has approved its first loan to strengthen the finances and operations of the country’s energy sector, so it can deliver reliable, affordable and sustainable power to the Nepali people.

The $100 million Nepal Energy Sector Development Policy Credit (DPC) aims to implement key policy, regulatory and institutional measures. These include improving the financial viability of the Nepal Electricity Authority (NEA) as the sole off-taker; establishing a regulatory framework that is transparent, autonomous, and accountable; encouraging electricity trade; and restructuring NEA to make it easier for the private sector to compete in the energy sector.

DPC is budgetary assistance, meaning that the government can align the budget as per its priority to meet the objective of the assistance. The country has so far availed DPC from the World Bank for four phases under Financial Sector Stability Development Policy Credit. The country has availed $200 million as the first phase of support under ‘Fiscal and Public Financial Management Development Policy Credit’.

“The proposed credit aims to support the restructuring and market reform of the electricity sector to improve governance and performance of electricity institutions, eventually enhancing quality and efficiency in services,” the statement issued by the World Bank has quoted Faris Hadad-Zervos, World Bank country manager for Nepal, as saying.

“Our goal is to seek integration into the regional electricity market and create a competitive wholesale market.”

Despite having large hydro generation potential, electricity constitutes of less than five per cent of energy consumption and the country is still relying on biomass as the largest source of energy.

While 95 per cent of the population is estimated to have access to grid and off-grid electricity, the per capita electricity consumption of 177 kWh per year is a 20th of the global average, and a fifth of the per capita electricity consumption in South Asia. The government’s policy and programme unveiled in May this year aims to raise per capita energy consumption to 1,500 kWh within 10 years.

The country also relies increasingly on electricity imports to reduce the electricity shortage in the country, while large export-oriented hydropower projects are yet to materialise in spite of huge opportunities.

The World Bank Group has said that the credit aims to implement policy and institutional measures to overcome these challenges and help bring about structural reforms in the energy sector, to ensure affordable electricity services and encourage predictability for sustainable investment.

“The development policy credit is linked to the government’s key sector goals of expanding access to electricity to 100 per cent of the population,” the statement has quoted Xiaoping Wang, senior energy specialist at the World Bank and co-task team leader of the project, as saying.

“In the long term, the implementation of the credit will also support key institutional and policy actions necessary for the removal of binding constraints to private investment in the sector.”