Er.energyNP@Gmail.com

The government has, for the first time, granted in-principle approval for private companies to participate in preparations for cross-border electricity trading, opening a new avenue for private investment beyond power generation.

Energy, Water Resources and Irrigation Minister Biraj Bhakta Shrestha decided on Friday to issue letters of intent to private companies interested in entering cross-border electricity trading. The decision allows eligible companies to identify potential electricity buyers and commercial partners in Nepal and abroad, assess market opportunities and prepare the agreements required for future power transactions.

The move addresses a long-standing demand from the private sector, which has been able to invest in hydropower development and electricity generation but has faced limitations in directly participating in cross-border power trading.

Under the new arrangement, private companies can begin preparing for electricity trading by studying potential markets, demand, prices and commercial conditions before committing to new investments. The policy is expected to expand the role of private investors in Nepal’s electricity market by linking generation with market development and trade preparation.

Letter of intent does not authorise immediate electricity trading

The letter of intent will provide preliminary approval for companies to prepare for cross-border electricity trading. However, it will not automatically grant permission to buy or sell electricity or commence commercial trading.

Companies receiving the letter can conduct technical, financial and commercial feasibility studies in accordance with prevailing laws. They can also hold discussions with potential buyers and trading partners and prepare the necessary commercial agreements.

Actual electricity trading will require companies to fulfil all applicable legal and technical requirements. These include obtaining the relevant licences and approvals, securing the necessary transmission capacity and meeting the conditions for access to transmission networks.

The distinction means that the government has opened the preparatory stage of cross-border trading to private companies, while actual transactions will remain subject to separate regulatory approvals and technical arrangements.

Letters valid for a maximum of two years

The government has introduced conditions to ensure that letters of intent are used for their intended purpose and do not create an automatic entitlement to a trading licence.

Applicants must declare that they are not blacklisted under prevailing laws, that the information and documents they submit are accurate, and that they have no intention of misusing the letter of intent.

Companies will not be allowed to claim that receiving the letter gives them an automatic right to obtain a licence. Agreements between the companies and their prospective commercial partners will also not create any financial or other obligations for the Government of Nepal.

The letter will remain valid for the period prescribed by law, subject to a maximum of two years from its date of issuance.

Companies seeking an extension must submit an application to the ministry at least 30 days before the letter expires, explaining the reasons for the extension and providing details of their progress.

Quarterly progress reports mandatory

Companies receiving letters of intent will be required to submit progress reports to the ministry within 15 days after the end of each quarter.

The reports must outline activities completed, achievements against planned targets, challenges encountered and proposed next steps. The ministry may also request additional documents or explanations when necessary.

Companies must obtain any prior approval required under prevailing laws before making changes to their ownership or shareholding structure.

The government may suspend, revoke or amend a letter of intent in accordance with the law if a company violates its conditions, submits false or misleading information, or if intervention becomes necessary in the public interest or to ensure the safe operation of the electricity system.

These safeguards are intended to maintain regulatory oversight while allowing companies to explore commercial opportunities before seeking authorisation for actual trading.

Private sector moves beyond power generation

The decision could broaden the scope of private investment in Nepal’s energy sector by allowing companies to participate in market identification and trade preparation alongside electricity generation.

Until now, private investment in the power sector has largely focused on developing hydropower projects and producing electricity. The new arrangement creates a formal pathway for interested companies to assess potential buyers, explore partnerships and evaluate cross-border trading opportunities before moving towards commercial operations.

Such market information could help investors assess where electricity demand exists, what prices may be achievable and what contractual conditions and risks are involved. It could also help companies make investment decisions based on prospective market opportunities rather than generation capacity alone.

As Nepal continues to expand its electricity generation capacity, finding reliable domestic and international markets for the electricity produced is becoming an increasingly important consideration.

Allowing private companies to prepare for cross-border electricity trading could therefore help connect future generation investments with market demand. However, the extent to which the policy translates into actual transactions will depend on regulatory approvals, transmission access, commercial agreements and the availability of suitable buyers.

The government’s decision marks an initial step towards expanding private-sector participation in Nepal’s electricity trade, while keeping the licensing and operational requirements for actual cross-border transactions in place.