Er.energyNP@Gmail.com

Nepal's electricity debate is increasingly focused on whether the Nepal Electricity Authority (NEA) should be unbundled. That is important, but it is the wrong place to start.

The more important question is:

What kind of electricity system does Nepal need for the next 20 years - and who should be responsible for making it work for citizens and the economy?

Nepal has largely solved electricity scarcity. Access is nearly universal, generation capacity has crossed 4 GW, and the country has become a seasonal exporter. Yet Nepal can export electricity during the monsoon while continuing to import diesel, petrol, LPG and coal.

The problem is no longer simply a shortage of electricity.It is the failure to turn electricity into productive economic activity.

From Electricity Generation to an Energy Economy

The messages from this year's recently held NEA Day are revealing because they point directly to Nepal's next energy challenge.

Energy Minister Biraj Bhakta Shrestha argued that electricity is no longer merely for lighting but should become a backbone of economic prosperity. Energy Secretary Sarita Dawadi highlighted the other side of the problem: the situation in which electricity is wasted because transmission lines are not available must end. The Acting Managing Director of NEA framed the broader challenge as a journey to prosperity through an energy revolution.

Taken together, these three messages expose the central issue.

Nepal's electricity challenge is no longer only producing power. It is delivering it, using it and converting it into economic value.

Generation without transmission creates stranded electricity. Transmission without adequate distribution creates another bottleneck. Distribution without productive demand creates underused infrastructure.

The entire chain has to work.

The Real Problem Is Not Generation

For three decades, Nepal's energy policy understandably focused on hydropower generation. That was necessary.

But the next phase is different.

Electricity must replace diesel in irrigation and industry, LPG in commercial kitchens, fossil fuels in heating and process industries, and imported energy in transport. Industries need reliable three-phase power. Farmers need dependable electricity for irrigation. Cold stores, agro-processing enterprises, hotels, hospitals and digital businesses need adequate and reliable supply.

None of this happens simply because another hydropower project is completed.Power supply does not automatically create power demand.Demand must be deliberately developed - and much of that demand is local.

This is where Nepal's federal structure should matter.

Distribution Is Where Electricity Becomes Development

The federal government should remain responsible for national energy policy, major transmission infrastructure, national grid operation and cross-border electricity trade. These functions require national coordination.

Distribution is different.Distribution is where electricity meets the citizen and the local economy.

A farmer does not need another national hydropower target. He needs a reliable connection for an irrigation pump.

A factory does not need another generation announcement. It needs adequate three-phase electricity.

A hotel wants to replace LPG with electricity.

A municipality needs reliable electricity for water supply, hospitals and public services.

These are distribution questions.

Yet electricity distribution remains essentially a centralised NEA function. NEA has provincial offices, but they remain offices of a national organisation.

Nepal has decentralised electricity administration, but it has not federalised electricity distribution.

That distinction matters.

Should Provinces Run Distribution?

Nepal should seriously consider creating provincial distribution companies, operating under national regulation and standards.

This does not mean creating 753 municipal electricity utilities. That would be impractical and expensive.

Provinces are better positioned to manage distribution networks, investment priorities, reliability and customer service. Local governments, meanwhile, should focus on identifying and creating productive electricity demand.

A municipality knows where diesel irrigation pumps operate, where agro-processing is expanding, where cold storage is needed, where hotels are developing and where public institutions require reliable power.

It can therefore work with the provincial distribution company to identify where electricity demand should grow.

The principle is simple:

Federal level manages the national electricity system; provinces manage distribution; local governments help create demand.

That would make federalism economically meaningful.

But Federalisation Must Not Create New Monopolies

There is a danger here.

Breaking NEA into several provincial monopolies would not automatically create a better electricity system.

Provincial distribution companies would need national standards for reliability, tariffs, technical performance and consumer protection. Their performance should be publicly measured.

The objective is not to replace one inefficient monopoly with seven smaller monopolies.It is to create greater accountability closer to consumers.

The VAT Contradiction

The recent VAT debate makes the issue even more serious.

The government has introduced 13 percent VAT for non-household electricity consumers, including industries. From a revenue perspective, this may be understandable. But from an energy-transition perspective, it raises a serious contradiction.

Nepal wants industries to replace diesel, furnace oil and LPG with electricity. It wants factories to consume more domestic electricity. It wants electricity to become the backbone of production.

Yet 13 percent VAT on industrial electricity raises the cost of a basic production input.

That cost does not disappear. It is absorbed by industry or passed on to consumers through higher prices.

The result could be exactly the opposite of what Nepal's energy transition requires: electricity becomes relatively less attractive while imported fossil fuels remain embedded in production.

The question is therefore not simply whether VAT is justified.

The question is:

Should electricity used to replace imported fossil fuels be taxed in the same way as ordinary consumption?

Nepal should consider targeted fiscal treatment for productive electrification - industrial processes, electric irrigation, cold storage, e-cooking and other uses that directly reduce fossil-fuel dependence.

Otherwise, one arm of government will promote electrification while another makes it more expensive.

What Happens to NEA?

NEA should not be treated as the problem.

It built Nepal's electricity system and possesses technical expertise that the country still needs. But it has accumulated too many functions. NEA remains deeply involved in generation, power purchase, transmission, distribution and trading.

The recent PPA debate demonstrates the tension. IPPAN President has argued that if NEA cannot sign PPAs, private producers should be allowed to trade electricity.

This reflects a structural change: Nepal's generation sector has become increasingly private and competitive, while the market architecture has not evolved at the same speed.

NEA's recent decline in profit adds another concern.

The answer is not to weaken NEA.It is to give NEA a clearer job.

NEA - or its successor national institutions - should increasingly concentrate on strategic national functions, particularly transmission, system operation and other functions that require national scale, while distribution becomes more autonomous and accountable.

The Electricity System Nepal Needs

Nepal should move toward a simple architecture.

The federal level should lead national energy policy, regulation, transmission and cross-border power trade.

Public and private companies should generate electricity under transparent commercial rules.A national transmission and system operator should manage the high-voltage grid and system stability.

Provincial distribution companies should manage distribution, connections, metering and customer service.

Local governments should identify and promote productive electricity demand.

This is not about weakening national coordination. It is about putting responsibility at the right level.

The Real Test of Reform

Nepal should stop measuring electricity progress only in megawatts.

The real questions are simpler.

Can a farmer replace diesel with electricity?Can a factory obtain reliable power without excessive delay?Can an industry electrify without making its products uncompetitive?Can a municipality create new electricity demand?Can surplus hydropower be converted into productive investment rather than simply curtailed or exported?Can electricity remain affordable enough to drive industrialisation?

If the answer is no, changing the organisational chart of NEA will achieve little.

The NEA Day messages provide a useful starting point. The Minister says electricity must become the backbone of prosperity. The Energy Secretary says electricity must not be wasted because transmission is missing. The Acting MD speaks of an energy revolution leading to prosperity.

The policy implication is clear:

Nepal does not simply need an electricity revolution. It needs an institutional revolution around electricity.

The first phase was about generating power.

The second must be about delivering it, making it affordable, and putting it to work.