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Private companies in Nepal's energy sector are set to explore cross-border electricity trading opportunities after Energy, Water Resources and Irrigation Minister Biraj Bhakta Shrestha decided to issue letters of intent granting them in-principle approval to prepare for the business.

The decision, made on Friday, allows private companies that have primarily focused on electricity generation to explore potential markets, identify domestic and foreign partners, and prepare agreements for electricity purchases and sales.

The move addresses a long-standing demand from the private sector for direct participation in cross-border electricity trade. Although private companies can develop hydropower projects and generate electricity, the government had not clearly established a process for their direct involvement in cross-border trading.

Preparatory approval does not permit actual trading

The letter of intent will allow companies to study the feasibility of cross-border electricity trade, identify potential buyers and business partners, and begin discussions on commercial agreements.

However, receiving the letter will not automatically authorise companies to import, export or trade electricity. Companies must obtain the required licences and government approvals and meet applicable legal requirements concerning power purchase agreements, transmission capacity and open access before conducting actual transactions.

Government sets monitoring requirements

The government has also introduced conditions to prevent companies from misusing the letters of intent. Applicants must declare that they are not blacklisted under applicable laws and that all information and documents they submit are accurate.

Companies must submit progress reports to the ministry within 15 days of the end of each quarter. The reports must detail completed activities, achievements, progress against targets, challenges and future plans.

The ministry may request additional documents or explanations when necessary. Companies must also obtain prior approval where required by law before changing their ownership or shareholding structure.

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

Letters of intent valid for up to two years

The letters will remain valid for the period prescribed by law or for a maximum of two years from the date of issuance. Companies seeking an extension must apply to the ministry at least 30 days before expiry, providing progress details and reasons for the request.

The letter of intent will not create an entitlement to an electricity trading licence. Agreements between a company and its partners will also not automatically impose any obligations on the Government of Nepal.

Move expected to make energy sector more market-oriented

The decision is expected to help private investors connect electricity generation with market opportunities by allowing them to assess potential buyers, trading partners, electricity prices, market demand and commercial terms.

Greater private-sector participation could help investors consider market prospects when deciding whether to develop new generation projects. It could also help Nepal move from a predominantly generation-focused energy sector towards a more competitive, market-oriented system.

The actual impact will depend on the completion of legal procedures, the availability of transmission infrastructure and electricity markets, and the implementation of commercial agreements.