Background of Draft

Before the draft of the Electricity Act (Bill) 2065, there were no laws, rules and regulations covering entire areas of electricity. However, that this Act was not just made to fill in the absence of such an act has been justified in the preamble of the proposed bill itself. This bill was made with the intention of replacing the Electricity Act 2049.


Purpose of Presenting the Bill

Although the preamble of this bill states that it is being made to unify [centralize] electricity related laws, the content matter of the draft is contradictory. The purpose of unifying act is to replace the various scattered laws and include them in one act. The bill only talks about replacing the current Electricity Act. On the other hand in Article 2 (c) the bill envisions an Electricity Regulation Commission to regulate electricity related issues. Till date no laws have been made to establish such regulatory commissions. This bill has raised the necessity for such a law to be created by the lawmakers. The proposed Act has given the Regulation Commission the main responsibilities through Article 16 concerning the national grid, Article 17 about affiliation to the grid, Article 18 about purchase and sale of electricity, Article 19 about electricity purchase process, Article 22 about electricity tarrif setting, Article 24 about quality of electricity and import, Article 60 about investigation and monitoring, Article 62 about presenting an annual income expense report, Article 64 about the responsibility of assigning distribution, and in the [Index] 2 of the Annex about regulating the production of, and income from electricity. In such a context where due to the lack of a regulatory commission the bill will not be effectively implemented, instead of keeping a provision for the commission in one paragraph a separate law should be envisioned whereby the development, operation and regulation of related electricity related issues can be systematized. This bill alone is insufficient in fulfilling its said purpose of unifying [all electricity related laws] in the preamble nor can it be trusted to do so.


4. Implications of the bill being implemented as the law

There is no basis on which it can be believed that the implementation of this bill will bring effective changes in the current state of electricity production, distribution, and trade.


In the event that the bill is adopted it will not have any special changes other than those brought in by continuation of the status quo and time. The Nepal Government itself has made this clear through its conclusion in the the draft Electricity Energy Crisis Regulation Act (Bill), 2067 (proposed).


Likewise the Bill has mentioned regulation and unification on one hand and at the same time also provided for multi regulation. In Article 2 (C ) the regulatory commission has been established for the purpose of regulator. Articles 3,4,5,6,10,11,12,13,38,52 have provisioned for an appointed official with the responsibility of conducting various regulatory words related to the license (official permission letter] as well as right to recommend punishment as per Article 52. While in Articles 16, 17, 18, 19, 22, 24, 60, 62, 64 and Annex 1, the various regulatory rights have been provided to the regulatory commission defined under Article 2 (C). However in some situations like under Article 60 (G) it states that the regulatory commission (which will be as per the laws created by the lawmakers) will recommend punishment, and the official (who will be appointed on the basis of the law by the government) will implement duties related to punishment.


Likewise in Article 6 related to providing license it states that the Nepal Government Electrcity Department and the Ministry of Water Resources will provide the permit. The bill has thus created four regulators i.e a multi regulatory system.


5. In the proposed bill, except for the matter of regularly changing the necessity of the authorized legal body as per time, other issues should be clarified by the Act as far as possible. This is even more important for a country like Nepal which has no effective history of parliamentary review and monitorinig of such legal bodies.


Until the bill is able to include rules regarding the following, the Act (Bill) cannot be implemented: Article 3 (licensing process and tarrif setting), Article 4 (form of request, code) Article 4(7) (projects that are to be selected on the basis of free competition), Article 5 (process of publishing public notice to those who oppose), Article 6 (form of license and conditions), Article 9 (amount to be put in as security and process), Article 10 (process of extending deadline of license), Article 11 (renewal fee structuring), Article 12 (process of transfer or sale of license), Article 17 (finalizing the code on which affiliation to the national grid will be granted), Article 41 (Value Added Tax waiver), Article 44 (mandatory requirement of rural electrification), Article 47 (compensation structuring), Article 61 inclusion in the distribution system.


6) As it is better not to leave development works in the gray realm of discretionary rights in a country where there is a lack of good governance, administrative value and norms, there should be clear regulations regarding code of conduct. According to Article 4 of the current Electricity bill those applicants who have completed the necessary process “must be given license” not “can be given”.


Therefore instead of allowing discretionary rights while issuing license there should be clear terms and conditions under which the license can and cannot be issued. Otherwise in the name of using discretionary rights there can be lack of transparency, abuse of authority, and corruption. Likewise in Article 10 which talks about extending the time period of the license, Article 11 about renewal, and Article 13 about disqualifying the license, the official has been given discretionary right. Instead of allowing decisions to be made in such unclear and potentially harmful basis, it will be better to state clear on the basis of the prescribed standards in what circumstances they can and cannot be allowed.


7. Necessary adaptation

2. As per the definition provided under Article 2 (C) which states that by “commission” it must be understood as the Nepal Electricity Regulatory Commission formed under the current law, while the various responsibilities prescribed in Articles 16, 17, 18, 19, 22, 24, 60, 62, 64 and Index 2 of the Annex, has been assigned to the Electricity Regulation Commission. But in its absence the entire bill itself will be incomplete and ineffective. Therefore it might be best to include in the proposed draft itself an extra paragraph about the regulatory commission and provide for the establishment of the regulatory commission. If the Indian context is to be analyzed the Central Electricity Authority, Central Regulatory Commission, and Regional Regulatory Commission and the Appropriate Commission have been allowed to be established by the Electricity Act 2003, Paragraph 9 and 10.


3. Under Article 6 of the bill, related to the provision allowing for the official license, based on current fixed capacity, if it is upto 25 MW, the license will be given by the Director of the Electricty Development Board while if it is above that the Secretary of the Ministry of Water Resources will give the license. In the context of the interim constitution of Nepal declaring a federal system, and the upcoming constitution guaranteeing that the administrative structure of the country will be on a federal basis, the borders of authority on license issue of the central government, state government and the local authority must be clearly dileneated.


4. The limit on Article 7 (1) is not justified. It is not appropriate to stop one person from obtaining more than one license as other laws only limit a business/trade activity from having monopoly over the entire business not expanding it. It is not appropriate to make weak Acts just because there is a policy weakness in the structure of the country. As broadcasting, distribution, and trade are connected together, those who have license to broadcast, should also be given the right to distribute, and those with distribution rights should be allowed to trade, as a priority.


5. Article 10 Sub section (1) (2) (3) are not integrated. Sub Section 1 says that for projects of upto 100 MW, the survelliance license can initially be issued for one year, with sub section (2) saying it can be extended to upto 3 years. However as per the provison in sub section 3 it states that the term cannot be extended for more than 5 years. Therefore the word “in common practice” [under normal circumstances] must be removed. The entire subsection (3) must be removed.


6. The provision in Article 12 promotes trade of license more than electricity production, therefore as per Article 12 if the license is to be sold to another party, there must be a provision stating that before the license can be sold, 50 percent of the works must be completeted and only then can it be allowed to be sold.


7. The provision in Article 15 is based on Build Own Operate and Transfer module. Therefore in projects with a specific character, the Nepal government must make conditions for the implementation of the Private Investment in Infrastructure Construction and Operation related Act 2063.


8. As per the provision under Article 31, the meaning derived is that when establishing broadcasting lines in protected areas, those with the license to develop and operate upto 50 MW capacity must conduct the Initial Environmental Examination, however those that are greater than this do not which goes to mean that while establishing such distribution lines through protected areas they do  not have to conduct IEE. It therefore looks like instead of liberating them it is instead prohibiting.


9. Under Article 33 (5) for those people who are displaced the provision only provides for compensation for the persons house and land but does not take into account the persons profession, employment, and effect of being displaced. These must be also valued with issueing compensation.


10. The provision in Article 35 (3) has no importance. Most of the project sites are not near settelements. Therefore there is no significance behind mentioning “within 500 meteres”. In most of the projects there are less than 20 houses/families in the project areas.


11. Under Article 47 which mentions that those rural areas that do not have access to the national grid, the management of those hydroelectricity projects owned by the Nepal Government, may be given to local cooperatives formed as per the law, which can be abused by the clever people. The negative characteristics seen in community forestry user groups may also come to the hydroelectricity sector. If the intention is to allow for local participation as well as give the local community some benefit, only those cooperatives which have a certain fixed percentage of local consumer’s shares should be allowed, fixing a minimum qualification for the cooperative. 


12. There is no logical relation between the offence mentioned in Article 50 and the punishment mentioned in Article 52. The punishment allotted for the offence mentioned in Article 50 (A) is less than than the punishment mentioned for offenses as per (B). Those involved in electrical survey, production, broadcasting, and distribution without a proper license, have only been confined to financial punishment while those found involved in conducting activities that directly affect the infrastructure negatively, those inciting such activities, have been provisioned for 10 years of imprisonment. Offenses under A) and C) have been taken as offenses that are to be regulated by the regulator while offense under B) have been provisioned as crimes against the state. This inappropriate provision created to stop local opposition to a project must be changed. The punishment must be prescribed as per the damage done.


13. The provision under Article 55 is not transparent. This provision allows for the government to fully use discretionary rights to develop and conduct electricity while other provisions mention works that must be done as stated. Here the process of issueing public notice, calling for applications, and completing the public purchase act process must be included.


14. Article 48 only provides provisions for assistance to DDC and VDC. The development of hydroelectricity projects normally displaces indigenous peoples. Some are of the opinion that allowing provisions for assistance only to local authorities and not to those indigenous communities who are directly affected by it is inappropriate. If a large number of indigenous peoples are displaced only providing rehabilitation will not be adequate. Some participants were also of the opinion that they must be given assistance in education, health, employment and other issues.


This investigative report and suggestion was prepared by advocate Satish Krishna Kharel for the Nepal Constitution Foundation and finalized with inputs from representatives from women, indigenous peoples, Madhesi, youth, and other pressure groups. The Foundation is grateful to Rajkumar Pokharel, Ratna Sansar Shrestha, Amrita Thapamagar, Amar GB Ghimire, Ajay Mani Dixit, Ramsharan Thapaliya, Dr. Gopal Shiwakoti, Bharatraj Gautam, Kulman Ghising, Jeetman Sherpa, Ramesh Prasad Dhamala, Dilli Ghimire, Fulmati Devi Raya, Dilip Khawas, Dr. Damabar Bahadur Nepal, Prashant Tamang, Ajaya Raut, Sushma Chaudhary, Furba Tamang, and Dr. Bipin Adhikari.

This research has been supported by by The Asia Foundation. Views and opinions expressed in this report are of the authors and don’t necessarily reflects of The Asia Foundation.