The Nepal Electricity Authority (NEA) had issued a notice in April asking hydropower projects to enter into power purchase agreements (PPAs). However, the authority itself has not yet entered into the PPA despite issuing a notice asking promoters to get in touch.

 The Authority had issued a notice in April 2081 to 38 companies with 1,858 kilowatt run-of-river (ROR) and 16 companies with 3,170 kilowatt semi-reservoir (PROR) hydropower projects to contact for PPA. 

The 994th meeting of the Authority's Board of Directors on April 12, 2081 had decided to proceed with PPA for hydropower projects with a capacity of more than 10 megawatts for which grid connection agreements have been completed. In this regard, the Authority's management had also decided to conduct PPA on April 30, 2082.

In accordance with the same decision, the Authority had issued notices to the promoters to submit applications with updated documents and details within 30 days to 54 companies. However, despite the Authority issuing the notice, the promoters say that even after submitting the applications with the documents, the PPA was not conducted.

The private sector was opposing the provision in the budget, and the authority was confused about whether to conduct PPA. However, businessmen say that since the budget only mentions ROR, it will not hinder semi-reservoir-based power plants. . Immediately after, on 15 Jestha, the budget for the current fiscal year included a policy of conducting PPA for the ROR hydropower project in accordance with the ‘take and pay’ concept. While presenting the budget on 15 Jestha, the then Finance Minister Bishnu Poudel had said, ‘Substations and transmission lines will be constructed in accordance with the completion schedule of the hydropower project. A policy of conducting power purchase agreements will be adopted to maintain a balance between electricity production and consumption. Power purchase agreements will be conducted in accordance with the ‘take and pay’ concept of the ‘Run of River’ project.’ 

The private sector was opposing the provision in the budget, and the authority was confused about whether to conduct PPA. However, businessmen say that since the budget only mentions ROR, it will not hinder semi-reservoir-based power plants. 

Executive Director of the NEA, Hitendradev Shakya, admitted that the PPA was stopped after the provision was introduced in the budget. ‘Everything has been stopped after the government introduced the take and pay PPA in the budget, we have not been able to do it even after issuing the information,’ he said, ‘Now we have to look at the energy mix. Everything is stopped now.’

After the provision for PPA according to ‘take and pay’ was introduced in the budget, energy promoters had put all-out pressure to remove such a provision. Even the ruling Congress MPs had objected to ‘take and pay’. After the threat of failing the budget itself, the then Prime Minister KP Sharma Oli had met with former Congress President Sher Bahadur Deuba on 21 July and held discussions. Oli and Deuba had agreed to remove the provision.

On the same basis, the Prime Minister had clarified that the provision of ‘take and pay’ had been removed from the budget statement on 21 July. The then Finance Minister Bishnu Poudel, however, had not mentioned anything about the amendment of the ‘take and pay’ provision from the budget. "Based on the financial risk assessment, power purchase agreements (PPAs) can be made for projects that are certain to consume and export energy and for which the Nepal Electricity Authority can pay its obligations," he had said. 

Independent Power Producers Association of Nepal (IPPAN) had also put pressure in a phased manner against the 'take and pay' introduced in the budget. In protest, IPPAN had sent an SMS to the Prime Minister, Finance Minister, Energy Minister and the Executive Director of the Nepal Electricity Authority requesting them to withdraw the 'take and pay'. However, the budget statement was not amended. Therefore, the PPA for hydropower projects up to 10 MW has also been stopped. 

The then Energy Minister Shakti Basnet and the then Executive Director Kulman Ghising had opened the PPA for hydropower projects up to 2080 MW on 10 Magh. Since then, all PPAs have been going on with hydropower projects up to 10 MW. It has been stopped due to budget arrangements. The PPA process that the Authority had initiated before the budget has also been stopped.

Even though the budget provision has stopped the ROR hydropower project, the NEA has also stopped the PPA for the semi-reservoir hydropower project, said IPPAN Deputy Secretary General Prakash Chandra Dulal. ‘Even though the NEA issued a notice before the budget, the PPA has been stopped, the PPA was stopped by showing the budget provision for ROR, I don’t know why the PROR was stopped,’ he said, ‘My project is at number three on the list of PPAs for semi-reservoir projects. We have submitted the documents. But the process has not progressed.’

In the second week of last Kartik, the then Executive Director of NEA, Manoj Silwal, had sent a letter to the Ministry of Finance through the Ministry of Energy, saying that a PPA of 5,000 MW was to be done, but since it was stopped due to the budget, the PPA should be done on ‘take or pay’ or ‘take and pay’. The Ministry of Finance sent the letter on Poush 28 saying that the Ministry of Energy and NEA can make a decision on the PPA as per the prevailing law based on the analysis of demand, export and already done PPAs.

The Ministry of Energy has confirmed that it has received a letter stating that ‘after analyzing the PPAs concluded so far with the Nepal Electricity Authority and ensuring that there will be no problems in electricity consumption in the future, it is appropriate to resolve the issue of PPA in accordance with the prevailing law by the concerned ministry and the Nepal Electricity Authority.’ The Energy Ministry has also sent a letter to the same effect. 

Shakya, Executive Director of the Energy Authority, said that the Ministry of Energy has not given clear instructions regarding the take and pay that has been included in the budget. ‘The Ministry of Energy has not given any clear instructions regarding the PPA on take or pay or take and pay,’ he said, ‘The Council of Ministers will have to give approval. Now it is up to the next government to decide.’

When there is a PPA on ‘take or pay,’ the Authority buys the quantity it needs and pays only for it. When there is a PPA on ‘take or pay,’ the Authority must buy electricity as per the agreement made with the promoter, and if it does not, it must pay the price to the promoter. If the promoter cannot provide electricity as per the agreement, the promoter must also pay a fine. The NEA has been conducting PPAs on a 'take and pay' basis.