On the proposed bill of Electricity Act, 2065

(This is excerpt of welcome note delivered by Dr. Bipin Adhikari as Chairperson of Nepal Constitution Foundation in a Bill Review Programme on the Bill of Electricity Act 2065 organized by the Foundation on August 19, 2011)

The Bill of Electricity Act 2065 is one of the very important bills going through the legislative process in the parliament of Nepal. After a long gestation period, the government has finally taken up the instrument for further action. While it is being studied at the Legislative Committee, we think we should take the opportunity to review it on the part of civil society, and provide our written inputs on what the government has proposed.

Nepal, due to its rugged terrain, is endowed with a perennial flow of rivers, and rich vegetative cover. It is a surprising fact that the country, with the capacity to produce more that 83,000 MW of hydro-electricity has been facing severe energy shortage in the dry seasons over the past 7 years. In this background the proposed bill intends to replace the Electricity Act, 1991 with a new instrument. The bill seeks to amend the current legal provisions, compile and consolidate the existing laws, regulate and facilitate the development of electricity and its regular supply; develop a simpler, cheaper, reliable and safer supply of electricity. The question is – does this new measure help us encourage our investors?

The legal regime that this bill seeks to refashion thus follows - firstly, according to Section 3, survey, generation, transmission or sale of electricity is prohibited without obtaining license except for projects up to 3 MW. However projects from 100 KW - 3 MW will require necessary permission from the authorized officer. The established company must apply for the license following procedures as prescribed. According to Section 4 (6) the government can subject the applicants to competition to obtain license. Notification of the environmental impact of the project is necessitated by Section 5. Section 7 provides that a license is given for only one of the following activities - generation or transmission or distribution or sale except for areas not reached by the national grid. Depositing of security is necessary when obtaining a license. A license for generation of hydro-electricity is 35 years and for wind or solar or bio fuel generated power is valid as long as the project is running. According to Section 7, the license for electricity generation is not renewable but license for transmission, distribution and sale is renewable. Licenses are cancelled at the end of their prescribed time period or if the licensee commits violation of the provisions of the bill or any related law or rule.

According to Section 22, the fee to be paid by the consumers of electricity is to be decided by the regulatory authority prescribed for in Section 2 (c) of the Act. The regulatory authority also keeps a check on the quality of the service as provided in Section 24. Preserving the environmental conditions of the water source and maintaining a minimum level of water flow is necessary according to Section 30. The licensee must inform the government about the necessary land or property acquisition and necessary compensation, and/or rehabilitation with the aid of the government must be provided to the owner of the land or property by the license holder (Section 33). Preference is to be given to local people regarding any employment generated with regard to the project (Section 35). No tax is levied on the purchase or supply of machinery required for the project and only 1% customs tax is to be levied (Section 41). The government must set aside 20% of the royalty amount paid by the licensee for rural electrification project (Section 45). A committee is to be setup for providing compensation as per Section 49. Acts like - survey, generation, transmission, distribution or sale of electricity without obtaining license, causing harm to the project infrastructures, violating any other provisions of the bill or any rule made therein are punishable by law. No nationalization shall be done of any structure belonging to the licensee according Section 54, but the government can nationalize any project in wider public interest according to (Section 58).

The new regime thereby created by the proposed Electricity Act is certainly an improvement on the existing arrangement. Section 2 of the bill seeks to create a regulatory committee for electricity according to existing laws. The regulatory authority has many important functions regarding purchase and sale of electricity, fee regulation, monitoring, submission of annual report etc. However no such law has been enacted yet. So in effect the bill if enacted will necessitate the enactment of a law to create this regulatory authority. Instead of creating such complication, the bill itself could have simply provided for the creation of this authority. This is a prime facie shortcoming of the bill.

Even before this bill has been passed, the government has drafted another bill for resolving energy crisis in 2011 intending to reduce load shedding in the next five years which contains overriding provisions. Therefore in this confusion, continual production, stability, and balance of load-discharge have been neglected. This perhaps is another issue that the proposed legislations should take into account.

Moreover, it has been alleged that, rather than encouraging investment, the bill focuses more on regulation. It follows the presumption that the practice of license grabbing and delaying survey and production of electricity is the main hindrance to supply of electricity. Such presumption from the government is not favourable for participation of the private sector. It is equally possible that there are other reasons as well, which discourages the investors from investment in the given situation. This eventuality must be provided for. Additionally, in cases where this is necessary, it will be useful if penalties are fixed for parties who sit on their licenses and not carry on their work instead of making provision to provide compensation in case of license cancellation even when the party is at fault as per Section 13 (5).

Additionally, production and transmission of electricity have to go hand in hand so the transmission aspect must not be neglected. In this regard increase in capacity should be rewarded with automatic renewal of license instead of indiscriminately putting conditions on the renewal of license. Unlike the prevailing Act which sets 50 yrs as the maximum term of license for generation, transmission and distribution, the proposed bill sets a maximum term of 35 years which cannot be held to be encouraging investors.

The proposed bill unlike the prevalent Act, does make a mention of alternate sources of energy like photo-voltaic power, wind energy, bio-mass fuel based power generation which must be promoted and for this their access to the national grid is necessary. The bill has provisions for environmental impact assessment and general concerns regarding the environment which is a positive sign.

In the current Act, there is a provision for a fee regulation authority with consumer representatives and principles of fee regulation. But the proposed bill has given this authority to the regulatory body to be formed according to the law. It is not known how and when this authority will be created. This type of uncertainty does not encourage investors.

Following international practices need to be implemented whereby, no discrimination is done according to ethnicity, gender, nationality, source of income and geographical status, disputes between consumers and service providers must be resolved by unbiased and independent authority, and clear description of the consumed amount of electricity is presented in the bill. But this bill lacks proper provisions for consumer protection.

The proposed bill instead of consolidating existing rules and regulation creates multiple regulatory bodies for issuance of license, providing compensation, recommending punishment and carrying out the punishment. In this scenario unless more comprehensive rules are made regarding -the form of application for licensing; the license fee, selection process; qualifications for licensing; form, contents and conditions of the license; renewal of license; conditions of accessing the national grid and compensation for canceling of license; there will be opportunities for the misuse of authority and corruption.

I am making these comments without knowing the hydropower field as an expert. I believe that we have the best of experts here in this room in this area, and the discussion here following the presentation of a paper by my colleague, Advocate Satish Kharel. I encourage you to take part in the debate and provide suggestions for the improvement of the bill. Thank you very much !

Bipin Adhikari

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