Preparations Advance for Power Authority Restructuring Amid Legal and Administrative Challenges

May 31, Kathmandu – The government has declared its plan to complete the restructuring of the Nepal Electricity Authority (NEA) within the upcoming fiscal year.

Following the budget speech, indications are strong that the long-discussed ‘unbundling’ process of the Authority will move forward once again.

The Ministry of Energy, Water Resources and Irrigation had initiated the unbundling process as early as 2017 (2074 BS). For this purpose, the government previously established and operated the Electricity Generation Company, the National Transmission Grid Company Limited, and the Electricity Trading Company. However, the government has now committed to completing the comprehensive breakdown of the Authority within the next fiscal year.

Energy sector experts warn that rushing into restructuring without clear legal frameworks, asset management plans, and workforce arrangements could create substantial complications.

In the budget statement for fiscal year 2083/84, the government pledged to divide the the Power Authority into three distinct companies dedicated to generation, transmission, distribution, and trading.

The government had advocated structural reform in the electricity sector since 2017, promoting the concept of unbundling. In that period, the Electricity Generation Company, National Transmission Grid Company, and Electricity Trading Company were established, but there was limited progress in transferring the Authority’s assets, liabilities, and workforce.

Legal Amendments Essential for Restructuring

According to Sher Singh Bhatta, former Deputy Executive Director of the NEA, the restructuring announced in the budget effectively means the breakup of the Authority. However, the existing Nepal Electricity Authority Act does not provide a legal foundation for this; therefore, new legislation is required.

He stated, “The NEA is established under a specific act, so to split it, an amendment to this act or a new Electricity Act is necessary. Restructuring within the current legal framework isn’t feasible. It is understood that the government is preparing to introduce a new Electricity Act.”

He added that while the companies established for generation, transmission, and trading carry some shareholding by the Authority, they are not subsidiaries in the traditional sense.

What is the Justification for New Companies?

Prabal Adhikari, another former Deputy Executive Director of the NEA, expressed that the budget announcement has introduced further confusion. He pointed out that the separate companies for generation, transmission, and trading are already established, many with majority shareholding by the Authority.

He questioned, “If such companies already exist, what is the rationale for establishing another new structure?”

He noted that the Electricity Trading Company is 51 percent owned by the Authority, emphasizing that clearer guidance on implementing the re-division announced in the budget is necessary.

Major Challenges in Asset and Workforce Management

According to Adhikari, the actual challenge lies in execution rather than the decision to split the Authority. Valuing and allocating billions worth of assets such as hydroelectric projects, transmission lines, substations, and distribution networks remain unclear.

Additionally, managing thousands of employees, their benefits, career development, and redistribution of technical staff are critical issues. He warned that without adequate groundwork, the institution’s strength could weaken.

He also identified a contradiction in the budget: while aiming to make the Authority a specialized entity, unrelated responsibilities like fertilizer production or manufacturing parts for electric vehicles are also assigned.

Ministry Establishes a Study Committee

The Ministry of Energy, Water Resources and Irrigation has formed a committee to study this matter. Recently, under the leadership of Joint Secretary Sandeep Dev, the committee was tasked with drafting modalities for restructuring.

An official from the ministry explained that the committee is currently working on finalizing the terms of reference and is responsible for preparing plans related to asset management, employee adjustment, and liability transfer.

“Although the issue has been raised since 2017, concrete progress on asset, workforce, and liability management has been lacking,” the official said. “This time, the study focuses on creating a fully separate structure through a demerger model.”

According to the official, the existing NEA Act of 1984 does not sufficiently support such structural changes, leading the government to consider enacting a new Electricity Act or replacing the current law.

The ministry claims that unbundling of the Authority is one of the longest-standing reform programs in the energy sector.

The committee is expected to deliver an initial action plan within seven to ten days, an official said.

Officials from the ministry believe that operating generation, transmission, and trading as independent entities will improve efficiency, transparency, and competitiveness.

However, experts warn that proceeding without resolving legal ambiguities, asset transfers, and employee management issues may trigger instability within the power sector.

While the government has set an ambitious target to complete the restructuring within the next year, its success will depend on new legal frameworks, clear transitional plans, and consensus among all stakeholders.