Nepal: South Asia Subregional Economic Cooperation Power Transmission and Distribution System Strengthening Project

Energy / Electricity transmission and distribution

Nepal is a landlocked, mountainous country located between the large and fast-growing economies of the People's Republic of China to the north and India to the east, west, and south. Nepal's gross domestic product (GDP) growth averaged 7.3% during fiscal year (FY) 2017-FY2019. With deepening economic uncertainties due to the coronavirus disease (COVID-19) pandemic, compounded by social and health emergencies, the preliminary estimates from the Central Bureau of Statistics in Nepal show that GDP growth will significantly decline to 2.3% in FY2020. The need to stimulate post-COVID-19 economic recovery by developing Nepal's infrastructure has become more relevant.

Following years of facing chronic electricity shortages, especially during dry winter months (October to March), Nepal made significant improvements in electricity supply during FY2017 and FY2018. These improvements were achieved through a combination of (i) increased electricity imports from India of about 400 megawatts (MW); (ii) improved transmission capacity and operational flexibility by commissioning new transmission facilities; and (iii) better load management involving major industrial customers. While there is currently no significant gap between electricity demand and supply, the power transmission and distribution systems need further strengthening to increase network capacity and redundancy and eliminate bottlenecks between generation hubs and load centers. Also, although 78% of Nepal's population has access to grid-supplied electricity, the distribution systems require immediate upgrading and expansion to improve the reliability and quality of supply, and to facilitate expected future demand growth. The poor financial position of Nepal Electricity Authority (NEA), due to poor billing and collection practices, and inadequate tariffs, impinge on its capacity to invest in distribution system expansion, and address high technical and commercial losses arising from deteriorated and under-capacity assets and electricity theft. These investment requirements over the next 10 years until 2030 are beyond the budgetary resources of the government. At the same time, the investment environment in the sector, including regulation, is not sufficiently mature to attract private sector capital and participation at the level required, particularly in the transmission and distribution subsectors.

The government recognizes the continued need for physical investment in electricity supply infrastructure. Government issued the White Paper on Energy, Water Resources and Irrigation Sector's Current Status and Roadmap for Future on 8 May 2018 outlining priorities and reform initiatives for 2018 2028 including hydropower development, and modernizing transmission and distribution subsectors. The Government of Nepal initiated plans to install an additional 15,000 MW of generation capacity by 2028 to meet domestic demand, and to export surplus electricity to India and Bangladesh. In this regard, the government will support the construction of selected storage-type hydropower plants while encouraging the private sector to invest in run-of-river hydropower projects and other renewable energy sources. As indicated in the White Paper, the focus of Nepal's power system investment program is now gearing toward delivering a reliable and high-quality supply of electricity to domestic consumers through enhanced transmission and distribution systems and positioning the country to become a net energy exporter. These investments are critical to satisfy the country's power supply needs in the longer-term and to provide universal access to reliable electricity supply by 2030. These investments will also contribute to promoting sustainable energy for all (Sustainable Development Goal 7) and achieving Nepal's Nationally Determined Contributions to the United Nations Framework Convention on Climate Change to reduce the country's dependency on fossil fuel by 50%.

(i) Reliable and efficient electricity for all by 2028 achieved (National Energy Crisis Reduction and Electricity Development)

(ii) Energy trade infrastructure in SASEC countries improved (SASEC Operational Plan Update, 2016-2025)

Power system transmission capacity increased.

Distribution system in the Kathmandu Valley, Bharatpur, and Pokhara, and consumers awareness on energy efficiency and safety improved.

Distribution network and capacity of women to use electricity for energy-based enterprises development in Province 2 improved.

Procurement of goods and services ongoing.

Procurement ongoing.