International Competitive Bidding in Nepal

Historically, the country has a power deficit, and for that reason, Nepal remains a net importer of electricity, except during the wet season. From fiscal year (FY) 2010 to FY 2018, Nepal's peak power demand grew at a Compound Annual Growth Rate (CAGR) of ~7 percent, increasing from 885 Megawatts (MW) to 1,508 MW, before decreasing to 1,320 MW in FY 2019. An increase to ~1408 MW was recorded again in FY 2020. However, Nepal's domestic generation capacity remains inadequate to meet both existing and anticipated demand. Today, the demand-supply gap is currently being managed through power imports from India, which in FY 2020 were in the range of 300 to 500 MW. The vast majority of Nepal's generation mix comes from hydropower, with a very small percentage being contributed by solar and thermal sources. Despite the nation's net importer status, the country is blessed with massive hydropower potential. The Government of Nepal (GoN) has estimated that the nation has more than 423 Gigawatts (GWs) of unexploited potential, only three percent of which (approximately 1.4 GW) has yet been tapped. Successive governments have regarded hydropower as being the obvious driver of Nepal's economic future because it is clean and abundant. It is widely held that the rational development of this abundant resource will easily close the current demand/supply gaps, provide for all domestic consumption, and also provide as much additional energy for exports as regional markets can support. The first challenge to overcome is financial. By their nature, hydropower projects (HPPs) are capital intensive, and Nepal's hydropower potential greatly exceeds the nation's ability to finance their development needs. The answer to the dilemma of how to grow the economy with inadequate supplies of domestic funding is easy to state, but less easily addressed. Put simply, Nepal must continue to improve its investment ecosystem in a way that attracts substantially more external financing resources than ever before. This problem is common among countries with significant hydropower potential, and Nepal must find innovative solutions to overcome this challenge. International Competitive Bidding (ICB) is a key strategy for Nepal to attract external financing resources and develop its hydropower potential. ICB is a procurement approach that involves inviting bids from qualified bidders to select the best project proposal. This approach has been widely used in Nepal for various infrastructure projects, including hydropower projects. The Government of Nepal has established a regulatory and institutional framework for ICB, which includes laws and policies that support this approach. However, there are challenges to be overcome in implementing ICB in Nepal, including improving coordination among government agencies, creating standardized legal documents, and creating a regional market strategy. A gap analysis has been conducted to identify the challenges and opportunities in implementing ICB in Nepal. The analysis has identified several areas for improvement, including improving coordination among government agencies, creating standardized legal documents, and creating a regional market strategy. Recommendations have been made to address these challenges, including appointing a purpose-built bid-process coordinator, sharing risk in assessing and selecting project sites, and creating stable tariff policies. An action plan has been developed to implement these recommendations and improve the ICB framework in Nepal.