World Bank approves US $100m to boost electricity sector in Nepal

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The World Bank Board of Executive Directors has approved a US $100m Development Policy Credit (DPC) to continue support to the Nepal Government in improving the financial viability and governance of the electricity sector and recovering from the COVID-19 crisis.

The approved operation is the second in a series of three DPC operations to support key policy, regulatory and institutional reforms to unlock the economic potential of Nepal’s electricity sector. These include measures to improve the financial viability of the Nepal Electricity Authority (NEA) as the sole off-taker; establish a regulatory framework that is autonomous, transparent, and accountable; achieve greater integration with the regional electricity market to ensure the optimal use of Nepal’s hydropower resource; and restructure NEA to empower provincial and local governments under the federal structure.

According to Faris Hadad-Zervos, World Bank Country Manager for Nepal, continued reforms to strengthen the electricity sector in Nepal is of utmost importance during the crisis and for post-crisis recovery. “This operation will help refocus investment priorities and support the government’s commitment to develop a reliable, affordable, and sustainable electricity sector that supports poverty reduction and shared prosperity in the country,” he added.

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Nepal’s energy sector

In recent years, Nepal’s energy sector made great strides with increased electricity generation, reduced system losses, and enhanced cross-border transmission capacity while putting an end to the nationwide load shedding. Electricity is now available to 88% of the population. An independent electricity regulator, central to the sector’s reform agenda, has become operational.

A new Electricity Act pending Parliamentary approval will, among others, enable competition in electricity generation and establishing power trade as a licensed activity. With strong government commitment and effective management, NEA has reduced system losses, remained profitable for three consecutive years and has improved its financial performance.

Due to the COVID-19 crisis, however, the sector has been hit hard by demand shocks, a cash flow crunch, and a halt of construction activities.

Xiaoping Wang, Senior Energy Specialist at the World Bank said that this operation builds on the important progress made under the first energy sector DPC operation and they will continue to support the government in addressing the immediate, medium- and long-term impacts of the crisis on Nepal’s energy sector through the third operation of the DPC series.