Nepal Targets Completion of NEA Unbundling Within Fiscal Year, Legal Hurdles Persist

KATHMANDU: The Government of Nepal has announced an ambitious plan to complete the restructuring of the Nepal Electricity Authority (NEA) within the upcoming fiscal year 2083/84 (2026/27), reviving a long-debated reform agenda in the country’s power sector. The move, included in the national budget, signals a renewed effort to separate the state-owned utility into distinct entities responsible for power generation, transmission, distribution, and electricity trading.

While policymakers argue that the restructuring will improve efficiency, transparency, and competitiveness, energy experts warn that significant legal, financial, and administrative hurdles must be addressed before the plan can be successfully implemented.

Long-Standing Reform Agenda Returns to the Spotlight

The Ministry of Energy, Water Resources and Irrigation first initiated discussions on unbundling the Nepal Electricity Authority in 2017. As part of that effort, the government established several sector-specific entities, including the Electricity Generation Company Limited, the National Transmission Grid Company Limited, and the Nepal Power Trading Company.

However, despite the creation of these institutions, the broader restructuring process stalled due to unresolved issues involving asset ownership, liabilities, and workforce management.

The latest budget now sets a target of completing the entire restructuring process within the next fiscal year, making it one of the most significant institutional reforms proposed for Nepal’s energy sector in recent years.

Existing Law Does Not Allow NEA Split

According to former NEA Deputy Executive Director Sher Singh Bhat, the restructuring outlined in the budget effectively amounts to the breakup of the Nepal Electricity Authority. However, he argues that such a move cannot be carried out under the existing legal framework.

“The Nepal Electricity Authority was established through a dedicated Act. Dividing it into separate entities would require either amendments to the existing legislation or the introduction of a new Electricity Act,” Bhat said.

He noted that although the NEA holds shares in various power-sector companies established over the years, those entities are not subsidiaries of the authority in the legal sense.

Energy experts believe that the government’s restructuring agenda may indicate preparations for a new electricity law that would provide the legal foundation required for the reform.

Questions Raised Over Existing Companies

Another former NEA Deputy Executive Director, Prabal Adhikari, argues that the budget announcement has created new uncertainties.

According to Adhikari, separate companies for power generation, transmission, and electricity trading already exist. In some cases, the NEA is the majority shareholder.

“If these companies are already in operation, what is the rationale for creating another layer of restructuring?” he questioned.

He pointed out that the NEA owns a 51 percent stake in the Nepal Power Trading Company. As a result, greater clarity is needed regarding how the government intends to integrate existing institutions into the proposed structure.

Asset Division Could Be the Biggest Challenge

Experts say the most difficult aspect of the unbundling process will be the management and allocation of assets and liabilities.

The NEA currently owns and operates a vast network of hydropower plants, transmission lines, substations, distribution systems, and other critical infrastructure worth billions of rupees. Determining how these assets will be valued and distributed among newly formed entities remains a major unresolved issue.

Financial liabilities, loan obligations, and ongoing investment commitments will also need to be carefully allocated to avoid creating operational and financial instability.

Industry observers warn that poorly planned asset transfers could undermine the financial sustainability of the successor companies.

Thousands of Employees Face Uncertainty

The restructuring will also require the reassignment of thousands of employees currently working under the NEA.

Issues related to employee placement, salaries, benefits, pensions, career development, and technical workforce distribution are expected to be among the most sensitive aspects of the transition.

Experts caution that without a comprehensive human resource management plan, the reform could weaken institutional capacity rather than strengthen it.

Contradictions in the Budget

Adhikari also highlighted what he described as contradictory policy signals in the government’s budget.

While the government emphasizes transforming the NEA into a more specialized institution, the budget simultaneously assigns responsibilities beyond its traditional core functions, including possible involvement in fertilizer production and electric vehicle component manufacturing.

Such policy directions, he argues, could dilute the intended objectives of the restructuring process.

Ministry Forms Committee to Study Restructuring Model

To advance the reform agenda, the Ministry of Energy, Water Resources and Irrigation has formed a study committee under Joint Secretary Sandip Dev.

According to ministry officials, the committee has begun preparing its Terms of Reference (ToR) and has been tasked with developing a framework for asset management, employee adjustment, liability transfers, and institutional restructuring.

Officials say that while discussions on unbundling have continued since 2017, little concrete work had been completed regarding asset and workforce management. The new committee is expected to examine a full de-merger model that would create completely separate entities for different segments of the electricity business.

Government sources indicate that the existing Nepal Electricity Authority Act of 1984 does not provide adequate legal grounds for such a major structural transformation. Consequently, policymakers may pursue either a new Electricity Act or a complete replacement of the current legislation.

The committee is expected to submit an initial action plan within the next seven to ten days.

Reform Opportunity or Sector Risk?

The Ministry of Energy maintains that separating generation, transmission, distribution, and trading functions will enhance operational efficiency, improve transparency, strengthen financial discipline, and encourage competition within Nepal’s power sector.

Globally, electricity sector unbundling has been adopted in numerous countries as part of broader market-oriented reforms aimed at improving utility performance and attracting investment.

However, energy specialists warn that proceeding without resolving legal ambiguities, asset-transfer mechanisms, liability management frameworks, and employee concerns could create instability across Nepal’s electricity sector.

Although the government has set an ambitious target of completing the restructuring within the next fiscal year, experts say the success of the initiative will ultimately depend on a robust legal framework, a clearly defined transition strategy, transparent asset allocation mechanisms, and broad consensus among stakeholders.

As Nepal continues to pursue power-sector modernization and expand its hydropower ambitions, the proposed unbundling of the Nepal Electricity Authority is likely to become one of the most closely watched policy reforms in the country’s energy landscape.