Cross-Border Power Trade, Licence Expiry and Project Exit

The most important permission in Nepal’s export business is not issued in Nepal. Section 22 of the Electricity Act 2049 requires government approval to import or export electricity, and that is the whole of the Nepali statutory treatment. Who may sell, into which market, at what volume and for how long is decided in Delhi, by India’s Central Electricity Authority acting as designated authority under a framework India wrote for itself.

The Indian approval framework

India’s Guidelines for Import/Export (Cross Border) of Electricity were issued on 18 December 2018, with supplementary guidance on gas-based power added on 3 July 2019. The Procedure for approval and facilitating import/export of electricity by the designated authority followed on 26 February 2021. The Central Electricity Regulatory Commission’s cross-border trade regulations of 2019 sit alongside them, and a verification mechanism for exports from qualified fuel sources was added in June 2023.

Approval comes in two forms. A Nepali project may be cleared to sell into the Indian power exchanges — the day-ahead and real-time markets — or bilaterally to a named Indian buyer, with Haryana and Bihar appearing among the counterparties.

Approvals are granted project by project and for defined periods. The Authority’s own listing shows Kaligandaki A (140 MW) and Marsyangdi (67 MW) approved for day-ahead and real-time market sales from 19 May 2025 to 30 April 2026. Solu Khola (83.42 MW) is approved bilaterally to Haryana across seasonal windows running to October 2027, and Likhu IV (51 MW) bilaterally for the 2025/26 window. Something in the order of twenty-five Nepali projects have been approved since 2022.

What it means for developers

The shape matters more than the individual names.

Export permission is no right attaching to a Nepali licence. It is an approval attaching to a specific plant, for a specific route, for a specific window, granted by a foreign regulator applying a foreign policy. A Nepali generator cannot obtain it before building, cannot count on renewal, and has no forum in which to contest a refusal.

That is a serious problem for long-dated finance. A lender underwriting a twelve-year loan against export revenue is underwriting a sequence of annual permissions. It is also why export in its present form works as a way of monetising surplus energy rather than as a substitute for a domestic power purchase agreement. The economics are real: sales to India and Bangladesh earned NPR 29.32 billion in the year to mid-July 2026. The contractual foundation underneath them is thin.

The producers’ association described the consequence in August 2026. Indian counterparties had begun telling Nepali developers that without permission from their own government there was nothing to discuss. Nepal’s trading-licence position mirrors India’s approval regime. The Electricity Act permits trading licences and the FY 2026/27 budget promised private international trading, yet only a state-backed entity has been approved, and it is not operating.

The physical ceiling

Export capability is roughly 1,000 MW, carried by the 400 kV Dhalkebar–Muzaffarpur line with 132 kV connections alongside it. The Butwal–Gorakhpur 400 kV joint venture line was still under construction in FY 2082/83 on the Nepal Electricity Authority’s own account, with Nepal’s 18-kilometre section prioritised.

Set against roughly a thousand megawatts spilled each monsoon for want of evacuation capacity, the binding constraint on export is a single corridor. Trading arrangements cannot move energy the network cannot carry, which is why transmission, grid connection and open access is the companion question to this one.

The Indian demand outlook

Most Nepali export planning assumes that Indian demand growth guarantees a buyer. India’s own numbers make that less certain than it sounds. The Central Electricity Authority projects peak demand of 458.7 GW by 2035/36 against a planned installed base of 1,121 GW, up from 520.5 GW today. India already has 211 GW of solar, added 75 GW of it in a single year, and holds a stated nuclear target of 100 GW by 2047.

Nepali hydropower’s comparative advantage in that system is dry-season and peaking energy. That is exactly what Nepal’s own contracted fleet lacks: 404 run-of-river power purchase agreements, 51 peaking, and one storage project. A country contracting almost entirely for monsoon energy is building the export product India will need least.

Bangladesh

Nepal earned export revenue from sales to Bangladesh as well as India in the year to mid-July 2026. Beyond that we state nothing. Any sale to Bangladesh must physically cross Indian territory, which makes the arrangement trilateral in substance whatever its documentary form. Volumes, seasonal windows, tariff and transit terms could not be verified against any instrument we could retrieve, and are recorded as a gap in the flags.

One structural observation survives the gap. A third-country sale adds a second sovereign approval on top of the Indian one, and still depends on Indian transmission being made available at a price. It widens the market without loosening the constraint, because the constraint is transit rather than demand.

Selling the company

The ordinary exit is a share sale, and three consents may be engaged. Transfer of a licence requires Departmental approval under section 4 of the Electricity Act. A change of ownership or control of a licensee engages the Electricity Regulatory Commission’s 2077 directive on mergers, acquisitions and share transfers. A public issue engages the Commission’s separate 2078 directive requiring prior approval.

A foreign seller has a fourth consideration. Ownership at licence expiry turns on whether foreign investment exceeds fifty per cent, so a transaction that moves the shareholding across that line changes the asset’s terminal value for the buyer. That is a diligence point on the sell side as much as the buy side.

When the licence ends

This is the exit nobody models early enough.

A generation licence runs for thirty-five years for a domestic project and thirty for an export-oriented one under the Hydropower Development Policy 2058, within a statutory maximum of fifty years. Renewal must be applied for one year before expiry.

At expiry, section 10 provides that where foreign investment exceeded fifty per cent the structures become the property of the Government of Nepal. Where it was fifty per cent or less, the licensee may continue by arrangement with the Government. The Hydropower Development Policy is blunter still: the project transfers to the Government in good running condition at expiry, and no compensation is provided.

Three consequences follow that belong in a financial model from year one rather than year twenty-five.

The asset has a defined economic life shorter than its physical life. A concrete-and-steel scheme with a sixty-year civil design will not produce sixty years of cash flow for its developer.

“Good running condition” is a capital expenditure obligation falling in the last decade of the term, exactly when the owner’s incentive to reinvest is weakest. Neither the Act nor the policy defines that condition with any precision, and whoever gets to define it controls a substantial transfer of value.

And a tariff escalating for eight years, on a thirty-year licence, ending in an uncompensated handover, gives a revenue profile that declines in real terms for two decades and then stops. How a model treats terminal value in year thirty is the largest single assumption inside it, and it gets settled long before anyone reaches year twenty-five.

Sources

1. Import/Export (Cross Border) of Electricity

   Central Electricity Authority, Government of India · Guidelines issued 18 December 2018; designated authority procedure 26 February 2021; CERC cross-border trade regulations 2019 · Tier 1 — Primary legal instrument

   Supports: The Indian approval framework, the role of the Central Electricity Authority as designated authority, approval through power exchanges (day-ahead and real-time markets) and bilaterally to named state buyers, and the project-level approvals for Kaligandaki A, Marsyangdi, Solu Khola and Likhu IV with their capacities and windows.

   Accessed 26 August 2026

2. Electricity Act, 2049 (1992) — English text

   Government of Nepal, published by the Department of Electricity Development · 1992 — in force · Tier 1 — Primary legal instrument

   Supports: Section 21 bulk sale to the national grid; section 22 import and export subject to government approval; section 5 licence terms and renewal; section 10 ownership of structures at licence expiry and the 50% foreign investment line; section 4 approval for transfer of a licence.

   Accessed 26 August 2026

3. Hydropower Development Policy, 2058 (2001) — English text

   Government of Nepal, published by the Department of Electricity Development · 2001 — policy, not statute · Tier 2 — Official publication

   Supports: Paragraph 6.5.1 transfer to the Government in good running condition without compensation; paragraph 6.11.2 the Government's right to take up to 10% of an export project's output for domestic use; paragraph 6.12.11(2) the thirty-year licence for export-oriented projects; paragraph 6.13.1 export royalty rates.

   Accessed 26 August 2026

4. India's rising power demand offers Nepal a market — but not forever

   The Kathmandu Post · 23 August 2026 · Tier 6 — Professional or news source

   Supports: NPR 29.32 billion of export earnings in the year to mid-July 2026; export capability of about 1,000 MW; roughly 1,000 MW spilled for lack of transmission; Indian Central Electricity Authority projections of 458.7 GW peak demand by 2035/36, 1,121 GW of capacity against 520.5 GW today, and 211 GW of installed solar; and the producers' association account of Indian counterparties citing the absence of Nepali permissions.

   Accessed 26 August 2026

5. Transmission Directorate — A Year in Review 2082/83

   Nepal Electricity Authority · Published 19 August 2026 · Tier 2 — Official publication

   Supports: The 400 kV Dhalkebar–Muzaffarpur line in operation as the principal cross-border link, and the Butwal–Gorakhpur 400 kV joint venture line under construction with Nepal's 18 km section prioritised.

   Accessed 26 August 2026

6. Merger, acquisition and share transfer directive for licensees, 2077, and directive on prior approval of public share issues, 2078

   Electricity Regulatory Commission · Posted to the Commission's website 8 April 2026 and 15 February 2026 · Tier 1 — Primary legal instrument

   Supports: That a sale of a licensee, or a public issue of its shares, requires the Commission's approval in addition to the Department's consent to any licence transfer.

   Accessed 26 August 2026