Blueprint for Nepal-India electricity trade

Nepal and India signed a 25-year energy trade deal during Indian External Affairs Minister S Jaishankar's visit to Nepal on Thursday under which Nepal will export 10,000MW of electricity to India over the next 10 years.

Former Energy Secretary Dinesh Kumar Ghimire, who was among the officials involved in drafting the deal on behalf of Nepal, says the agreement is a blueprint for bilateral electricity trade that has significant implications for Nepal in the long term.

“This agreement has ensured that electricity produced in Nepal will get a market in India, thus giving investors confidence that India will buy Nepal’s electricity,” Ghimire adds.

Some have compared this to how India’s investment in power export projects in Bhutan have raised that country’s living standards, giving it the second highest GDP per capita in South Asia. 

However, critics say India is behind like a colonial power and exploiting Nepal’s main resource for its own benefit not for electricity but to regulate the waters of the tributaries of the Ganges that flow down from Nepal.

The 10,000MW electricity to be exported within the next decade will also include power generated from India-constructed and supported projects, something that has caused experts to question whether the agreement will ultimately apply exclusively to electricity exported from current and future Indian hydropower projects in Nepal. 

Two Indian state-owned companies, SVJN and NHPC, are currently involved in projects with a combined capacity of 4,600MW across Nepal. Meanwhile, India has been lobbying to construct more hydropower infrastructure, which could mean that 80% of the electricity exported under the bilateral agreement in the next 10 years will come from India-supported projects.

Read also: Missing pieces of the hydropower jigsaw, Sonia Awale 

The Nepal Electricity Authority (NEA) says that Nepal’s electricity generation capacity has exceeded 2,800MW, of which nearly 50% is consumed domestically. Although the NEA has been taking initiatives to export surplus power during the monsoon to India, the country has adopted a selective policy in regard to buying electricity from Nepal.

For instance, India has declared that it will not purchase electricity from projects that have Chinese and Pakistani involvement. That includes the 456MW Upper Tama Kosi project, which although built on Nepal’s investment had Chinese contractors from the company Sino Hydro. 

In October 2021, the NEA received permission to sell 39MW of electricity at a competitive rate in the IEX, the Indian energy exchange market. India has to date increased that limit to 657MW, out of which Nepal exports 547MW to India's competitive market and 110MW falls under a medium-term bilateral export deal.

However, India-imposed quotas on power purchases have meant that more than 600MW worth of electricity goes to waste annually during the monsoon in Nepal.

Other critics say that the long-term power trade agreement has further deepened Nepal’s political dependence on India, and established an Indian monopoly over Nepal’s water resources. 

Indeed, the agreement has made it clear that the trade will only involve hydropower projects with 'bilateral benefit’, which means that hydropower projects built with Chinese involvement will not find a market in India. 

Read also: India, Nepal ignore climate crisis in river talks, Ramesh Bhushal

This is in line with India's Conduct of Business Rule (CBR) issued in February 2021, under which the country will not import electricity from neighbouring countries that do not have an energy trade agreement. 

Nepal does not have ongoing hydropower projects where Pakistan is involved, but India’s stance has resulted in numerous Chinese investors and contractors reconsidering their involvement in Nepal’s hydropower projects. 

Former Energy Secretary Ghimire says government officials have continuously been raising questions about its policy on not purchasing electricity from Chinese-supported projects, adding that he is hopeful India will change current restrictions regarding China-supported and built projects in Nepal. 

The country’s commitment to green energy is an important bargaining chip for Nepal, Ghimire notes. “Nepal needs to recognise India’s commitments towards renewable energy and formulate strategies accordingly to persuade Indian authorities to review their current policies,” he explains.

Krishna Acharya, former president of the Independent Power Producers' Association, Nepal (IPPAN), says that the current agreement is encouraging, but that Nepal needs to work quickly on its own policies related to power generation to support the deal.

“If Nepal’s private sector were to be allowed to enter the electricity business, there would be a lot less uncertainty in the market,” says Acharya. 

NEA Executive Director Kulman Ghising is optimistic that India will be more lenient with its terms and conditions in the future. 

Read also: The geopolitics of Nepal’s water and electricity, Ramesh Kumar

"The current agreement is historic, and we have to do our bit to make sure we implement it properly," he says, “we have to continue efforts to increase our exports beyond 10,000MW in the future.”

Nepal’s government has formulated an energy development strategy with a target of generating a total of 28,000MW of electricity within the next 12 years, out of which 13,000MW will be for domestic consumption and 15,000MW for export to other countries including India.

Also during the visit, India increased its assistance through High Impact Community Development Projects (HICDP) to Rs200 million, up from Rs50 million. Earlier known as small development projects, HICDP started with Rs30 in 2003 and was later increased to Rs50 million when Baburam Bhattarai was the prime minister.

While HICDP can help Nepal implement crucial development projects at the local levels, it will be entirely up to India to choose who and what to fund.

Under HICDP, local governments and NGOs can apply for assistance directly but as per the directive rural municipalities and municipalities should chip in 5% and 10% as counterpart funds. But even that is not binding.

Even so, such cooperation is contrary to Nepal's Constitution and federal policy on international cooperation. Taking such assistance without formally notifying the federal government is a 'red carpet' for foreign interference, critics say. Civil society members have called the deal non-transparent which is bound to weaken Nepal’s sovereignty.

Nepal’s Energy Secretary Gopal Sigdel and his Indian counterpart Pankaj Agrawal signed the agreement on behalf of the two countries.

The long-term bilateral agreement was first announced during Nepali Prime Minister Pushpa Kamal Dahal’s visit to India last May and was officially endorsed by India’s Council of Ministers in September.

Read also: Nepal-India power play, Ramesh Kumar