Nepal-India power play

One of the agreements announced during Prime Minister Pushpa Kamal Dahal’s visit to India last week was a long-term electricity trade deal that makes it more difficult for third-country investment and construction of hydropower projects on Nepal’s rivers. 

Nepal can now reduce its widening trade imbalance with India by exporting surplus electricity in the coming years, Dahal told Parliament on Monday. 

“The power trade deal with India is an initial agreement and it still needs to be edorsed by cabinets in both countries, but it is a breakthrough,” explained Dinesh Kumar Ghimire, secretary at the Ministry of Energy, Hydropower and Irrigation. 

Indeed, because it is a preliminary announcement, the details about how Nepal will benefit from the deal is not yet clear. Despite the agreement, India has still not agreed to increase its power import quota from Nepal. 

Nepal Electricity Authority had got permission in November 2021 to bid for sale of power in India’s Energy Exchange Market. Initially, India only allowed the sale of 39MW in the day-ahead market, but after Sher Bahadur Deuba’s visit to Delhi in April 2022 that threshold was increased to 346MW, and later to 472MW.

The geopolitics of Himalayan waters means that India buys power generated only from only six plants that do not have any Chinese involvement, and furthermore the agreement has to be negotiated and renewed every year. NEA has already started the renewal process for the coming year and has asked for the quota to be increased.

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

Nepal will have surplus electricity as soon as the monsoon sets in this month. As river levels rise, generation capacity will go up to 2,700MW, while total summer demand for power in Nepal is only 1,600MW. 

Nepal has not pushed efforts to increase domestic demand aggressively enough by encouraging households to use electric stoves and appliances, incentivise battery-operated vehicles, and push industries to switch from diesel and coal to electricity. This means hundreds of megawatts of precious clean renewable energy will be wasted this monsoon, as in previous rainy seasons. 

Nepal had proposed a 25-year long-term deal with India during Prime Minister Dahal’s visit, but Indian Prime Minister Narendra Modi only gave verbal assurance to buy 10,000MW of power from Nepal in the next years, with the unspoken caveat that these will be generated by Indian-built plants. 

While in Delhi Dahal also tried to convince the Indian side to buy power from the Upper Tamakosi project which is being built by both Chinese and Indian contractors. But India did not give an immediate response.

Ghimire at the Energy Ministry says the agreement during Dahal’s visit has changed the modality of power trade from short-term to a long-term arrangement between the utilities of the two countries to buy electricity in bulk. “Instead of renewing every year, there is now the possibility to have 5, 10 or even 25 year power trade agreements and specify the price by year and month,” he explains.

The proposal for a long-term framework agreement now needs to be augmented by further bilateral negotiations between NEA and NTPC on price, duration and modality. 

Read also: Nepal’s precious electricity going waste, Anita Bhetwal

Dahal told Parliament on return that Nepal now has a guaranteed market to sell its surplus electricity, and would increase investment in power projects in Nepal. However, it is clear to many that the deal only opens Nepal’s rivers for Indian companies and not those from other countries.

In fact, reading between the lines of the Indian Ministry of External Affairs communique last week, Nepali experts say the long term purchase will only be from power projects in Nepal that India is involved in. This is the same model in which Indian state-owned companies build power plants in Bhutan. 

Ghimire assures skeptics that the agreement will benefit both Nepal and India, and says the Indian side has no problems buying power from plants with Nepali investment. But past experience shows that it has always been difficult for NEA to increase India’s import quota for Nepal’s electricity. 

Most affected will be hydropower projects nearing completion which have Chinese investment or are being built by Chinese contractors. 

“Even after the announcement of the longterm power trade agreement, we will still have to get Indian consent on a plant-by-plant basis,” says NEA’s chief Kuman Ghising. In 2019, India had passed a Conduct of Business Rule (CBR) under which it would only buy power from companies belonging to countries with which it has a bilateral energy trade agreement. 

This singled out mainly hydropower companies in Nepal with Chinese investment which are involved in the ongoing construction of projects generating a total of 1,000MW. India’s objection is not just to companies which have Chinese investment, but even the involvement of construction contractors from China would put Nepali companies on India’s blacklist for electricity import.

For example, the 456MW Upper Tamakosi project has Nepali investment and is being built by three big Indian contractors. But India is not buying power from this project because the Chinese company Sino Hydro had got the civil works contract. 

“It is humiliating that we have to provide the Indians with details of contracts for every project we are involved in,” said one hydropower investor who did not want his name used. “There is no guarantee they will buy power even in projects we build ourselves. This means ultimately Nepal will not be able to build anything on its own rivers without Indian approval.” 

Other experts point out that while all the discussions have been about electricity, New Delhi’s priority is actually to regular the flow of the tributaries of the Ganges by storing monsoon runoff. With the climate crisis changing the hydrology of Himalayan rivers, India is now eyeing large reservoir projects in Nepal.

Read also: Geopolitics of Nepal’s rivers, Ramesh Kumar

Almost two-thirds of the water in the Ganges that flows through some of the most densely-populated regions in the world in the north Indian plains come from rivers of Nepal. And most of that flows down in the four monsoon months between June-September.

One large reservoir project is the Budi Gandaki, and it has been delayed by geopolitical pingpong between India and China. In 2017, Pushpa Kamal Dahal awarded the project to China’s CGGC when he was prime minister, but the subsequent Deuba government reversed the decision. In 2018, K P Oli’s administration restored the contract, only to have Deuba cancel it again in 2022. 

In the current climate, Budi Gandaki would be the kind of project that India would try to prevent the Chinese from building even if it did not want to buy electricity from it because of its water storage capability. 

Prime Minister Dahal is in a coalition with Sher Bahadur Deuba of the Nepali Congress (NC). When he became prime minister in 2022, he awarded a series of river projects to Indian companies: the West Seti reservoir project, the 480MW Phukot Karnali and Seti River-6.  

A Nepali company signed an agreement with China Construction during the visit to Kathmandu by President Xi Jinping in 2019 to build the 762MW Tamor project in eastern Nepal. But because India will not buy power from the project, the Nepali side has revoked the contract with China Construction and is likely award it to India’s state-owned Satluj Jal Vidyut Nigam, which is involved in projects on the Arun that will generate 2,000MW.

Indian companies are building hydropower projects which will add a combined total of 4,000MW to the grid, three of which were rushed through only in the past year. Three more Indian projects are in the pipeline.