Once reluctant, India now open to power trade to and from Nepal, and beyond

Purusottam Ojha, a former commerce secretary, still remembers the scorn from some Indian officials over Nepal’s proposal on a transit arrangement for energy, especially for landlocked countries, about two decades ago.

During the ministerial meeting of the landlocked countries in Almaty, Kazakhstan in August 2003, Nepal had floated a separate proposal that transmission lines be included in the transit arrangement as a privilege to the landlocked countries.

The proposal meant that landlocked countries need a transmission line connectivity from the neighbouring countries in order to sell electricity to third countries.

But in early 2000, Nepal itself was a power-starved country, not producing enough for domestic consumption, let alone for export.

“The Indian officials were visibly livid. They told me that such issues should not be discussed at such forums and can be discussed bilaterally,” Ojha told the Post. “This may be due to the fact that it would lead to erosion of their say over utilisation of Nepal’s water resources.”

The International Ministerial Conference of Landlocked and Transit Developing Countries and Donor Countries and International Financial and Development Institutions on Transit Transport Corporation was organised as per the decision of the United Nations General Assembly.

Fast forward to 2022. India is not reluctant anymore to such similar cooperation in the energy sector. Rather India itself has agreed to promote multilateral cooperation in the power sector.

Prime Minister Sher Bahadur Deuba and his Indian counterpart Narendra Modi on Saturday agreed on the Joint Vision Statement on Power Sector Cooperation which talks about expanding cooperation in the power sector to include their partner countries under the Bangladesh Bhutan, India and Nepal (BBIN) framework, subject to mutually agreed upon terms and conditions between all involved parties.

As per the vision statement, two sides agreed to strengthen cooperation on joint development of power generation projects in Nepal; development of cross-border transmission infrastructure and bi-directional power trade with appropriate access to electricity markets in both countries based on mutual benefits.

Similarly, the statement pushes for market demand and applicable domestic regulations of each country; coordinated operation of the national grids and institutional cooperation in sharing latest operational information, technology and know-how.

“India appears keen on promoting subregional cooperation in power, transportation and other connectivity because of its own strategic interests vis-a-vis keeping Pakistan out and scuttling China’s bid to expand its influence in the region,” said Ojha. “India also wants to link itself with Southeast Asian nations through Bangladesh under its Act East Policy.”

Since coming to power in 2014, the Indian government under Prime Minister Narendra Modi has rebranded the Look East Policy as the Act East Policy. This policy shift seeks both to bring structure to New Delhi's foreign policy and to achieve its domestic developmental goals specifically within India's northeastern region. And the Modi government has also pushed for its Neighbourhood First Policy.

Although South Asian nations had signed the SAARC Framework Agreement on Energy in 2014 during the 18th Summit of the regional bloc in Kathmandu, its implementation is still in limbo since SAARC is moribund.

But the recent vision statement has paved the way for sub-regional cooperation in the power sector at a time when Nepal and Bangladesh have agreed to bring India onboard to conduct electricity trade between Nepal and Bangladesh.

Bangladesh has already decided to buy 500MW of electricity from the 900MW Upper Karnali Hydropower Project to be developed by India’s GMR Group, which has set up GMR Upper Karnali Hydropower Limited to develop the project in Nepal.

Bangladesh has also shown interest in developing hydropower projects in Nepal, including the Sunkoshi III Hydropower Project, according to the Energy Ministry.

During the secretary-level Joint Steering Committee meeting between Nepal and Bangladesh in September last year, the two sides also agreed to develop a dedicated transmission line between the two countries by taking India on board.

Currently, there has been bilateral trading of electricity between Nepal and India, India and Bhutan and India and Bangladesh. But there has been no multilateral power trading arrangement among BBIN members so far.

“We have signed a memorandum of understanding on power sector cooperation with Bangladesh which allows Bangladesh to buy electricity from Nepal,” said Madhu Bhetuwal, spokesperson at the Ministry of Energy, Water Resources and Irrigation. “To implement the MoU, cooperation from India is compulsory, and the joint vision statement means Delhi is ready to extend its support.”

As per Article III of the MoU, both sides will take necessary steps to establish adequate national and regional grid connectivity to explore power trade between the two countries.

Bhetuwal said that honest implementation of the vision statement would help create a sub-regional market for the power and it is very much important for Nepal, which wants to export electricity.

Nepal is already a power surplus country in the monsoon. Nepal exported power in India’s energy exchange market for over a month starting early November. The power generated from the 24MW Trishuli Hydropower Project and the 15MW Devighat Hydropower Project were sold in India’s market which helped the power utility to control wastage.

According to an Asian Development Bank report on Hydropower Development and Economic Growth in Nepal, electricity generation capacity in Nepal is rapidly increasing.

In terms of the recent progress in hydropower development, survey licences for over 302 projects with a total capacity of 15,885 MW have already been issued, out of which 172 projects have secured generation licences and construction is ongoing for a total capacity of 4,642 MW.

Power purchase agreements have been completed for 244 projects with a total capacity of 4,138 MW.

The report says that Nepal’s water resources endowments are extraordinary. The country has approximately 6,000 rivers with a total length of 45,000 kilometres. Average water runoff from these rivers is about 220 billion cubic metres annually.

Based on the water resources availability, Nepal's technical potential for hydropower has been estimated to be 83 gigawatts. Not all the technically feasible hydropower projects will be developed due to various constraints. Hence, about 42 GW is considered economically viable.

Nepal is strategically located between two largest countries in Asia: India and China. These two countries are facing annual demand for electricity of about 5 million GWh. Bangladesh, which is energy-deficient, is hungry for power.

India, China and other neighbouring Asian countries like Bangladesh could easily absorb any additional supply of electricity over and above the needs of Nepal, provided that appropriate transmission infrastructure is in place, the report says.

Officials said that since the vision statement has come from the highest levels of the two governments, concerted efforts must be made to translate it into action.

“The importance of this document for Nepal is that its implementation will ensure a large market for Nepal’s power which the country is desperately searching for,” said Kul Man Ghising, managing director of the Nepal Electricity Authority. “The creation of a subregional market will help attract more investment in Nepal’s power sector.”

According to officials and experts, the vision document is comprehensive in nature which covers power generation, transmission and trading of electricity and also talked about joint investment in both generation and cross border transmission lines.

“One most important feature of this vision statement is it aims to promote interdependence between Nepal and India in energy trade at a time when Nepal is heavily dependent on India for trading of goods,” said Posh Raj Pandey, executive chairperson of South Asia Watch on Trade, Economics and Environment (SAWTEE), a South Asian think tank headquartered in Kathmandu. “The vision statement also aims to create an integrated energy market in the BBIN region and its implementation not only will create an integrated sub-regional market but also attract more investment in Nepal’s power sector.”

He stressed that there should be an effort to hormonise rules and regulations to develop integrated markets at sub-regional level.

As per the vision document, Nepal and India have agreed to make renewable energy production, hydropower in particular, a cornerstone of their energy partnership considering the climate change commitments of Nepal and India.

India is also under pressure to switch to clean energy as most of its power, about 74 percent, is generated from coal.

During the United Nations climate conference in Glasgow, Scotland in November last year, Indian Prime Minister Modi announced that India was aiming to achieve net-zero emission status by 2070.

“With two countries agreeing to forge partnership on hydropower considering their climate change commitment, we can expect that India will ensure market access to Nepal’s power,” said Ghising.

According to the Asian Development Bank report, there are long-term economic benefits of expanding Nepal’s hydroelectric capacity.

The report says expanding the country’s hydropower generation by 20 percent of the economic potential would result in an 87 percent increase of real GDP by 2030 above the baseline growth.

Officials and experts said that the highest level political commitment on energy cooperation between Nepal and India could help harness power generation potential and contribute to socio-economic development of the country.

But Pandey of SAWTEE fears politicisation could derail the plan as the issue of water resources has long been one of the most politically charged matters in Nepal.

“There is this risk that certain groups and ultranationalists may try to derail this cooperation effort in the power sector by politicising it for their own gains,” he said.

The Kathmandu Post