Energy: A New Dimension in India-Nepal Relations

Nepal’s Energy Export to India

Recently, the Nepal Electricity Authority said in a statement that in the last four months, Nepal exported electricity worth US$ 56 million to India, estimated to reach the US $ 234 million in December 2022. This is the first time Nepal has sold such a large quantity of electricity to India. If Nepal continues to export power to India at this pace, not only will the trade deficit between the two countries improve, but in the coming years, Nepal will contribute to a large part of its GDP by exporting electricity to India like its neighbouring country Bhutan.

Although the two countries have attempted to come to terms with exporting Nepal’s surplus electricity to India, success has been very little. It is noteworthy that Nepal has vast water bodies, including about 6000 rivers, but due to lack of investment, interest and involvement of the private sector, technical shortage, and political deadlocks, Nepal does not produce even ten per cent of its estimated potential of 47,000 megawatts.

Although, in recent years, its two neighbours—India and China—have invested in hydro-power generation plants in Nepal.

Above all, the primary reason affecting the hydro-power sector is frequent changes in the governments in Nepal and a lack of interest in continuing the projects and initiatives taken by the previous governments.

Vision Statement on India-Nepal Power Sector Cooperation

India-Nepal hydro-power cooperation has come a long way. The Joint Vision Statement on India-Nepal Power Sector Cooperation, issued during Prime Minister Narendra Modi's visit to Nepal in April this year, has dramatically boosted future energy sector cooperation. It was a landmark document that talked about the mutual benefits of the power sector between the two countries. This initiative between the two countries is incomparable.

In the statement, the two countries have shown understanding on revisiting the Pancheshwar Multi-Purpose Project (PMPP) Agreement (PMPPA) of 1996 and agreed to work on its Detailed Project Report (DPR). Pancheshwar project has the potential to produce 6000 megawatts of electricity and provide irrigation facilities to thousands of families settled on both sides of the border—often affected by the floods. In doing so, Joint Commission on Water Resources (JCWR)—the primary body on water resources—has extended the tenure of the Expert Team till March 2023 to finalise the DPR of PMPP.

The Foreign Secretary-level bilateral talks between India and Nepal held in Delhi on September 13-14 also focussed on bilateral cooperation in the hydro-energy sector.

Beyond Bilateralism

The sale of electricity from Nepal not only strengthens the bilateral cooperation between India and Nepal but also helps establish the power trade between Nepal and Bangladesh, with a prospect of Bhutan joining in as well. During her recent visit to India, Bangladesh Prime Minister Sheikh Hasina requested India to facilitate the import of electricity from Nepal and Bhutan through India. Among South Asian countries, Bangladesh is emerging as a strong economic power and needs increasing amounts of electricity to sustain this momentum.

Evidently, Bangladesh can meet its demand for power from Nepal and Bhutan through India. In such a case, it will also help India earn revenue through facilitating power transmission and play an important role in regional cooperation in South Asia.

South Asia is known to be the least integrated region in terms ofeconomy. With the South Asian Association for Regional Cooperation (SAARC) in limbo—mainly due to Pakistan's promotion of terrorism—India must take the lead in bringing neighbours closer on multiple fronts, including the economy. Since 2014, annual summits of the SAARC countries have not taken place, and there seems no hope for an early SAARC summit due to the deteriorating situation in Pakistan both internally and externally.

Meanwhile, India has been working with the equal participation of other neighbours to strengthen regional cooperation through all means, where forums like BIMSTEC, BBIN, and Indian Ocean Region have contributed immensely. Taking these efforts forward, if India helps Nepal and Bhutan to supply electricity to Bangladesh, it will give a new direction to regional cooperation.

At the same time, multilateral cooperation in the power sector between Nepal, Nepal, Bhutan, and Bangladesh opens new gateways for non-regional actors to become part of the journey. For instance, in February 2022, Nepal signed Millennium Challenge Corporation (MCC) Agreement with the United States for development cooperation. Under MCC, the United States has provided US$ 500 million in aid to Nepal for poverty alleviation and development, including building power transmission lines along the Nepal-India border which will significantly help Nepal to export electricity to India.

Chinese Limits

China has also been a very active actor in investing in the hydro-power sector of Nepal. Still, it sees a limited trajectory where power produced with its investment remains for domestic consumption only. India is not comfortable buying the electricity generated with China’s assistance in its market and beyond. In such a situation, the additional power generated with Chinese loans/assistance in Nepal will cause losses due to a lack of market, especially in India.

About four years ago, China backed out of the West Seti Hydro-Power project and the Seti River Hydro-Power project in western Nepal, seeing no market potential. Now, both projects will be developed by India.

While India has come forward for multilateral cooperation in Nepal with other countries, finding common ground with China is difficult due to Beijing’s repressive and expansionist approach toward the region.

Conclusion

The growing proximity in the power sector between India and Nepal further strengthens the long-standing 'special relationship'. For many decades, Nepal’s massive trade deficit with India has remained a challenge due to the limited exports from Nepal. Still, with the export of electricity, Nepal will be able to fill the void in the trade sector in the days and years to come.

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