- RAISINA DEBATES
- SEP 30 2023
Indian investment in the hydropower sector and export of power to India is a game changer for Nepal as it can reduce its dependence on fossil fuels and help balance its trade deficit
Studies conducted in the past show that Nepal has the combined potential to produce over 42,000 MW of hydropower. However, the country had to face load shedding for 18 hours a day in not too distant past. But now the scenario has changed. The country has not only become self-sufficient in power production to a certain extent but it has also turned from an energy importing country to an energy exporting country. Yet, the country has to go a long way in hydropower production as it could tap only 7 percent of its potential or so.
Until a decade ago in 2012, Nepal produced only 1,050 MW of hydropower which increased to 2,800 MW in 2023. Presently, the country supplies 452.6 MW of power to India and it has been allowed to sell an additional 180 MW of power to it. In 2022, the country exported power worth over INR. 687.5 billion to India. In the first two months of the current fiscal year 2023-24 alone, Nepal happened to export power worth more than INR. 3.30 billion to this country.
The country has not only become self-sufficient in power production to a certain extent but it has also turned from an energy importing country to an energy exporting country.
Encouragingly, more and more Indian investment is pouring in Nepal’s hydropower sector. The SJVN Limited, one of India’s largest power companies, which had the credit of developing the 900MW Arun-3 Hydropower project at the cost of US$1.04 billion is going to undertake new projects like the 669 MW Lower Arun Hydropower Project along with the 490 MW Arun-4 project. Additionally, India’s NHPC Limited is now set to invest in 750 MW West Seti and the 450 MW Seti River-6 project. Furthermore, NHPC Limited and Vidyut Utpadan Company Limited of India are likely to develop the 480 MW Phukot Karnali Project. Besides, Nepal and India have now agreed to take forward the Sapta Koshi High Dam Multipurpose Project which could generate 3,000 MW of hydropower.
Most importantly, Nepal and India have started working on the modality of implementing the Mahakali Treaty. Under this Treaty, the Pancheshwar Multipurpose Project is expected to generate as much as 6,480 MW of hydropower. Though the Treaty was signed between the two countries as far back as 1996 and passed by over two-thirds of the members of the Nepalese parliament, it could not be implemented due to certain cancers from the Nepalese side. Now most of these concerns seem to have been addressed and the detailed project report (DPR) of the Pancheshwar Multipurpose Project is likely to be finalised by the two sides anytime soon.
Nepal and India have now agreed to take forward the Sapta Koshi High Dam Multipurpose Project which could generate 3,000 MW of hydropower.
Therefore, in its upbeat mood Nepal is planning to develop 30,000 MW of electricity by 2035. Till that period, the country’s domestic requirement for power is also likely to peak up to 15,000 MW. To achieve this gigantic goal, the different hydropower projects under construction are working hard to produce 5,000 MW of power at their scheduled time. Besides, the Nepal Electricity Authority (NEA) is also preparing a base to purchase all the power produced by different hydropower projects in the country. Plans are also afoot to optimise the power production in the existing hydropower plants.
Nepal, however, is struggling to develop domestic and cross-border transmission lines to facilitate power trade with India. To fill this void, the country has taken massive support from India in developing different transmission corridors between the two countries.
Finding the enabling environment for power trade with Nepal, India has recently agreed to buy 10,000 MW of power from this country in the coming 10 years under a long-term inter-government power trade agreement. Along with this, India has also given a green signal to Nepal to export power to Bangladesh through its transmission line. As such, Nepal is gearing up to export up to 50 MW of power to Bangladesh. At this development, Shankar Sharma, Nepal’s ambassador to India remarked that this decision on the part of the government of India would pave the way for developing a new road map for power production in Nepal. He also added that this would not only create an environment for larger investment in the power sector in Nepal, but this would also play a major role in accelerating the pace of economic development of the country.
Nepal’s ambassador to India remarked that this decision on the part of the government of India would pave the way for developing a new road map for power production in Nepal.
However, China seems to be perturbed by the way Nepal-India cooperation has been growing in the hydropower sector. Addressing a discussion on ‘China in the global economy and its impact on Nepal,’ the Chinese Ambassador to Nepal Chen Song said “Unfortunately, you have a neighbour like India…while India is a huge market, huge potential you can tap into, at the same time, India’s policy towards Nepal and other neighbours is not so friendly and not so beneficial to Nepal. We call that policy constraints.” He slammed India’s Nepal policy calling it less than ideal. To substantiate his views, he further said that Nepal exported electricity merely to the extent of INR. 6.25 billion to India in 2022-23, but its import of electricity from that country was worth INRs. 11.8 billion, which created a huge imbalance in Nepal’s power trade with India.
Being unsatisfied, the Nepalese experts cornered the Chinese Ambassador Song for his remark as they treated it as interference in Nepal’s internal affairs. Several members of the Nepalese parliament, including the Loktantrik Samajbadi Party, Rastriya Prajatantra Party, Aam Janata Party, Rashtriya Swatantra Party, Janamat Party, CPN-Maoist Centre, CPN-UML, CPN (Unified Socialist) cutting across the party lines criticised him for his undiplomatic remarks.
China seems to be perturbed by the way Nepal-India cooperation has been growing in the hydropower sector.
Due to the growing cooperation in the hydropower sector between Nepal and India, Indian investment in Nepal’s hydropower sector is likely to quadruple in the years to come. Nepal is now well aware that Indian investment in the hydropower sector is a game changer as the development and export of power to India are likely to help it to reduce its dependence on fossil fuels and increase its foreign exchange reserve, apart from minimising the trade deficit with India. India, too, is benefiting from investment in the hydropower sector and power trade as it is giving due economic returns along with green energy.
Hari Bansh Jha is a Visiting Fellow at the Observer Research Foundation
The views expressed above belong to the author(s).
ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.