Monday Morning Report on India-Nepal Hydro Energy Cooperation: Challenges and Prospects

Dr. Nihar R. Nayak, Research Fellow, Non-Traditional Security Centre, Manohar Parrikar Institute for Defence Studies and Analyses, spoke on “India-Nepal Hydro Energy Cooperation: Challenges and Prospects” at the Monday Morning Meeting held on 4 September 2023. The meeting was moderated by Dr. Opangmeren Jamir, Research Analyst, East Asia Centre, MP-IDSA. The Director General, Ambassador Sujan R. Chinoy and the scholars of the Institute participated in the discussions.

Executive Summary

Nepal has a huge potential for hydro-energy cooperation. India and Nepal share a lot of common interests in developing Nepal’s hydro energy projects and both States are taking significant steps in this direction. Despite this, there remain several challenges that need to be addressed by both sides. India remains concerned about the increasing presence of Chinese companies in the development of various infrastructure projects in Nepal. Nepal on the other hand complain about consistent delays in the timely completion of projects undertaken by Indian companies in Nepal.

Detailed Report

Dr. Opangmeren Jamir gave a brief introduction to various aspects of India-Nepal Hydro Energy Cooperation. He mentioned that cooperation on hydro energy projects between India and Nepal offers huge prospects for energy security and economic development in both the countries. He highlighted that hydroelectricity cooperation was also on the agenda of the Nepalese Prime Minister’s last visit to India. During this visit several bilateral agreements were signed between both the countries. During his introductory remarks, Dr. Jamir also highlighted the importance of the recently signed India-Nepal-Bangladesh tripartite power trade agreement through which Nepal agreed to supply 500 megawatts of electricity to Bangladesh. Dr. Jamir then invited Dr. Nihar R. Nayak to make his presentation on the topic. 

Dr.  Nayak started his presentation by highlighting that Nepal has around 6000 rivers and rivulets with an annual flow-224.5 billion cubic meters and a total catchment area of 145,723 square kilometres. He mentioned that the abundance of these rivers and the rate of water flow in these, makes Nepal undertake investments in hydropower projects. Dr. Nayak highlighted that Nepal has a technical potential to generate around 45,610 MW of electricity from 66 potential hydro-electric sites in the country. He pointed out that Nepal in June 2021 reported a surplus amount of electricity generation in the country and it currently has around 125 active projects that contribute to 2,822 MW total production. The country presently exports around 452.6 MW of electricity and has proposed to export around 600 MW by the end of 2023. Dr. Nayak highlighted that despite all these estimates Nepal remains a “net importer” of electricity while it aims to become a “net exporter.” Commenting on a report titled ‘Policy Arrangement regarding Power Purchase and Sale-2080 BS’, Dr. Nayak mentioned that Nepal wants to be self-reliant to meet its electricity needs and by 2030 it aims to achieve the hydroelectricity production target of around 10,000MW. He highlighted that Nepal by 2030 also wants to be a key hydro energy exporter in South Asia and it seeks to extend a power purchase agreement of 50 years with India.

Speaking on India-Nepal bilateral relations and both the countries' cooperation on hydro energy projects, Dr. Nayak mentioned that as per the 1950 Treaty, it was declared that if “the Government of Nepal decides to seek foreign assistance in regard to the development of the natural resource, Nepal shall give first preference to the Government or the nationals of India”. Dr. Nayak mentioned that India has developed 15 different kind of hydro energy projects in Nepal. He also discussed several important bilateral agreements and legal frameworks signed between the two countries in the hydro energy sector that included the Power Exchange Agreement (1971), an Agreement on Electric Power Trade, Cross-border Transmission Interconnection and Grid Connectivity (2014) and Procedure for Approval and Facilitating Import/Export (Cross Border) of Electricity, Central Electricity Authority (CEA) signed in 2021. He mentioned that of these three, ‘Procedure for Approval and Facilitating Import/Export (Cross Border) of Electricity’ is seen negatively in Nepal. India under this framework has restricted electricity imports from Nepali projects that have any Chinese involvement.

Commenting on the power transmission lines between India and Nepal, Dr. Nayak mentioned that both countries have an extensive network of 33kV, 132kV and 400kV power transmission lines between the two countries. In August 2023 India has further agreed to invest $679.8 million under Line Of Credit for the construction of transmission lines and sub-stations. Highlighting the current status of cooperation between India and Nepal, Dr. Nayak mentioned that both countries in April 2022 issued a Joint Vision Statement on the Hydropower Sector for mutually beneficial cooperation. Nepal’s Electricity Authority (NEA) and India’s Power Trading Corporation (PTC) in May 2023 signed a 5-year power sale agreement. Further in June 2023, India agreed to import 10, 000 MW of electricity from Nepal for a period of 10 years. Further, India-Nepal- Bangladesh as a part of a trilateral power transaction arrangement, have agreed in principle to export 40MW electricity from Nepal to Bangladesh.

Dr. Nayak in the second part of his presentation talked about the Nepali perspectives on hydro energy cooperation with India. He mentioned that most people within the Nepalese Government see hydropower agreements with India as one-sided agreements that to an extent compromise Nepalese interests. Dr. Nayak also pointed out that some within the Nepali strategic spheres also view these as threats to Nepal’s sovereignty. He further highlighted that there are some who even claim that India treats its hydro energy projects in Nepal as a ‘strategic product’. Dr. Nayak mentioned that Nepal even blames India for deliberately delaying Nepal the permissions to export its surplus power despite both countries' mutual understanding at the PM level. He lastly pointed out that there also remains consistent uncertainty about India buying electricity from Nepal, which raises overall economic concerns for the country.

In the final part of his presentation, Dr. Nihar Nayak highlighted various challenges and opportunities for India-Nepal hydro energy cooperation. He highlighted several bureaucratic challenges on the Indian side of which ‘lack of inter-ministerial coordination’ remains at the forefront. He mentioned that on the Nepali side, the Government needs to take a balanced approach in terms of equal distribution of hydro energy projects between India and China. Further, Nepal needs to strengthen the weak power transmission infrastructure on its side in the region. Dr. Nayak  also pointed out the environmental damage due to these hydro energy cooperation projects in several areas of Nepal. Lastly, on India’s part, Dr. Nayak pointed out that India should undertake timely completion of its pending hydro energy projects. It also needs to adopt flexibility in implementing 2021-cross border energy trade guidelines. He mentioned that India should consider re-activating the irrigation and power potential of the Koshi and Gandaki barrage. India should further call for ‘trilateral collaborations’ by involving multilateral institutions and should encourage private sector participation in Nepal’s hydro energy projects.

Questions and Comments

Post his presentation, Dr. Opangmeren Jamir invited Ambassador Sujan R. Chinoy to make his comments on the subject. Dr. Jamir later opened the floor to the participants for their comments and questions.

Ambassador Sujan R. Chinoy commented on China’s emerging dominance in Nepal’s hydro energy and other infrastructure projects and questioned the Speaker on the ways through which India can keep Chinese dominance away from such projects. He mentioned that a large part of India’s energy demands by 2030 would be met by non-fossil fuel-based resources under India’s call for 'panchamrit' and its call for transition to other green initiatives. Ambassador Chinoy highlighted that India should seek various measures to integrate Nepal and other South Asian countries into these initiatives. On the issue of timely completion of India's existing infrastructure projects in Nepal, Ambassador Chinoy mentioned that India needs to find credible ways to deal with the issue and find the reasons for such delays in these projects. Lastly, he asked the Speaker if there is a multiplicity of decision-makers on the Indian side that creates various challenges for their timely completion.  

Dr. Ashok K. Beheuria highlighted the issue of changes undertaken by India in its Power Purchase Agreement with Nepal and Nepalese response to it. He further mentioned that India can play a vital role in emerging new power transmission lines from Nepal for supplying electricity to Bhutan and Bangladesh and these can be used by India for its own geopolitical advantages. Dr. Beheuria further highlighted the need to enhance the participation of its private companies in undertaking various projects in Nepal and pushing them for the timely completion of projects. He asked the Speaker about the possibilities of India inviting other friendly countries for undertaking infrastructure development projects in Nepal. 

Dr. Anand Kumar asked the Speaker if India could use the Bhutan model to address its existing hydro energy infrastructure challenges with Nepal. He mentioned that the Chinese are well aware of the fact that the power generated from their hydroelectricity projects in Nepal, would be for sale to India and other South Asian countries. He mentioned that the Chinese have no intention of taking the electricity generated from their projects to their border villages or elsewhere.

Col. Vivek Chadha highlighted that the impression from the Speaker’s presentation was that the blame of most of the problems that are limiting India-Nepal hydro energy cooperation is on India. He asked the Speaker to explain whether it is indeed true and whether people on the Indian side also believe in the discourse.

Dr. Nihar R Nayak gave detailed explanations to all the questions and comments.

Report prepared by Mr. Bipandeep Sharma, Research Analyst, Non-Traditional Security Centre, MP-IDSA, New Delhi.