India in Nepal’s Hydropower

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• Nepal is now at the cusp of realising a long-awaited dream of development through its hydropower resources.

India in Nepal’s hydropower 

• Post-independence:
  • Historically, India has shied away from the development of Nepal’s hydropower resources. 
  • Delhi has few legacy projects in the sector, instead choosing to prioritise other infrastructure sectors in Nepal.
• Current scenario:
  • A careful reading of India’s Nepal policy in the past few years suggests that Delhi has quietly taken the lead in Nepal with its push for connectivity, especially in hydropower development and trade.
• List of hydropower Projects:
  • Arun III project:
    • The 900 MW Arun III project is being developed by a subsidiary of Satluj Jal Vidyut Nigam (SJVN), is moving ahead at a quick pace,
  • Seti project:
    • Nepal has signed an agreement with NHPC Limited to develop both the 750 MW West Seti project, from which China’s Three Gorges Corporation had pulled out citing it was financially not viable, and the additional 450 MW Seti River 6 project on the same river. 
  • Upper Karnali project:
    • The Indian corporate GMR group has been given the licence to develop the 900 MW Upper Karnali project.
    • However, the project has run into trouble with the company being unable to achieve financial closure within the stipulated deadline.
  • Phukot Karnali project, Tamor River project:
    • Two of the hydro projects listed under possible BRI ventures inside Nepal—the 480 MW Phukot Karnali project and the 756 MW Tamor River storage-type project—have been awarded to NHPC and SJVN respectively. 
  • Cross-border transmission lines:
    • Several cross-border transmission lines are in the works, with the capacity of the Dhalkebar-Muzaffarpur transmission line agreed to be expanded to 800 MW from the current 600 MW
    • An agreement has been signed towards the export of Nepali power using transmission lines in Bihar at a fixed rate of INR 7.21 per unit.
  • Nepal’s Power export to India:
    • The most exciting development—one that could realise Nepal’s much-awaited hydropower potential—has been the export of NPR 11 billion (INR 6.8 billion) worth of power to India between June and December 2022. 
    • Nepal is currently allowed to sell 452.6 MW generated from 10 projects in the Indian day-ahead electricity market.
    • Similarly, Nepali private power companies may soon also be able to sell their power directly to Indian buyers.

Issues & challenges

• ISTS charges:
  • There are worries that India’s decision to waive off Inter-State Transmission System (ISTS) charges to its domestic projects will make Nepali power exports less competitive, and Kathmandu will be seeking a similar waiver on its power exports as well.
• India-China issue:
  • The reverberations of the India-China contest have been felt in Nepal, with India blocking access to its markets for infrastructure projects developed or funded by China. 
  • This has created a great degree of anxiety among Nepali private sector power developers who are looking towards India as the potential export market. 
  • Locking market access may create a disincentive for Nepal to not look towards China, but the policy has also allowed China to access Nepali markets that were previously restricted to it. 
• Projects involving Chinese contractors:
  • India’s move has also been extended to projects where both Indian and Chinese contractors have been involved, such as the 456 MW Upper Tamakoshi project, as well as to projects funded by multilateral institutions such as the ADB like the Gautam Buddha International Airport in Bhairahawa, which was built by a Chinese contractor.

Suggestions

• Export of Nepali power to Bangladesh:
  • India’s regional connectivity push will get additional momentum if it expedites the export of Nepali power to Bangladesh using Indian transmission lines. 
  • Both Kathmandu and Dhaka are highly positive about the proposal which, after Delhi’s go-ahead, will be one of the few instances globally of trilateral power cooperation. 
  • This will provide a boost to larger BBIN connectivity and India’s G20 aspirations, as well as provide momentum to the recent joint vision statement on power sector cooperation between Nepal and India.
• Bilateral UPI payment interface:
  • Expediting moves such as a bilateral UPI payment interface, which are at an incipient stage at the moment, will boost this connectivity drive.

Way ahead

• Regional connectivity has long been a mirage in South Asia, but developments over the past few years have raised hopes that it can finally be achieved in the culturally similar but economically disconnected region. 
• The key will be India’s assurance to its neighbors that Delhi is committed to realising its vision for the global South in the G20 presidency and taking the connectivity projects in South Asia one step further.

Source: ORF