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#4590, 31 July 2014
Nepal, India and the Electricity Trade: Advantage Kathmandu
Subin Nepal
Research Intern, IPCS

Sitting on a theoretical possibility of producing 84,000 megawatts of hydro-electricity, Nepal currently produces about 700 megawatts of hydro-electricity. The demand for electricity has risen upwards of 20% each year over the last decade; yet Nepal’s production has not seen any significant rise. As a result, the population, during extreme situations, faces over 18-hour power-cuts each day.

Holding on to the historical paranoia of Indian expansionist policy, no Nepali government after 1990 has been able to create a situation to multiply hydroelectricity production. After a long stalemate over the power trade issue, Indian Prime Minister Narendra Modi’s foreign policy to focus more on the neighborhood seems to have given renewed impetus on both the sides for a revitalised power trade deal. India plans to propose a new Power Trade Accord (PTA) when Modi visits Nepal in August. Though some details of the agreement are yet to be made public, speculations are on the rise and as usual there is public outcry in Nepal as to how this agreement might not benefit Nepal.

Several Nepali scholars have pointed out that the 2014 PTA undercuts Nepali sovereignty by fueling Indian interests of power while making the Nepali private power sector weak and selling energy that Nepal would require in the future for its own development projects. The PTA – that is in fact beneficial for Nepal in at present as well as in the future – doesn’t appear to undermine Nepali sovereignty at all. In fact, for the present it is one way to create more jobs for newer power projects and increase electricity distribution, as this accord doesn’t plan on selling electricity to India before fulfilling demands within Nepal.

Even for the distribution, majority of the infrastructure will be built by Indian corporations. Increased distribution within Nepal would give the country an opportunity to focus on other development projects. The dissenting side of this argument seems to be holding on to the idea of the effects of selling electricity to India at a lower rate than Nepal would want. However, the ground reality is that at the moment, Nepal neither has the infrastructure nor the capacity to mobilise its own domestic industry to create mega hydro-power projects that could sell output to India at a rate it would want. The best compromise would be what has been proposed from the Indian side: consume as much electricity as you need at home and sell the rest of it at a rate that has been agreed upon by both sides.

In the long run, these mega power projects that have been envisioned by India are sure to provide a consistent supply of power to the country to make a move towards clean energy and cut back on the consumption of gasoline – thereby decreasing Nepal’s international trade deficit as well as dependency on fossil fuel.  Nepal already does a great job of leaving very little carbon footprint internationally and this move would only help strengthen Nepal’s environmental record. While Indian power companies build power projects, Nepal has a unique opportunity to study and implement ways to make hydro-electricity the main source of power for the country.

There is a fear that any Indian proposal to Nepal is to turn it into Bhutan – that is still considered an Indian “protectorate.” However, Nepali leaders seem to be either unaware or deliberately ignoring that Bhutan’s case is different as India influences its foreign policy. Kathmandu has full control over what it decides to sign off on, and the PTA, at the moment, is highly suitable for various reasons such as: India’s successful experiment with such a project(s) in Bhutan; the India-Nepal, geographical and cultural proximities; the Indian power sector’s familiarity with regional geography; the Indian interest to invest in Nepal and India’s energy needs. One faction of Nepali leaders has been discussing the possibility of selling electricity to either Pakistan or Bangladesh via India. They seem to be unaware of the historical baggage India carries in its relations with these countries. Hence, the voices dissenting this power proposal seem to be stemming out of the paranoia towards anything tagged as Indian.

Nepal’s biggest challenge in moving forward with the PTA with India would be the ability to balance the growing Chinese interest in the country. Recently, Chinese companies were awarded contracts to build a few mega hydro-power projects, and this trend might continue. If balanced diplomatically, Nepal might in fact be able to utilise this race between its two neighbours for increased infrastructure in the country; or turn into a playground if not balanced carefully. The Nepali leadership alone has the ability to decide where they would like to head towards.

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