The formal signing of the Power Trade Agreement (PTA) between Nepal and India on Tuesday marks the completion of a long, arduous process and opens the doors to the development of Nepal’s hydropower sector. The PTA, first prepared in 2010, had seen four years of vacillations on both sides. It took an Indian prime minister focussed on enhancing neighbourhood relations on the basis of mutual economic benefits to finally get the ball rolling. During Narendra Modi’s August visit to Kathmandu, the PTA was expected to be signed, but sensitivities delayed the process. Instead, a joint communiqué was released, promising a PTA within 45 days. The ‘Agreement on Electric Power Trade, Cross-border Transmission Interconnection and Grid Connectivity’ was thus signed at Singha Durbar by the energy secretaries of the two countries, indicating a welcome opening in mutual economic cooperation between the two countries.

With the signing of the PTA, Nepal and India can now cooperate on a range of energy matters. The countries can develop transmission interconnections, grid connectivity, and power exchange through both public and private entities. The deal also allows energy producers to engage in cross-border electricity trade. But most importantly, the PTA assures access to the Indian market for energy producers in Nepal; without the assurance of the immense Indian market, few developers, either foreign or domestic, would be interested in investing in Nepal’s vast hydropower sector. Hopefully, Nepal will now see more investment in hydropower, something this power-starved and water-rich country desperately needs. The PTA further makes it clear that India will not monopolise Nepal’s water resources development and that other countries will be able to invest in Nepal’s hydropower, a sticking point in previous drafts.

Both sides deserve kudos for the signing of this landmark agreement. India under Modi has displayed much flexibility on the wording of the agreement, and consented to a draft prepared by the Nepali side. Nepal’s leadership, too, managed to overcome partisan interests and act in the greater national interest. The signing of the 900MW Upper Karnali Power Development Agreement between Nepal’s Investment Board and India’s GMR; progress on the 900MW Arun III project; and now, the signing of the PTA illustrate an environment where both sides are ready to enter into a new dimension of Nepal-India relations, doing away with the suspicions of old and working for mutual economic interest.

Still, caution is advised. As always, implementation is key, and this is one area that has stymied Nepal-India cooperation in the past. The failure of the Pancheswor Multipurpose Project, agreed-to in the 90s but still undeveloped, is but one example. Now that the political legwork of finalising the agreement is over, both Nepal and India must focus squarely on implementation. Also, now that the doors to investment have been opened, the Nepal government must work on creating a proper regulatory environment that will maintain transparency but will not discourage investors with bureaucratic red tape. Most important, though, is rule of law. Without a stable political climate, investors will shy away and it will be that much more difficult for projects to take off and be completed on time. For that, a broadbased constitution is the only solution.