Officials of the Ministry of Energy, Water Resources and Irrigation and state-owned Nepal Electricity Authority have flown to Delhi to attend the Seventh Joint Steering Committee and Joint Working Group meeting on Nepal-India Cooperation in the Power Sector.

The two-day meeting which will begin on Monday is expected to resolve issues related to financing and implementation modality of the second high capacity cross-border transmission line and energy banking mechanism between the two South Asian neighbours, among others.

The meeting is taking place a month after the Nepali and Indian energy ministers expressed optimism over both sides coming to terms on the development modality of the proposed 400 kV New Butwal-Gorakhpur transmission line project, a major component of a $630 million pact between Nepal and Millennium Challenge Corporation of the United States.

According to Dinesh Ghimire, secretary of the Energy Ministry, discussions on the funding and implementation of the strategic energy project — touted to synchronise Nepal’s power grid with India’s — will be in line with the alternatives pinpointed by power utilities of both the countries.

“The Nepal Electricity Authority and India’s Central Electricity Authority have suggested financial alternatives which the secretary-level meet will review and make a decision on the way forward,” said Ghimire.

The meeting will review suggestions from power utility officials that the power line could be built by making an equal equity investment in a similar development model of the existing Dhalkebar-Muzaffarpur transmission line.

Earlier, officials from the two countries had reached a broad agreement that the portion of the transmission line passing through Indian territory would be built by a commercial entity after India rejected Nepal’s proposal to develop the line under a government to government financial model.

In August, the fifth meeting of the Nepal-India Joint Commission chaired by the foreign ministers of the two countries had also called for early finalisation of the financing modalities by the Nepal-India Joint Steering Committee and Joint Working Group while appreciating the work of both power utilities and other technical teams in laying the groundwork for the crucial infrastructure.

Despite multiple deliberations in the past, an agreement on building the infrastructure has remained elusive as officials have time and again raised questions over the commercial viability of the arrangement.

But the talks this time are expected to end on a positive note with an agreement in sight.

According to the Nepal Electricity Authority, the detailed project report of the cross-border transmission lines has been updated and revised by India in consultation with power utility officials which has led to a cost reduction of around $18 million on the Indian portion of the transmission line.

Around 120 km out of the Butwal-Gorakhpur Transmission Line's 135-km length lies in Indian territory.

“Bilateral understandings on the development modality related to funding and implementing agency are on the verge of being finalised,” said the Nepal Electricity Authority.

An agreement between officials of the two neighbouring countries on implementing the 135-km New Butwal-Gorakhpur transmission line is also a prerequisite for the multi-million dollar MCC-Nepal compact—viewed by many in Nepal as a counter-initiative under the Indo-Pacific Strategy of the US against China's Belt and Road Initiative—to become effective.

Of the conditions precedent over the implementation of the project, the government has already declared the transmission project as a national priority project and legislation has been passed forming the Electricity Regulatory Commission this year. The conditions are only two of the six prerequisites of entry into force.

The Compact, which will prevail over domestic laws, has been tabled in Parliament but it is yet to be ratified, reportedly because of the differences within the ruling party lawmakers and leaders over the confusion surrounding Nepal’s degree of involvement in the USA's Indo-pacific Strategy and China’s Belt and Road Initiative.

According to Ghimire, the Compact is expected to be ratified by the Parliament by the time Millenium Challenge Account-Nepal — the implementing agency of the project — completes an environmental impact assessment of the infrastructure.

Millennium Challenge Account-Nepal announced in August that the Compact would go into effect from June 2020. Once into effect, the Compact requires the funds to be utilised into building the infrastructure within five years.

According to power utility officials, the project is of high strategic importance to both Nepal and India as it will set up a reliable route for energy banking by synchronising Nepal's power grid with India's and allow the power utility to sell large quantum of surplus power which Nepal is poised to generate in the coming years.

As per the power utility's estimate, Nepal will have a surplus of around 8,000 megawatts by 2025 as the country's generation capacity is expected to reach 10,924 megawatts while peak demand is likely to amount to 2,981 megawatts.

Accordingly, Nepali officials are also expected to urge their Indian counterparts to establish government policies related to energy banking in India which will allow its power sector regulator to formalise energy exchange between Nepal and India which is currently done through mutual agreement.

“We will also hold discussions with our Indian counterparts on formalising the energy banking process through power trade regulations of India,” said Ghimire, who is leading the Nepali delegation.

In the fiscal year 2018-19, Nepal imported 2,813.07 gigawatt-hours of energy worth over Rs22 billion through various transmission links including Dhalkebar-Muzaffarpur and exported 34.74 gigawatt-hours worth Rs318.12 million to the Indian state of Bihar through an exchange mechanism under the purview of the Nepal-India power exchange committee.