The Nepal Electricity Authority and Power Grid Corporation of India have signed an agreement to build the Indian portion of the 400 kV Butwal-Gorakhpur cross-border transmission line through joint investment.

About 15 km of the 135-km long power line lies within Nepali territory, which Nepal will build at its own expense. The two sides signed the deal on Wednesday in New Delhi, India.

"The pact has paved the way for the construction of a second cross-border transmission line between the two neighbours," said Kulman Ghising, managing director of the Nepal Electricity Authority.

“The construction of this transmission line is very important for Nepal as many power projects will be completed in the next few years, and Nepal needs to export power to India,” he said.

Currently, the 400 kV Dhalkebar-Muzaffarpur cross-border transmission line is the only conduit for power trade between the two countries.

“If some problem arises in this power line, if it breaks down somewhere, we will still be able to trade power through an alternative transmission line after the completion of the Butwal-Gorakhpur transmission line,” said Ghising.

The proposed Butwal-Gorakhpur transmission line will have a capacity of transporting as much as 3,500 megawatts, much higher than the 400 kV Dhalkebar-Muzaffarpur line which has a capacity of carrying 1,000 megawatts, according to the authority.

The Dhalkebar-Muzaffarpur cross-border transmission line came into operation early last year.

The new agreement has been reached at a time when the authority has been reporting wastage of electricity after all turbines of the 456 megawatt Upper Tamakoshi Hydropower Project came into operation.

The Butwal-Gorakhpur transmission line can act as a suitable channel to fulfil the seasonal complementaries of demand and supply as Nepal relies heavily on run-of-the-river projects whose output peaks during the monsoon when India’s farm sector sees a surge in power demand.

And Nepal can also import energy through this line during the dry season when the plants here run at less than 50 percent of their capacity.

As per the agreement, the two sides will register a company to develop the project on the Indian side.

“It may take around six-seven months for the necessary preparation to start the construction. We hope to begin work this fiscal year,” said Ghising.

He said a detailed project report has already been prepared. The project is scheduled to be completed within four years.

In October 2019, the two countries agreed to fund a second high-capacity cross-border transmission line connecting Butwal in Nepal and Gorakhpur in India through a commercial entity with both countries pledging equal equity to fund the project.

The two sides had agreed to build the transmission line with 20 percent equity investment and 80 percent loan.

Ghising said that both the Nepal Electricity Authority and Power Grid Corporation of India would hold an equal number of shares, but the loan portion might vary. The project is expected to cost IRs4.5 billion.

The cross-border transmission line project will be connected with the proposed transmission line planned to be developed under the Millennium Challenge Corporation Nepal Compact (MCC).

Earlier, India had rejected Nepal’s proposal to develop the cross-border line under a government-to-government financing model. They later reached a broad agreement that the portion passing through Indian territory would be built by a commercial entity.

The MCC, an American aid programme under which Nepal is to receive $500 million for electricity transmission and road infrastructure projects, has made the signing of an agreement between Nepal and India on building a cross-border transmission line a prerequisite for the implementation of the compact agreement.

The Energy Ministry has accorded the Butwal-Gorakhpur transmission line project high priority as it will result in efficient distribution of imported power to high energy consuming cities like Bhairahawa, Butwal, Pokhara and Narayangarh.

Also, the lines can be used to evacuate energy produced in the Kali Gandaki, Marsyangdi and Trishuli corridors where there is a high concentration of power schemes.

As per a report released by the National Renewable Energy Laboratory’s Strategic Energy Analysis Centre of the US, Butwal is a strategic location for cross-border energy trade between India and Nepal because of its proximity and ability to connect with India’s Uttar Pradesh state and the Northern Regional Load Despatch Centre via Gorakhpur where power demand is high during the monsoon.