As Nepal’s private sector plans to sell electricity in India’s power exchange market, its southern neighbour has communicated to the independent power producers that they must ensure there will be no Chinese components in their hydropower projects.

Multiple private sector power developers told the Post that they have received such communications from the Indian side at various forums of discussion.

This comes on the heels of Nepali private sector power developers holding talks with Indian power companies for electricity trade.

On January 10, Nepal Power Exchange Limited, a private sector owned power trading company, and India’s Manikaran Power Limited signed a memorandum of understanding on energy trading.

As per the agreement, the Indian company has pledged to acquire a 15 percent stake in Nepal Power Exchange Limited and also agreed to purchase 500 MW electricity from Nepal Power Exchange Limited where the Indian company will also have a stake, officer bearers of the Independent Power Producers’ Association of Nepal (IPPAN) said.

The signing of the agreement between two private sector firms in Nepal and India follows approval by the Indian government to Nepal Electricity Authority to sell its electricity in the Indian Power Exchange market.

But the private sector won’t be able to sell the electricity with any Chinese inputs, if the recent communications are anything to go by.

“The Indian side has been flatly telling us that they won’t buy electricity from projects with Chinese investment and even projects built by Chinese contractors,” an IPPAN office bearer told the Post who requested anonymity citing sensitivity of the matter. “We have discussed the matter with officials of the Indian embassy and the Central Electricity Board of India and they made it very clear that they are unlikely to buy electricity from projects with Chinese investment.”

The Procedure for Approval and Facilitating Import/Export (Cross Border of Electricity) by the Designated Authority introduced by Central Electricity Authority under the India’s Power Ministry has imposed restrictions on power trading if there is investment from a country generating electricity with which India shares land border and the third country sharing land border with India, which does not have a bilateral agreement on power sector cooperation.

Though this procedure does not directly talk about barring electricity with Chinese investment from entering India, Nepali officials and private sector representatives believe the provision is aimed at China-invested projects.

India had authorised the Nepal Electricity Authority to sell power in India's power exchange market in early November. After receiving approval from the Indian authorities, the authority had sold power generated from the 24MW Trishuli Hydropower Project and 15MW Devighat Hydropower Project to the India Energy Exchange Limited (IEX).

But its effort to sell electricity from other Upper Tamakoshi, Upper Bhotekoshi and Marshyangdi whose combined installed capacity stands at 582.1MW failed with Indian authority pointing out the involvement of Chinese contractor particularly in the case of Upper Tamakoshi Project, according to a senior official of the authority.

“The Indian side has communicated the same message—that they are not ready to buy electricity from projects where there is Chinese involvement—after we raised concerns, as a number of private sector developers have employed Chinese contractors,” said the IPPAN office bearer. “They have told us that they don’t want any Chinese company to benefit from their market at a time when Indian soldiers are dying in border clashes.”

Nepali private sector developers want to sell their electricity through the Nepal Power Exchange Limited, a power trading company formed with the participation of most members of IPPAN.

Ashish Garg, vice-president of IPPAN, told the Post that Indian officials have reminded them of the provision of the procedure regarding approval and facilitating electricity trade between India and its neighbouring countries.

“If we want to sell electricity in India, we have to adhere to their rules and regulations,” said Garg.

Another IPPAN office bearer also told the Post that Indian officials have clearly told them that the southern neighbour would not purchase power generated with Chinese investment.

“They have told us during different meetings and conferences, including Zoom meetings, about the Chinese investment,” the IPPAN office bearer said.

Ganesh Karki, vice president of IPPAN, also said that the Indian side wants to purchase electricity on its own terms and conditions.

“The Indian side has not formally notified us in writing but they have pointed out the provision of the procedure on cross-border electricity trade,” Karki told the Post.

The procedure has clearly stated that the application for approval of a participating entity(ies) shall be considered only after the receipt of the equity pattern of ownership of the said entities along with other details as may be prescribed by the designated authority.

Nepali private sector developers said that it could affect incoming Chinese investment in the hydropower sector in Nepal. They said it may even discourage Nepali power developers, particularly the private sector ones, from employing Chinese contractors. But they want to export electricity from the projects without Chinese components as long as the Indian rules demand so.

“We want to apply to the Indian authority for approval to sell power to India once the Nepali government provides the Nepal Power Exchange Limited a licence for power trading,” said Garg. “We are also discussing with Manikaran about the modality of power trade on a daily basis.”

After registering the Nepal Power Exchange Limited in 2019, the private sector has been lobbying with the government for permission to enter into power trading. Nepal private sector power developers are likely to be producing around 3,000 MW to 4,000 MW of energy in the next few years.

Though Energy Minister Pampha Bhusal and senior officials of the ministry have been promising to provide the private sector the license for electricity trade, the government is delaying the issuance citing a lack of law. The government had made a provision to allow the private sector to get involved in power trade in the Electricity Bill. The bill has remained stuck at the National Assembly since mid-July 2020.

In late December last year, Vidyut Byapar Company, a subsidiary of Nepal Electricity Authority, received the government’s permission for cross-border trading of electricity. The private sector has asked the government to either pass the bill at the earliest or allow them to trade electricity through alternative means.

Madhu Bhetuwal, spokesperson at the Ministry of Energy, Water Resources and Irrigation, said that the ministry is discussing a working procedure draft to provide trading licences to the private sector.

“There is no specific legal provision for allowing the private sector to engage in electricity trade, but the existing electricity law and policies have opened avenues to give them licence for trading,” he said.

The private sector wants the approval to be given as early as possible.

“Some Indian buyers have already started issuing bids for electricity for June, July and August. If the government gives us a licence, we can think about preparing to sell electricity in India" said Garg. "We should not let power wastage continue in the next monsoon."