India has been increasing its presence in Nepal’s energy sector, but it will not buy electricity from any project in which China is involved, say insiders.

The southern neighbour has agreed to buy 364 megawatts generated by six projects, but it has been holding back from agreeing to buy electricity generated by the Upper Tamakoshi plant.

The 456 megawatt scheme, located on the Tamakoshi River in Dolakha district in north-central Nepal, approximately 200 km from Kathmandu, is the largest in the country.

The reason for the reluctance, according to insiders, is that the project’s civil works were carried out by a Chinese contractor.

Multiple sources from the Independent Power Producers’ Association of Nepal (IPPAN), who are privy to the matter, told the Post that India had urged Nepal to remove Upper Tamakoshi from the list of export-oriented projects.

During a meeting with the power producers in late June, newly appointed Indian ambassador Naveen Srivastava was of the view, when the Upper Tamakoshi issue came up, that they should explore more options.

Top IPPAN officials said that the message was that they should work on a list of hydropower projects without Chinese involvement—basically investors and contractors. India and Bangladesh are the main customers for Nepal’s hydropower projects.

Relations between India and China soured after a border clash at Galwan Valley in June 2020 which left 20 Indian soldiers dead. China confirmed the deaths of four of its soldiers.

As the border row is far from resolution, India has been discouraging Chinese investment in its own soil with measures like banning Chinese mobile apps and running extra screening processes for Chinese investments.

It has also adopted a policy of not buying electricity from Nepali projects with any involvement of China.

Insiders say that even airport projects in Nepal are on India’s negative list.

Gautam Buddha International Airport in Bhairahawa was constructed by a Chinese contractor. The project has apparently earned the ire of India.

Despite the proximity and growing demand for flights to the Indian capital New Delhi, not a single airline has applied to operate services from the new airport, Civil Aviation Authority of Nepal officials said.

Even when flights from India are unable to land at Kathmandu’s Tribhuvan International Airport due to weather conditions, they don’t use Bhairahawa as an alternative airport, according to the officials who term it an issue stemming from geopolitical factors.

Nepal has the potential to generate over 40,000 megawatts of hydroelectricity from the 6,000 rivers, rivulets and tributaries that charge down from the mountains to the plains.

Energy-hungry India has lately been showing interest in developing mega hydropower projects in Nepal. But it has warned Nepal against the involvement of any Chinese element in projects that would export energy to India.

Energy expert Ram Prasad Dhital said the Upper Tamakoshi project issue shows India took it as a strategic product instead of commercial product.

“And Nepal cannot enrage India because it is the only market for trading energy,” said Dhital, the former board member of the electricity regulatory commission. “Nepal cannot bar the Chinese from contracting any project either, as per the country’s public procurement law.”

There are many ongoing projects, including hydropower, undertaken by Chinese developers. Government officials say since Chinese contractors, as seen in many projects, make the lowest bid, their presence in Nepal’s projects is in a significant number.

Nepal and India have undertaken various collaborative projects, with the latest being two schemes in the far-western region.

On August 8, Investment Board Nepal gave the green light to India’s state-owned NHPC Limited to study and develop two hydropower projects with a combined capacity of 1,200 megawatts.

The 750 megawatt West Seti Hydropower Project and 450 megawatt Seti River (SR-6) are worth a combined $2.4 billion.

India is currently constructing the $1.04 billion Arun-III Hydropower Project on the Arun river in the eastern region that will churn out 900 megawatts.

Last July, Nepal signed a pact with India’s state-owned Satluj Jal Vidyut Nigam to develop the 679-megawatt Lower Arun Hydropower Project.

In May this year, Nepal and India signed a pact to develop the 490-megawatt Arun-4 Hydropower Project.

The government has recently extended the deadline for financial closure of the 900-megawatt Upper Karnali Hydropower Project for India’s GMR Group.

“The extension of [the deadline for] financial closure approved by Nepal’s Cabinet is a strong proof of full support and appreciation of our efforts towards successfully developing a tri-nation transformational export-oriented hydropower project, which will supply power to Nepal, India and Bangladesh,” said Srinivas Bommidala, chairman, Energy and International Airports, GMR Group, in a recent statement.

“With this development, we can now move forward towards achieving the remaining pre-financial closure milestones and complete the process within the approved timeline. We are committed to delivering this project as per the commitments made to the government of Nepal.”

The GMR Group said it had finalised and installed a power purchase and sales agreement jointly with the Bangladesh Power Development Board of the government of Bangladesh and NTPC Vidyut Vyapar Nigam for the supply of 500 megawatts to Bangladesh out of its 792 megawatts of saleable capacity.

According to Indian media reports, while India has been buying electricity from Bhutan, it is also been supplying electricity to Bangladesh. The plan now is to include the option of building an overhead electricity link with Sri Lanka.

A report has shown that Nepal can generate revenues of up to Rs310 billion per year in 2030 and Rs1,069 billion per year in 2045 if it is able to sell electricity to India by harnessing its hydropower potential.

Nepal can generate these earnings if it starts exporting 13 gigawatts to India by 2030 and double this amount by 2045, says the report entitled Economic Benefits from Nepal-India Electricity Trade released in 2017. The report was prepared under the South Asian Regional Initiative for Energy Integration (SARI/EI) project of USAID.

To harness electricity on this scale, Nepal needs to invest up to Rs2,596 billion between 2012 and 2030 and another Rs2,216 billion between 2031 and 2045, says the report.

The Nepal Electricity Authority has made great strides to become the country’s largest revenue generator with increased development of the hydropower sector and cross-border trade.

The state-owned power utility has joined the Rs100 billion club. According to an unaudited financial report, its profit nearly tripled to Rs16.09 billion in the last fiscal year ended mid-July.

The sharp rise in profits has been attributed to an increase in electricity production, consumption and exports to India.

The export of electricity to India stood at Rs3.88 billion in the last fiscal year, up 10 times from Rs372 million in the previous fiscal year.

Energy experts and private developers say that the increasing interest of Nepal's neighbours in its untapped billion-dollar energy sector was good for the country’s ailing economy, which annually sends half a million of its youths abroad to earn money.

But after India released its Guidelines for Import/Export (Cross Border) of Electricity-2018 a few years ago, it has put a damper on the upbeat mood of the government and the private sector.

The guidelines have imposed restrictions on power trading if there is investment from a country generating electricity with which India shares a land border and a third country sharing a land border with India, which does not have a bilateral agreement on power sector cooperation.

“Nepal initially thought the restriction would apply only to projects with Chinese investment. But the southern neighbour has been reluctant to accept power trading from projects where Chinese contractors are also involved,” said an Energy Ministry official.

Private producers say India is clear on its agenda. They had inquired with the Indian ambassador about the Upper Tamakoshi project.

“We told him [ambassador] that Nepal’s private sector would be encouraged if India agreed to buy the power generated by Upper Tamakoshi. But the ambassador said Nepal could propose other projects instead of Upper Tamakoshi,” said Mohan Kumar Dangi, vice-president of IPPAN.

The ambassador had advised the private sector to ask the Nepal Electricity Authority to drop Upper Tamakoshi from the list of exportable projects, other officials present at the meeting said.

The Post asked Managing Director Kulman Ghising of the Nepal Electricity Authority if they would be able to export power from Upper Tamakoshi to India.

“The Indian side has not communicated this issue to us,” Ghising said. “India has asked us to propose more projects to export energy. We have sent a list of three projects seeking approval from the Indian authorities.”

They are Chilime (22.1 megawatt), Mistri Khola (42 megawatt) and Solu (23.5 megawatt).

But Upper Tamakoshi, which has turned Nepal into a power surplus country during the wet season, is still out of the list of export-oriented projects.