Nepal has formally awarded the much-touted West Seti Hydropower Project and Seti River Project in western Nepal to India through a negotiation window, nearly four years after China withdrew from it.

Investment Board Nepal on Thursday signed a memorandum of understanding (MoU) with India’s state-owned NHPC Limited to develop the two projects—West Seti and Seti River (SR6)—joint storage projects totalling 1200MW.

Thursday’s development may be seen as an attempt to mend soured relations with India by Sher Bahadur Deuba after his election as prime minister in July last year.

The 750MW West Seti and 450MW SR6 projects are spread over four districts—Bajhang, Doti, Dadeldhura and Achham in far-western Nepal.

As per a 2007 study, the West Seti project has been envisaged to generate energy throughout the year, storing excess wet season river flows in the reservoir, and using this water to generate energy during peak demand periods in the dry season (December-May).

Sushil Bhatta, CEO of the Investment Board Nepal and Abhay Kumar Singh, chairman and managing director of NHPC Ltd, signed the MoU on behalf of their respective organisations, in Kathmandu on Thursday.

On the occasion, Prime Minister Sher Bahadur Deuba said the agreement would serve as an important instrument in enhancing Nepal-India energy cooperation. “Implementation of these projects will help expand and strengthen bilateral trade and investments,” the prime minister said.

“During my recent visit to India, Prime Minister Narendra Modi and I agreed on a vision statement on cooperation in the power sector, underlining the need for strengthening mutually beneficial bilateral cooperation in this sector.

“Furthermore, during the visit of Prime Minister Modiji [SIC] to Lumbini, we had a productive discussion on this matter and I invited the interested companies from India for the development of the West Seti Hydroelectric Project.”

Deuba thanked the government of India for opening the electricity market for Nepal.

“I am confident that our close neighbour India will increase the import of surplus power from Nepal. In this context, I am of the view that we should start, with due priority, the construction of a few more cross-border transmission lines. It will help develop more projects and promote cross-border power trade for the benefit of our two countries and peoples.”

As per the MoU, the Indian developer has to apply for the survey licence for the West Seti project within 45 days after signing the agreement. For the SR6 project, the developer has to apply for the survey licence within six months.

According to the MoU, after the survey licence is approved, the developer has to complete the detailed project reports (DPRs) within two years and submit them to the Investment Board Nepal.

In the detailed project reports, the developer should state whether the projects could be constructed as storage-type, semi-storage type or joint or separately, including the cost of the projects.

“It’s our history that once we enter a project, we complete it,” said Singh, immediately after signing the MoU. “These two projects are crucial for us as they will boost our credentials as a global hydropower player.”

Singh said that these two projects are harbingers of development in the Sudurpaschim Province. “I am sure, we will get more opportunities to harness the hydropower potential of Nepal.”

Initially, the 750MW West Seti was proposed by West Seti Hydro Limited, a storage scheme designed to generate and export large quantities of energy to India.

However, in March 2019, during the Nepal Investment Summit, the government bundled the West Seti and SR-6 as a joint storage scheme and showcased them before foreign and domestic investors. The projects were among eight hydro schemes showcased at the summit.

But they received no attention from potential investors.

The NHPC Limited, an Indian government hydropower board under India’s Ministry of Power, had submitted a proposal in May to develop the projects.

The estimated cost of the two projects, according to the Investment Board, is $2.4 billion.

The West Seti project, first envisioned some six decades ago, is located on the Seti River in far-western Nepal. The proposed dam site is located 82 kilometres upstream of the confluence of the Seti and Karnali rivers, forming part of the Ganges basin.

As soon as Sher Bahadur Deuba was elected prime minister in July last year, the government decided to push the projects forward.

A panel headed by Biswo Nath Poudel, vice chairman of the National Planning Commission, was constituted to move the projects ahead.

The West Seti project has been on the drawing board since the early 1980s. The project also attracted some geopolitical fissures in the last two and a half decades since the government issued the developing licence to a French company and then to a renowned Chinese company.

The project dates back to 1981 when a 37MW run-of-the-river scheme was proposed based on preliminary studies conducted in 1980-81.

In 1987, the French company Sogreah prepared a pre-feasibility study proposing a 37MW run-of-the-river scheme without building a dam, according to a report of the Asian Development Bank.

Later, the same company revised the capacity to a 380MW storage-type scheme stating that the energy could be optimised without environmental impacts.

West Seti Hydro, a company promoted by Australia’s Snowy Mountain Engineering Corporation, won the survey licence for the project in 1994. The government issued a construction licence to West Seti Hydro on June 27, 1997.

The project was originally designed as export-oriented with 90 percent of the power intended to be sold to India. However, the project, whose cost was estimated at Rs120 billion at that time, failed to go into construction.

The cash-strapped project got a boost when China National Machinery and Equipment Import and Export Corporation (CMEC) decided to invest in it.

The CMEC even signed an agreement with the project during the then prime minister Madhav Kumar Nepal’s China visit in 2009.

At that time, CMEC President Jia Zhiqiang and West Seti Hydro director Himalaya Pandey signed a memorandum of understanding in Beijing. The Chinese firm had decided to invest Rs15 billion in the project.

However, the CMEC later opted out of the project saying that Nepal lacked an investment-friendly environment. Another important shareholder in the company, the Asian Development Bank, also did not show interest citing a lack of public acceptance of the project and the absence of good governance.

The project received yet another jolt when the main promoter of the company, Snowy Mountain, stopped sending funds for office operations in August 2010.

The government revoked the licence of West Seti Hydro on July 27, 2011.

Then came the Three Gorges International Corporation, China’s biggest hydropower developer and the operator of the world’s largest hydropower plant at the Three Gorges Dam on the Yangtze River.

The project was formally handed over to the Chinese company on August 29, 2012.

In November 2017, state-owned power utility Nepal Electricity Authority signed the final agreement with the China Three Gorges International Corporation, a subsidiary of the China Three Gorges Corporation, to set up a joint venture to develop the 750MW West Seti Project.

In 2018, the China Three Gorges Corporation hinted at pulling out of the project saying it was financially unfeasible because of the steep resettlement and rehabilitation costs.

Subsequently, in September 2018, the government scrapped the agreement with the China Three Georges Corporation.

On May 29, 2020, the then finance minister Yuba Raj Khatiwada, presenting the annual budget, announced plans to build the project by mobilising Nepal’s internal resources. The announcement effectively scrapped a $1.6 billion plan by the Chinese firm.

Nepal can earn up to Rs310 billion per year in 2030 and as high as Rs1,069 billion per year in 2045 if the country is able to sell electricity to India by harnessing its hydropower potential, according to a report.

Nepal stands to generate these earnings provided the country starts exporting 13 gigawatts of electricity to India by 2030 and double this capacity by 2045, says a USAID report titled ‘Economic Benefits from Nepal-India Electricity Trade’ released in 2017.

To harness the electricity of this quantum, 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 produced by Integrated Research and Action for Development.