The Indian government’s new guidelines on cross-border electricity trading could pour cold water on Nepal-based private power producers’ plans to export electricity to the southern neighbour.

Issuing the Guidelines on Cross Border Trade of Electricity on Monday, the Indian government has said only Nepal-based companies wholly owned by the Indian government or the public sector, or private companies with 51 percent or more Indian stake would be eligible to export power to India. These companies would be given one-time approval to sell power in India, according to the guidelines.

Many domestic and foreign hydropower companies had shown interest to build hydroelectricity projects in Nepal after the two countries 

signed the cross-border Power Trade Agreement (PTA) in October 2014. 

The pact had encouraged investors, as it paved the way for Nepal-based power producers to sell electricity in India.

Also, companies owned or controlled by Nepali government will be allowed to sell power in India upon getting one-time approval from Indian authorities, according to the new rules. This makes state-owned Nepal Electricity Authority (NEA) and other projects owned or controlled by the government eligible to export power to the southern neighbour.

Other companies eyeing the Indian power market, however, can export power to India only “after obtaining the approval of the designated authority on case-to-case basis”, the guideline says.

This provision will discourage foreign investors as well as private Nepali power developers to build big export-oriented projects here in the country, experts told the Post.  

“The guideline gives preference to Indian entities over Nepali and other non-Indian companies generating power in Nepal,” said Semanta Dahal, a lawyer who is advising the government of Nepal on different infrastructure projects. 

This move is in stark contrast to the provision laid in the PTA signed by Nepal and India, which requires both the countries to allow non-discriminatory access to the cross-border interconnections, Dahal added. 

It is important for Nepal to export a huge chunk of power that it is planning to generate in the country to India, because supply of electricity would outstrip domestic demand by a great margin if the country is able to tap its entire hydro potential.

NEA officials said the “discriminatory policy” from the Indian government might discourage foreign investors, who were eyeing the huge Indian market, from building hydropower projects in Nepal. 

“Our government must request the Indian government to reconsider this policy,” said an NEA official on condition of anonymity. “Nepal needs foreign investors from all over the world to harness the hydroelectric potential. But if there are problems in gaining access to the Indian market, we’d face difficulty in attracting those investors.”

The guideline, in the meantime, has come as a relief to export-oriented power projects like Arun-III and Upper Karnali, which are being developed through Indian investment, as it has paved the way for developers of both the projects to sign power purchase agreements (PPA) with companies in India.