Nepali and Indian officials as well as Nepal’s private sector had hailed the Nepal-India Joint Vision Statement on Power Sector Cooperation as a milestone in energy cooperation and in providing international market access to Nepal’s surplus power.

The joint vision statement issued in April last year seeks to strengthen mutually beneficial bilateral cooperation in the power sector through joint development of power projects in Nepal.

It talks about developing cross-border transmission infrastructure, two-way power trade with appropriate access to electricity markets in both countries based on mutual benefits, market demand and applicable domestic regulations of each country; coordinated operation of the national grids; and institutional cooperation in sharing latest operational information, technology and know-how.

The two countries also agreed to expand such cooperation to include partner countries under the BBIN (Bangladesh, Bhutan, India and Nepal) framework, subject to mutually agreed terms and conditions, raising hope that Nepal could also export power to Bangladesh.

However, at least two Nepali officials involved in drafting the Joint Vision Statement told the Post that India refused to include a clause “unrestricted access to Nepal’s power to the Indian market” in the statement.

“We tried hard to include the phrase ‘unrestricted or seamless market access to the Indian market’ in line with the bilateral power trade agreement signed in 2014,” said an official of the Ministry of Energy, Water Resources and Irrigation. “But India insisted on giving only ‘adequate market access.’”

So, the joint statement talks about providing bi-directional power trade with ‘appropriate access’ to electricity markets in both countries.

The bilateral agreement on electric power trade, cross-border transmission interconnection and grid connectivity signed in 2014 talks about unrestricted market access.

Article-IV (D) of the 2014 agreement states the parties shall put their best efforts to ensure unrestricted flow of power subject to safety, security, stability and reliability requirements of their power grids as per the applicable standards. Likewise, Article II (B) states the Parties shall allow non-discriminatory access to the cross-border interconnection(s) for all authorised/licensed participants in the common electricity market.

“When the joint statement was prepared, we had called for inclusion of unrestricted market access in exchange of downstream benefits that India enjoys due to regulated flow of water while developing the reservoir type projects,” said an official of Nepal Electricity Authority. “The Indian side, however, didn’t want to include these provisions in the joint vision statement.”

But Madhu Bhetuwal, spokesperson at the Energy Ministry didn’t confirm to the Post whether India refused to give unrestricted market access.

“Unrestricted market access is our preference. Even the provisions of the joint vision are adequate for us to sell our electricity in the Indian market,” Bhetuwal, who is also joint secretary at the ministry, told the Post.

Officials who spoke on condition of anonymity to the Post because of the sensitivity of the matter, said that the Indian position might have changed over the years as it started seeing electricity as a strategic commodity instead of a commercial product.

India in particular has been dead set against allowing market access to the Nepali electricity produced with involvement of Chinese companies.

Nepali officials said that the southern neighbour has been refusing to provide market access to the electricity generated by the 456MW Upper Tamakoshi Hydropower Project as the Chinese contractor was involved in constructing one of the project’s components. India has so far allowed Nepal to sell 452.6MW of electricity in the Indian market generated by 10 select power projects. “We have sought Indian approval for selling an additional 1,000MW,” said Prabal Adhikari, power trade director at the NEA.

The approvals provided by India so far are short-term ones and need to be renewed every year. This makes long-term access to the Indian market uncertain.

Nepal thus wants to sign an inter-governmental agreement with India in order to avoid the red tape. It is also vital for Nepal to renew, every year, the approval for a particular project to export power to India, which adds to the uncertainty, officials said.

That’s why, Nepal aims to propose India to sign a 25-year long ‘Intergovernmental Agreement for Power Transfer from Nepal to India.’ Nepal had proposed such a deal during the 10th secretary-level meeting of Joint Steering Committee on Energy Cooperation in India in February.

“During the meeting, it was decided that Nepal would make a proposal for an inter-governmental deal which India would examine,” Adhikari of the NEA had told the Post early this month.

As per the Guidelines for Import/Export (Cross Border) of the Electricity-2018, approval of the designated authority will not be necessary where the import/export is taking place under the inter-governmental agreement signed by India and neighbouring countries for specific projects.

Even though two countries signed power trade agreements in 2014, the southern neighour put certain restrictive provisions in the Guidelines for Import/Export (Cross Border) of the Electricity-2016.

As per the guidelines, only a project with at least 51 percent stake of an Indian firm or the state entity of a neighbouring country like the Nepal Electricity Authority would be able to sell electricity to India.

Nepal had continuously lobbied with India against these restrictive provisions citing potential impact on foreign direct investment in the power sector in Nepal. The new Guidelines for Import/Export (Cross Border) of the Electricity-2018 removed this provision, allowing companies in India and neighbouring countries to trade power independently.

Then, Indian and Chinese soldiers clashed in Galwan Valley in 2020 leading to a cooling of relations between the two neighbouring giants.

In February 2021, India introduced a new rule—Procedure for Approval and Facilitating Import/Export (Cross Border of Electricity) by the Designated Authority—that effectively restricts power-trade with any Nepali hydropower project that has involvement of Chinese firm(s) not recognised for power trade by India.

“Nepal’s power sector has been dragged into geopolitics, which we don’t want,” said Ashish Garg, vice-chairperson of the Independent Power Producers’ Association Nepal.

“That’s why, one of the discussion sessions of the power summit starting Tuesday in Kathmandu is on the impact of geopolitics on energy cooperation.”