India is subjecting the approval process for importing Nepali electricity to more bureaucratic hurdles despite its earlier announcement to buy 10,000MW from Nepal over the next 10 years.

The southern neighbour, which has been refusing to grant export approval to hydropower projects involving China, has long been investigating whether there has been Chinese investment or any other involvement of the northern neighbour in the projects whose power is to be sold in the Indian market.

“Now, India has also sought details of financial closure—how the projects were financed including the financial institutions and other agencies involved in the projects,” said Prabal Adhikari, power trade director of the Nepal Electricity Authority (NEA). “We have sent the details as sought by the southern neighbour.”

He added that New Delhi had not asked for financial closure details when it granted approval for 10 projects, whose power Nepal has been exporting to the southern neighbour. Nepal has approval to sell as much as 452.6MW generated by these projects in India’s day-ahead power market, where price of power is determined a day ahead of trading.

Nepal has sought Indian approval to sell the power generated by an additional 18 hydropower projects. The combined generation capacity of these projects is over 1,000MW, according to the NEA. Some of them were sent for approval as early as August 2021, it said.

“The new Indian request suggests that we may also have to submit details of financial closure of the 10 projects whose electricity we have already been selling in India when we seek a renewal of export approval for the projects,” said Adhikari.

India has made the annual renewal of the export approval mandatory. Nepali officials said the need for annual renewal has created uncertainty about continued access to the Indian market for Nepal’s hydropower.

So Nepal had sought a long-term inter-governmental agreement on power trading to enable entities of both the countries to engage in long-term power purchase agreement. Accordingly, the two countries signed the 10,000 MW agreement during Prime Minister Pushpa Kamal Dahal’s visit to India from May 31 to June 3.

NEA officials and private sector players said that the southern neighbour’s enhanced scrutiny of hydropower projects for granting export approval suggests that selling Nepal’s surplus power would not be easy, despite the Indian announcement to buy power on a large scale.

“India is treating Nepal’s electricity as a strategic product rather than a commercial one,” said another NEA official. “That is why it is seeking all the details and putting the approval process into a bureaucratic logjam.”

NEA officials, however, said that India has not given any reason why it needed all the financial details of projects. “Maybe they wanted to be sure if there has been financing from other countries, particularly from China, in any form, if not in the form of foreign direct investment,” the NEA official said.

India has clearly indicated that it would not buy power from any Nepali project where there is any direct or indirect component from China. So the neighbouring giant has continued to ignore Nepal’s request for export approval for the 456MW Upper Tamakoshi Hydropower Project. A Chinese contractor was involved in the civil works of this project.

The project was developed entirely by the NEA with domestic resources. A public entity like the NEA cannot discriminate against Chinese contractors as per the Public Procurement Act-2007.

As Nepal currently does not have an alternative market to sell its surplus power except India, Nepal has been forced to follow India’s dictation or let the surplus power spill.

During Prime Minister Dahal’s India visit, the southern neighbour also agreed to facilitate Nepal to export 40MW to Bangladesh through Indian transmission infrastructure.

India’s cooperation is essential even to export power to Bangladesh. There is no transmission link between Nepal and China to date but there is a plan to build one.

Since the Galwan Valley military clash between India and China in May 2020, India has been tightening the noose on Chinese investment not only in India, but also in neighbouring countries including Nepal.

In February 2021, the Central Electricity Authority under India's Power Ministry introduced the Procedure for Approval and Facilitating Import/Export (Cross Border of Electricity) by the Designated Authority.

The procedure bars Indian firms from trading power 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.

Based on this procedure, India has been reluctant to approve projects with Chinese involvement.

However, Nepali stakeholders said that the new red tape in the approval process goes against the spirit of India’s own announcement of buying 10,000MW of electricity from Nepal.

The southern neighbour had last granted approval for Kabeli B1 (24.25MW) and Lower Modi (19.4MW) in December last year, increasing the total quantum of power that can be sold in the Indian market to 452.6MW.

The NEA is awaiting approval for 18 projects which were proposed between August 2021 and April this year, according to the authority. With its southern neighbour delaying approval, Nepal has started witnessing spillage of power particularly at night when domestic power demands slumps, it said.

In late June, an agreement between the Nepal Electricity Authority and the PTC India Ltd was signed enabling Nepal to use Bihar’s transmission infrastructure to export 300MW.

Earlier, on May 23, the NEA and the NTPC Vidyut Vyapar Nigam Limited (NVVN) of India signed a five-year power sale agreement, in the first-ever longer-term power trade deal, paving the way for exporting 200MW to India.

“All these agreements will have no meaning until India grants export approval for our projects,” said the NEA official. “We want the Indian authorities to grant approval as early as possible so that the surplus power is not spilled.”

Private sector power developers are also concerned about the growing Indian red tape in the approval process. “Maybe political efforts are also required to end bureaucratic logjam in the approval process,” said Ganesh Karki, the president of the Independent Power Producers Association of Nepal, representative body of the private sector power developers.