Krishna V Rajan, who is also the editor of the 2012 book, chose to write about his stint in Lainchaur (1995-2000).

That was a time when relations between Nepal and India were at a low point over the Tanakpur controversy and the remnants of the Indo-Nepal trade and transit impasse (1989-90). Rajan had his task cut out: mending ties with political parties, particularly the CPN-UML, but also with the monarchy, which was on the political decline.

If we are currently living in a transition, the 90s were similar in many ways—political instability heightened by frequent changes in government (or talk of it); the dominant political players, the NC and CPN-UML, trying to stamp their own authority over national politics, with the UML taking a strong exception to the manner in which the Tanakpur accord was understood by governments in Delhi and Kathmandu. This obviously had a direct bearing on Indian cooperation in developing Nepal’s vast but underfunded hydropower sector.   

A lot has changed since the Tanakpur standoff but what has not is that Nepal’s power sector remains severely cash strapped. It is a story of lost opportunity. The question is: can we—Kathmandu and New Delhi—do something about it before it is too late? After all, both countries need power, a lot of it, and Nepal can potentially provide enough, including for export to Bangladesh, and reap huge dividends in the bargain.   

Silver lining

There is much talk about the new Indian Prime Minister Narendra Modi’s strong emphasis on the neighbourhood and his possible visit to Kathmandu in early August, the first by an Indian Prime Minister in 17 years. Hydropower, unsurprisingly, is again on the agenda.

New Delhi is keen that the Modi visit to Kathmandu should be more than a  ‘social visit’. In Delhi’s view point, that means signing some high-profile infrastructural projects but as importantly ensuring that important bilateral policy frameworks are in place that will facilitate private investments in big projects.

Towards that end, the Investment Board, Nepal has been an important player, providing technical expertise in putting together a Power Trade Agreement (PTA) draft, which is currently with the Prime Minister’s Office. The PTA will be an important milestone in Nepal’s hydropower development. No investor, domestic or foreign, is going to put in money in Nepal’s potentially vast hydropower sector without the assurance provided by the Indian market. This is where Indian goodwill and support becomes central to our hydropower development.

In the run-up to the Modi visit, two other important policy documents are said to be in the final stage. One, the Project Development Agreement (PDA) with India’s GMR on Upper Karnali (900MW). Two, as members in Nepal’s power establishment state, the PDA works on Arun III (900MW) have been put on fast forward in view of India’s strong interest.

There is even speculation that India could provide both grants and concessional loans for Arun—following on the Chukha model in Bhutan (60 percent grant; 40 percent concessional loan).

The PTA between Nepal and India (India has one with Bhutan) will make way for direct power trade between developers in Nepal and buyers in India—the state government or the private sector. According to the current arrangement, all power agreements need to be routed through the central government.

Sad bilateral history

In 1994, the CPN-UML was voted to office in an election where Tanakpur had held the centre stage. India had used Nepali land for construction of a barrage at Tanakpur which was on the Indian side but no prior approval was taken from the Nepali side for the use of its land.

In his defense of New Delhi, Prime Minister Girija Prasad Koirala tried to downplay the Tanakpur ‘agreement’ but the Opposition insisted that sharing of natural resources was a national security issue and had to be ratified by a two-third majority in the joint house of parliament, as the constitution mandated.

The Tanakpur saga rekindled Nepal’s insecurity over the sharing of water resources with India.

The UML agitation against the Tanakpur agreement, writes Rajan, had its own short- as well as long-term implications. In not following the due constitutional process, New Delhi had inflicted a heavy damage on Koirala’s credibility as Nepal’s leader.

In Rajan’s own words: India had been unsuccessfully trying to defuse the controversy through incremental concessions to the Koirala government both on water as well as power, but far from satisfying the Opposition, this had added fuel to the controversy that Nepal was being ‘cheated’ of its entitlement, causing serious embarrassment to Koirala.

But it is the longer-term cooperation that was held hostage for more than two decades. Rajan warns that the bleak reality is that India and democratic Nepal might never be able to have a major treaty on water, even if the people of both countries desperately needed it for their future wellbeing.

 Small opening

Indeed, Nepal and India have entered into no major hydropower project agreement for a long time and even when they have there has been very little progress on the ground. Though the Mahakali/Pancheshwor was ratified by the Parliament, the multi-purpose project remains a pipe dream.

There is now a small opening to help redefine the Nepali-India hydropower regime, which can potentially bury our age-old ghosts of uneven sharing of water benefits. But that needs more than political rhetoric of neighbourhood diplomacy, both on the part of Modi and the stalwarts, including in Kathmandu, who drive his foreign policy.

The writer is the Editor-in-Chief of the Post and can be reached at [email protected]