Electrical shockNepal needs to realise that its hydropower potential is not just for export but also for its own industrial growth
Earlier this month when Kathmandu was celebrating the “end of load-shedding”, something dampened the party-mood. The county just then came to know about the new “cross-border trade of electricity” guidelines issued by the Indian government that some experts say could discourage foreign investors and private Nepali power developers from building big export-oriented hydropower projects in Nepal.
India’s power ministry issued the guidelines for neighbouring countries—Bangladesh, Bhutan and Nepal—with which it trades electricity. In Nepal’s context, the guidelines allow Nepal-based companies owned by the Indian government or India’s public sector and private companies with 51 percent or more Indian stake to become eligible to export power to the southern neighbour.
“Import of electricity by Indian entities from Generation projects located outside India and owned or funded by Government of India or by Indian Public Sector Units or by private companies with 51% or more Indian entity (entities) ownership shall be eligible to participate in cross border trade of electricity after obtaining one-time approval from the Designated Authority,” the guidelines read.
It also allows companies owned or controlled by the Nepal government to export power to India after obtaining a one-time approval from Indian authorities. But for Nepali private producers and foreign companies—other than Indian—things will not be as straight-forward. “Any other participating entity shall be eligible to participate in cross border trade of electricity after obtaining approval of the Designated Authority on case to case basis.”
Those who believe that the guidelines have undermined the prospects of foreign—other than Indian—and Nepali companies exporting electricity to India argue that Kathmandu and New Delhi had struck a different deal in the past. They point to the Power Trade Agreement the two countries signed in 2014 after years of delays. Many believed the agreement would give Nepali private power producers and foreign investors access to the Indian market.
Following concerns that the guidelines might not let that happen, the Indian embassy in Kathmandu made some clarification. “Provisions have been made such that maximum entities get opportunity to trade electricity with India,” it said in a press release. “Under ease of doing business, India has simplified the process for all the Government owned companies of the neighbouring countries. But, this does not debar other companies/entities from participating in the trade of electricity.”
Case of Norwegian company
We will have to wait and see how things actually play out. So far, past developments have not been so promising. Remember the Norwegian company, Stratkraft, that pulled out of the Tamakoshi III project in January this year? By the time Norway’s state-owned company decided to cancel its plan to invest US$1.5 billion to build the 650MW hydropower project aimed at exporting electricity to the Indian market, the Nepal-India power trade agreement was already in place.
Statkraft had cited a number of factors for its decision. “These factors include a lack of viable power offtake option, lower electricity price forecasts, insufficient transmission capacity for power evacuation and absence of necessary policies and regulatory framework for operationalizing power sales,” the company had said in a statement.
Did the Norwegian company see what was coming? Or, did the Nepali administration and power centres not want foreign companies—other than from India—to work in Nepal’s hydropower sector? We can endlessly engage in guesswork. But the Norwegian move was a strong reminder that Nepal’s age-old dream of attracting foreign investments to export hydropower to India is far easier said than done.
Even projects involving India’s state-owned companies or private Indian entities have not steamed ahead. The Pancheshwar multipurpose project, that aims to generate more than 6,500MW power, has been stuck for years now. It has been quite some time since Nepal signed a memorandum of understanding (MoU) with two Indian companies for the construction of Arun III and Upper Karnali projects—both for electricity export to India. And we do not know yet when their first spades will hit the ground.
The energy ministry’s website still mentions the MoU—and that is about it. Meanwhile, India is yet to build many hydropower projects it has planned in the Bramhaputra basin, mainly in Arunachal Pradesh that has terrain and topography similar to Nepal’s. Then there is coal, which occupies a lion’s share in India’s energy mix, and New Delhi wants to double its production to one billion tonne in the next few years. That means electricity generation from Indian coal-fired power plants will go up significantly as the country is vigorously going ahead with its campaign to electrify all its villages.
“Any coal-based Indian thermal power projects other than Public Sector Undertakings shall be eligible for export of electricity to neighbouring countries only if surplus capacity is certified by the Designated Authority,” the recently published guidelines read.
Challenging traditional thinking
Despite all these considerations, if Nepal really gets to plug its hydropower into the Indian market, including from foreign (non-Indian) and private Nepali companies, it will be three cheers for the country’s power sector and, by extension, to the national economy.
But perhaps it should also have a plan B and start looking at hydropower as something more than just an exportable commodity.
It is about challenging the traditional thinking that Nepal will have a lot of surplus electricity if it tapped all its potential because there is very limited demand. If the country started looking at hydropower as a raw material and make policies accordingly, demand will be created automatically. It can utilise the power for exponential growth in sectors including tourism, agriculture, herbal processing, electric transport—the list can be endless.
The question is: Will policymakers and planners be allowed to do that? Or, will they be made to pull the plug on power generation for growth?
Khadka is a BBC journalist based in London