Common Vision: Nepal and India’s new agreement.

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Context

Prime Minister Sher Bahadur Deuba on 01 April 2022 embarked on a three-day official visit to India after taking over the premiership from KP Sharma Oli back in July of 2021. His entourage consisted of Dr. Narayan Khadka (Minister of Foreign Affairs), Ms. Pampha Bhusal (Minister of Energy and Water Resources), Mr. Birodh Khatiwada (Minister for Health and Population) and Mr. Mahindra Ray Yadav (Minister for Agriculture and Livestock). While the Prime Minister alongside his Indian counterpart – Narendra Modi reviewed many projects of mutual benefits including political, economic, trade, energy, security and development issues; the one that stood out the most was the agreement for hydropower development. According to Nepal’s Ministry of Foreign Affairs (MoFA), the two countries have agreed on a ‘Joint Vision Statement on Power Co-operation/Common Vision Agreement’, aimed at benefitting both countries by strengthening employment generation, enhancing export earnings and furthering capacities of energy/power industries.  

Commentary

The new agreement between Nepal and India has increased means for electricity trade from Nepal; expanding the country’s energy exporting prospects above the framework of the South Asian Association for Regional Cooperation (SAARC) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). Through the agreement, the two neighbors have agreed to develop hydro projects through joint investments, construct inter-country transmission lines, develop bi-directional power trade with appropriate access to electricity markets and coordinate operations of national grids. Overall, the new agreement has been hailed as a breakthrough achievement for Nepal in its energy trade, yet many challenges remain for the proper implementation of the same.

Nepal is still dependent on India for its domestic energy demands during the winter season, whereas it generates excess (surplus) energy during the rainy season. Yet a major portion of this energy ends up wasted with due to lack of access to market. According to Nepal Telecommunication Authority (NTA), around Nrs. 5 million worth of electricity was wasted in the last fiscal. As of present, India buys electricity from only the 24 MW Trishuli and 14 MW Devighat projects. Moreover, with the completion of new projects including – Upper Tamakoshi, Marsyangdi, Upper Bhotekoshi, Trishuli and Devighat projects, Nepal is expected to have a surplus energy of approximately 621 MW during the monsoon season. However, India is still reviewing Nepal’s proposal to sell electricity from these projects. Considering this, whether India agrees to buys surplus energy from Nepal under the Common Vision Agreement remains unanswered; further casting doubt over its implementation.

Similarly, the amount of capital to be invested by both the countries remains unclear. While the two countries have agreed for mutual investment; Nepal severely lacks budget/revenue for large-scale infrastructure development demanded by the power sector. Likewise, export to third country (Bangladesh) via India (transboundary transmission line) is also uncertain. A few years back, GMR Group (Grandhi Mallikarjuna Rao, an Indian multi-national company) was licensed by Nepal government to export 500 MW of energy from the 900 MW Upper Karnali to Bangladesh. However, the company is yet to export energy from Nepal to Bangladesh via India due to approval hassles. In this view, the likelihood of exporting electricity under the Common Vision Agreement rests dubious.  

Summing up, while private sector businessmen and industrialist are delighted with the Common Vision Agreement and have praised Prime Minister Sher Bahadur Deuba of concluding a fruitful bilateral visit; implementing and capitalizing of the provisions under the agreement seems rather challenging, with concrete homework to be initiated.  

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