There are a lot of ongoing discussions on the proposed power agreement between Governments of Nepal and India. With Nepal’s untapped hydropower resources, India’s power need, and recent changes in Indian politics, the discussions for power treaty is again back on the table. I was lucky enough to get a copy of the draft of the agreement. In this post, I discuss the important points of the agreement and few areas that need clarification.
Both countries realize the importance of meeting electricity demand for socio-economic development and the progress of people. The agreement aims to facilitate cooperation in the fields of power generation, power transfer, grid connectivity, energy efficiency, renewable energy, and power related consulting and research services. More importantly, both countries are emphasizing the importance of developing additional hydropower potential by cooperating in the construction and operation of hydropower.
Connecting national grids: Both countries will work on establishing grid connectivity by building cross-border transmission interconnections and providing non-discriminatory access to the interconnection for all participants.
Investing in power generation: Both countries are planning to encourage and facilitate power related investments – both in transmission and generation sectors – including joint ventures. The agreement will also include a separate clause to facilitate and construct hydropower in Nepal with either 100% Indian investments or joint venture with Indian companies.
Power trade: The agreement specifically states that India will only be allowed to purchase surplus electricity from Nepal. This clause secures the electricity generated in Nepal to be first used within the country. Both countries’ regulatory authorities will determine the price of surplus electricity by accounting for project financing costs, operation & maintenance costs, and depreciation costs.
The agreement also mentions about starting a Joint Working Group to facilitate cooperation in the above-mentioned areas.
Overall, the agreement is welcoming and timely needed step to develop a reliable and efficient electricity system. Since Nepal depends solely on hydropower, there is a need to diversify its electricity suppliers. Moreover, water availability in Nepal’s snow-fed rivers changes seasonally, thus creating a wide variations in the amount of electricity produced in dry and wet seasons. Once the national grids are interconnected, it will be easier to transfer bulk electricity depending on the demand and supply of Nepal’s electricity system.
However, a few points of the agreement need clarification, mainly in the areas of investments in Nepal’s hydropower sector and power trade between India and Nepal.
One of the alarming clauses of agreement is giving an advantage to Indian entities over other foreign investors while developing Nepal’s power sector. In Article III (b), both countries agree to “cooperate” to harness Nepal’s hydropower potential by either 100% Indian investments or joint venture with Indian entities. This clause should either be removed or changed so that all foreign investors including Indian entities are given non-discriminatory access to Nepal’s power sector.
Another area that needs clarification is related with power trade. The clause talks about allowing licensed business entities from each other’s countries to operate in other country’s electricity market. It is not clear if this is strictly allowed only for cross-border electricity transaction or in other country’s electricity market too. This gives clear advantage for Indian entities to operate in Nepal’s market, whereas Nepal does not have other entities than Nepal Electricity Authority (NEA) that is capable of operating in Indian market. This particular clause should be clearer and should only mention power trade for inter-country electricity transaction.