The New ‘Power’ Factor That’s Driving Indo-Nepalese Ties And Boosting The Himalayan Nation’s Economy

Nepal has exported power worth 10 billion Nepali Rupees (INR 625.6 crore) to India in the past one year and this has proved to be a life-saver for the Himalayan nation’s Covid-19 pandemic-hit economy.

This export, Nepal’s fourth largest in terms of value, has also emerged as the latest driving force behind Indo-Nepalese ties. 

Soon after coming to power in May 2014, and part of his Neighbourhood First Policy, Prime Minister Narendra Modi got moving to sign an agreement between the two countries to facilitate power trade, cross-border transmission, interconnection and grid connectivity between the two south Asian neighbours. 

That agreement was signed in October 2014, and next month (November 2014) the SAARC Framework Agreement for Energy Cooperation was signed by all member states at the SAARC Summit held in Kathmandu. 

But various issues, primarily political turmoil and developments in Nepal that led to some irritants developing in Indo-Nepalese ties, prevented the implementation of the agreements and power trade between the two countries from becoming a reality. 

The two-year-long Covid-induced pandemic also became a major stumbling block in the commencement of power trade between India and Nepal. 

But after the second wave of Covid abated last year, a growing convergence on the need to expand cooperation in power trade emerged between the BBIN (Bangladesh, Bhutan, India and Nepal) nations. 

On 2 November last year, New Delhi agreed to persistent requests from Kathmandu and opened the door for Nepal to sell 39 MW of electricity produced by the 24MW Trishuli Hydropower Project and the 15MW Devighat Hydropower Project in the India Energy Exchange Limited (IEX). Both these power projects in Nepal were developed with India’s assistance. 

Nepal, which was a power-deficit country, turned into a power surplus one in August last year with the commissioning of the 456MW Upper Tamakoshi Hydropower Project. Nepal produces more than 2000 MW of electricity while its peak hour demand stands at 1500 MW. Kathmandu has been keen to sell excess power to India. 

Since June this year, the export of power from Nepal to India increased to 364 MW from six more hydropower projects. This dramatically increased Nepal’s export earnings. 

A senior executive of Nepal Electricity Authority (NEA) told Swarajya from Kathmandu that Nepal earned over 10 billion Nepali Rupees (NPR) by exporting power to India. Of that, NPR 8.5 billion was earned since June when power export to India was enhanced. 

Power (electricity) has thus become the fourth largest item in terms of value for Nepal. The top three export items are soybean oil (NPR 48.12 billion), palm oil (NPR 41.06 billion) and yarns (NPR 11 billion). Woollen carpets (NPR 9.56 billion) comes a close fifth to power. 

But with Nepal increasing its hydroelectric power generation, a lot of it from projects set up with India’s financial and technical assistance and cooperation, the value of its power export will go up further. 

NEA spokesperson Suresh Bhattarai told Swarajya over phone from Kathmandu that earnings from export of electricity will help reduce Nepal’s trade deficit with India. 

According to Nepal’s Trade & Export Promotion Centre, Nepal’s exports to India stood at NPR 155 billion in the last financial year while its imports from India were valued at NPR 1.2 trillion. 

NEA managing director Kul Man Ghising says that Nepal hopes to earn NPR 16 billion by exporting power to India in the current fiscal and NPR 30 billion in the next fiscal (2023-2024). “Electricity will become a foremost export earner for Nepal within the next few years,” said Ghising. 

The NEA chief said that the Joint vision statement on power sector cooperation announced during Nepal Prime Minister Sher Bahadur Deuba’s visit to India in April this year will lay the ground for enhanced electricity export to India and even to Bangladesh and Bhutan. 

Nepal’s Power Minister Pampha Bhusal has set an ambitious target of exporting power worth NPR 70 billion to India and Bangladesh in the next five years. 

“We shall sign power purchase agreements (PPAs) with developers of run-of-the-river hydropower generating projects soon to increase the availability of power for export to India. We will also lay high-capacity cross-border transmission lines for electricity exports,” said Bhusal.

The export of power to India, and the consequent boost in the Himalayan nation’s export earnings, have triggered an uptick in bilateral ties. 

“The earnings from power export to India have considerably improved our foreign exchange reserves which had decreased by 18.2 per cent during the one-year period between April 2021 and April 2022,” said Bhusal. 

India’s offer to help Nepal install high-capacity cross-border transmission lines has generated a lot of goodwill in Nepal. Along with the United States, India has also offered to help Nepal upgrade its domestic transmission lines. 

There are a dozen cross-border transmission lines between India and Nepal with capacities ranging from 33kV, 132 kV and 400kV. But only one cross-border transmission line — the Dhalkebar-Muzaffarpur line — is of 400kV capacity and can export 1000 MW of power. Between 5 MW and 12 MW of power can be transmitted through the remaining 11 low-capacity lines. 

India has offered to upgrade these lines and an agreement on this is on the cards. The two countries have already agreed to jointly build a new 400 kV transmission line from Butwal (in Nepal) to Gorakhpur. 

The Arun 3 hydropower project being built by an Indian company will have its dedicated high-power transmission line to export electricity generated from the project to India. 

What will be heartening for India is that Nepal’s target to boost power exports to India enjoys the support of opposition parties, including the Communist Party of Nepal (Unified Marxist Leninist) chief K P Sharma Oli.

Oli has often been a strong opponent of India. His support will ensure insulation of the power export project from Nepal’s fractious politics. 

“While export of power to India is a highly positive development, what makes us very happy is India’s offer to help us enhance our export of power by helping us upgrade the required infrastructure. That will provide a big boost to our ties with India,” said Oli. 

Nepali politicians across the spectrum speak on the same lines. Encouraged by this, India has started publicising this development in a bid to create a positive impact on Nepal’s polity and civil society.