Concerns over Chinese contractors holds up expansion of Nepal-India power trade for the region

India-Nepal hydro-power trade is set to become a regional game-changer say officials in Delhi and Kathmandu, pointing to the possibilities of buying power from Nepal and making it available over an electric grid system to consumers in India, Bangladesh and even Sri Lanka. However, India’s opposition to the use of Chinese contractors in the projects is delaying the process, said Nepal Electricity Authority Managing Director Kul Man Ghising, calling on New Delhi to reconsider its stand on buying electricity from Nepal’s largest 456 MW Upper Tamakoshi Hydroelectric Project (UTKHEP).

With India refusing to purchase power from the UTKHEP for its grid, Nepal’s government has now asked New Delhi to allow a bilateral transmission from the power plant to Bangladesh, that has been willing to buy the power.

“We have noted India’s concerns with Chinese investment or ownership in our power projects, but how can we control contractors on projects that are done by global bidding?” asked Kul Man Ghising, speaking at a World Bank conference on South Asia last week. “In hydro-power civil construction, there are very few Indian or European contractors that can compete on cost,” he explained, adding that a single contractor should not be the reason to hold back regional trade.

The Upper Tamakoshi plant, which has been operational since 2021, was constructed by a number of contractors chosen through an international tender, including the civil construction by China’s Sinohydro and Austria’s Andritz Hydro, for the supply of electro-mechanical equipment, and India’s KEC International for the 220kV transmission line and sub-station. Situated close to the Nepal border with Tibet, the project on the Tamakoshi river was called “Nepal’s Three Gorges dam” given its size and its contribution to making Nepal a power surplus country in the “wet” or rainy season. After four years of negotiations, India and Nepal had signed a path-breaking Power Trading Agreement (PTA) in 2014, agreeing to the exchange of electricity and cooperation in the hydro-power sector, and Indian companies are involved in developing several Nepali projects. In 2018, the government also brought out guidelines for “Cross-Border Trade in Electricity” (CBTE) guidelines that were revised in 2019 without any stipulations on the ownership of power plants.

However, in 2021, after the military stand-off at the Line of Actual Control over Chinese transgressions, the government issued a number of financial measures on Chinese investment and imports, including new “Procedure for Approval and Facilitating Import/Export (Cross Border) of Electricity”. The procedure included a clause (6.3(i)) that prohibited trade with power plants that had ownership from any country that shares “a land border” with India but doesn’t have a bilateral power treaty with India — indicating China and Pakistan.

The Upper Tamakoshi project, is owned entirely by Nepali entities, said Mr. Ghising, who is known as Nepal’s “Power Hero” for his work in transforming the country’s power situation from hours of load shedding to becoming a power surplus country. In addition, he pointed out that that the civil contractor’s work had been completed before the Indian guidelines came into place.

“If it had been cleared [by India], we would have been exporting 800 MW of hydro-power last year,” he told The Hindu, more than double the amount allowed by India at present (364 MW). “We agree that since this is an Indian policy for investment, we don’t submit those projects in Nepal that have [investment from China]. But contractors cannot be restricted,” he added.

Ministry of External Affairs officials and Ministry of Power officials declined to comment on the issue.

When asked, former Indian Power Secretary and energy consultant R.V. Shahi said that the hold-up on the Upper Tamakoshi was due to a problem in interpretation and should be clarified or resolved at the earliest. “India is planning to step up transmission lines and build a massive electricity grid for the region, and electricity from Nepal would be very important for the plans, both due to energy shortages in the region and also due to India’s plans for solar power, for which hydro-power is the logical back-up,” he said.

Other experts pointed out that India’s policy on solar power, and plans to generate as much as 280 GW by 2030 as part of its fight against climate change has no such restrictions, given that India imports nearly 80% of the components for solar power from China.

“Indian entities may import electricity from the generation projects located in neighbouring country(ies) directly provided that the generating company is not owned, directly or indirectly by any natural/ legal personality(ies) whose effective control or source of funds or residence of beneficial owner, is situated in or is a citizen of a third country with whom India shares land border and that third country does not have a bilateral agreement on power sector cooperation with India,” said the notification issued by the Power Ministry.