Competition over Nepal’s mountain hydropower potential is intensifying with India moving ahead of China in a geopolitical tussle that several analysts and industry insiders fear could jeopardise the Himalayan nation’s energy supply and ambitions.
Nepal has in recent years looked to its rivers - which have the potential to generate more than 42,000 megawatts (MW) of hydroelectric power - to ease power shortages at home and export excess electricity in a bid to develop its struggling economy.
China and India have long jostled for influence in neighbouring Nepal, and have invested billions of dollars apiece in hydro projects over the last decade.
Yet the dynamic is now shifting as India signs more contracts to buy Nepal’s hydropower.
Under rules India has established, it cannot buy energy from Nepal that is linked to Chinese investment or involvement, be it equipment, workers, or subcontractors.
Political and energy experts say that as Kathmandu’s key trading partner, New Delhi wants to exert control over Nepal’s hydro resources while limiting Beijing’s clout in the region.
“India is seeking to reestablish its hegemony through various means, including using Nepal’s electricity as a tool,” said Khadga K.C., a professor in international relations and diplomacy at Nepal’s Tribhuvan University.
India struck an electricity buying deal with Nepal in 2014, but changed its own policy in 2018 to prevent the purchase of power produced via the investment of nations with which it does not have a “bilateral agreement on power sector cooperation”.
This means India and its companies cannot buy hydropower produced by Chinese-funded or Chinese-built plants.
This has left Kathmandu with little choice but to bow to New Delhi over the future of its hydropower sector - despite concerns about the nature of the relationship and Nepal’s energy surplus, several experts said.
Arjun Kumar Gautam, the CEO of Nepal’s Hydroelectricity Investment and Development Company (HIDCL), a state-owned firm, said “it is not a hidden issue that now India will not buy the energy of (a) project made in cooperation with (a) Chinese company”.
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In the future, there may be power scarcity (in Nepal). If Nepal (then) needs electricity … it may have to buy it from Indian companies at a high price. Therefore, the government’s policy of handing over all the plans to the companies of the same country is wrong.
Khadga KC, professor, Tribhuvan University
Since India’s power purchasing shift, Nepal has removed Chinese developers from six hydropower projects and given four hydro contracts to Indian companies, according to Babu Raj Adhikari, information officer at the energy, water resources and irrigation ministry.
Two of the plants awarded to Indian companies were initially given to Chinese firms - with one of them having been part of China’s Belt and Road Initiative, following its President Xi Jinping’s visit to Nepal in 2019, Adhikari said.
Khadga K.C. said he was concerned about this trend, which he referred to as the “monopoly of Indian companies”.
“In the future, there may be power scarcity (in Nepal). If Nepal (then) needs electricity … it may have to buy it from Indian companies at a high price,” he said in an interview.
“Therefore, the government’s policy of handing over all the plans to the companies of the same country is wrong”.
Sushil Chandra Tiwari, secretary of Nepal’s Water and Energy Commission Secretariat, said that the government was talking to India about a long-term agreement on buying energy from Nepal.
“The energy demand is high in India. There is no reason for not buying Nepal’s energy by India,” he said.
Neither the Indian nor Chinese embassies in Nepal nor India’s power ministry responded to requests for comment.
Nepal concerned about surplus energy
Nepal has 124 operating hydropower plants, with a combined capacity of 2,600 MW, and a further 235 are under construction. Together they will able to generate a total of 8,667 MW, according to the Department of Electricity Development.
Indian companies have contracts to build and operate 10 plants, while Chinese developers have such contracts for five of them, said Durga Narayan Bhusal, an engineer at the department.
Nepal generates about 2,700 MW of electricity - the vast majority from hydropower - said the Nepal Electricity Authority (NEA), which is above the nation’s demand of 1,700 MW but represents less than 7 per cent of its total hydro potential.
The NEA has expressed concern about having surplus unsold energy, a particular problem during monsoon season, when production outweighs demand.
If India does not buy the power produced, it is wasted.
Last year, Nepal generated a surplus of 500 MW of energy per day between June and October that it was not able to sell - the equivalent of about US$90 million in total, according to the NEA.
Ganesh Karki, vice president of the Independent Power Producers Association, said that if India does not change its power purchasing policy, “Nepal will lose millions of rupees”.
Nepali investors have backed hydropower projects with hopes of selling energy to the Indian market, but India has only imported 452 MW of electricity from Nepal via plants with no Chinese involvement, said NEA managing director Kulman Ghising.
China, meanwhile, has not imported any energy from Nepal due to geographical constraints, according to analysts.
In May 2022, after the Nepali government scrapped a Chinese developer’s licence to build the Budhigandaki hydro project, the then Chinese Ambassador to Nepal - Hou Yanqi - said in an online press conference that Nepal’s policies had “killed investors”.
India’s power purchasing policy appears to have made choices straightforward for Nepal’s political leaders.
Last year, Sher Bahadur Deuba, the former five-time prime minister, said during his election campaign that “we should give the hydro projects to India because India does not buy power from projects involving China”.
Nepal’s current Prime Minister Pushpa Kamal Dahal is preparing to visit India in the coming months, and hydropower contracts and energy trading are set to be high on the agenda.
In April last year, when then-PM Deuba visited New Delhi, Indian Prime Minister Narendra Modi told his counterpart that India would buy “whatever electricity you produce … I want to ensure that excess electricity in Nepal is not wasted”.
Despite concerns about India’s stance, Tanka Karki, a former Nepali ambassador to China, said he did not think that India was putting “unethical pressure” on Nepal’s power sector.
“China’s active presence (in Nepal) was not liked by India, so it seems that (India) responded to China through hydropower,” he said. “Keeping Nepal under its umbrella is India’s strategy to capture its natural resources.”
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