Power Trade Agreement and Nepal's preparation for Narendra Modi's visit.

 The visit by Indian Foreign Minister Sushma Swaraj ended without a concrete conclusion in regards to Nepal’s hydro. However, the visit helped to create a foundation for Indian Prime Minister Narendra Modi’s upcoming visit to Nepal that is being scheduled on 3rd of August, 2014.

INDIAN’S INTENTION AND THE PROPOSAL

The recent developments made us clear that India is actually serious about harnessing Nepal’s hydro. Previously, we were always suspicious about Indian’s intention. In the wake of its booming population what India value matters the most. Energy or water? Indian interests were flood control mechanism and irrigation. Hydropower came in third on their list. But the remarks made by Indian diplomats recently are more inclined towards developing hydropower.

“India needs 800,000 megawatts (MW) of electricity by 2030, of which 507,000 megawatts should be fulfilled through water resources alone. We have plans to produce electricity from nuclear and gas plants too. So it is our necessity to meet the huge power demands in the days to come,” the Indian ambassador.

Likewise, Indian proposal sent to Nepal shows that they are serious about the energy need for their country. However, the “energy cooperation” proposal sent by India was not acceptable to Nepali mainly for two reasons. First, if the proposal was accepted, no foreign investors except India could construct hydropower projects in Nepal. In addition, Nepalese developers have to do joint venture agreement with Indian companies if they wish to develop the projects in their own homeland.

Secondly, India will have the control in electricity tariff.

Thus, agreement could not be signed because of widespread protest done by our energy experts and politicians. It is not like the situation of 1950’s when India managed to grab water deals by having their upper hand. Now more Nepali are educated and they do have global connection. They can make voices against any disadvantage agreements.

On the other hand, hydropower generation is the only alternative for complete transformation of Nepal. Also without Indian assistance and cooperation, we will never be able to exploit our resources fully. It is a bitter fact.

NEPAL’S PREPARATION

While deeply acknowledging the need to harness the country’s immense hydro potential for overall development of the country, three major political parties — Nepali Congress, CPN-UML and UCPN (Maoist) — have agreed to step up necessary homework to ink “Power Trade Agreement (PTA)” with India.

During a meeting held at the Prime Minister’s Official Residence in Baluwatar on Tuesday evening, the three parties also formed a task force comprising of NC leader Dr Ram Sharan Mahat, UML leader Bhim Rawal and UCPN (Maoist) leader Narayan Kaji Shrestha to finalize the PTA agreement with India during Prime Minister Narendra Modi’s visit scheduled for Sunday. This is very encouraging to find all political parties agreeing to take Modi’s visit as the country’s common achievement. 

In addition, the government is set to propose for construction of the 765 KV Lamki-Raebareli transnational transmission lines during Modi’s visit as there is potential of generating 4,700 MW from the western region and being exported to India. Construction of Dhalkebar-Mujaffarpur transmission line agreed earlier has started just now while even preliminary work for Bardaghat-Gorakhpur 400 KV transmission line has not been started.

WHY NEPAL NEEDS PTA?

Nepal is not in a position to consume all the electricity internally if our hydro resource is fully exploited. At least for now. However, there are some claims that we might need all the energy down the line. In the article recently posted by former minister Dr Prakash Chandra Lohani “Nepal would need 40,000 MW power if Nepal were to be the middle-income country in the 25 years to come”. Whatever the arguments are, we all believe that we need to find the market for our energy before we reach to a level where the total generated energy will be consumed internally. This is the reason why many experts believe that PTA is only way we can secure our national interest. In layman’s term PTA means selling excess energy to other country.

In the lack of PTA, Nepal will struggle to attract foreign investment in hydropower sector while big projects may not be developed. NEA, the only power purchaser in country, has already stopped signing PPA for new projects. Promoters from Nepal, China, Norway, Brazil, South Korea and other countries who are holding license of Mega Projects must wait for PTA to sell electricity to India. The projects to be developed for export will not get market in lack of PTA with India.

WILL INDIA SIGN PTA WITH NEPAL? WHAT WILL BE THE HURDLES?

Now the focus is on Power Trade Agreement (PTA). The Indian expectation of one umbrella agreement for generation, development and power trading of all the hydro potential in Nepal is unlikely to happen. The proposed PTA by Nepal does not touch upon the generation and development of hydro electricity in Nepal either with 100 percent Indian investment or with 100 percent joint venture with or between the Indian companies. 

"We have decided to focus only on power trade while skipping power generation and development" said Narayan Kaji Shrestha. It is not know whether India will agree to this half-met condition proposals from Nepal, which misses the part on generation and development.

Anyways, Nepal has always expressed its interest to do PTA with India which would be crucial to attracting investment in hydropower sector. But India has deferred the agreement time and again. We all know that India itself is an energy hungry country. The reason why India is deferring to sign the agreement is not understandable when India needs energy.

May be it has to do more with Indian attitude towards Nepal. Here is one example. Two Indian companies preparing to construct three big projects in Nepal have already been given assurance by the Indian government that electricity generated by them will be imported. Indian Energy Ministry has given permission to GMR Energy Limited and Sutlej Hydropower Corporation that electricity generated by Upper Karnali (900 MW), Upper Marsyangdi II (600 MW) and Arun III (900 MW) projects—with combined installed capacity of 2400 MW—can be imported from Nepal during the license period. GMR and Sutlej now can export electricity from Nepal even without PTA between the two countries. Lanco Energy, Patel Engineering, Bhilwara Energy and all other Indian companies will also now be able to export electricity from Nepal without any difficulty. This indicates that Indian government will support only Indian investment. For them, PTA is not necessary.

The Indian bully nature will be reflected even if we sign PTA. Two major concern/argument will arise for sure.

1) Spill Energy :- Nepal will have more excess energy during wet season. On the other hand, India has time and again expressed that it will not buy wet season energy only. This is a bully nature. The energy consumption pattern in India is totally different from Nepal. Energy consumption during wet season will be higher in India because of its hot tropical climate. For example, Air Conditioner is no luxury item for Indian middle class family nowadays. So in simple term, when the demand is high Nepal will have every right to categorized the wet energy as a “peak demand energy”. But I am pretty sure Indian will try to purchase spill energy at very low tariff, as, they will argue that the marginal cost of generation of power during rainy season will be nominal. 

2) Energy Tariff :- Since Indian knows that the only viable market right now for Nepal is India, they will throw everything to lower the energy tariff as low as possible. Although the next viable option for Nepal is Bangladesh, it would not be possible without India (Just to remind you that Bangladesh had proposed to import power from Nepal in several occasions but crossing 60 km narrow Indian corridors that separates Nepal from Bangladesh is the major hurdle)

OPTIMISM

There is an awkward silence when it comes to Nepal-India relation. But the statement by Indian officials gives hope to many Nepali.

“Nepal can generate whatever electricity it needs for domestic consumption and export the excess power, which India will buy at market rates,” Joint Secretary of the Indian Ministry of External Affairs Syed Akbaruddin.

To facilitate and promote electricity trading, Akbaruddin said, India was willing to sign the PTA whenever ‘Nepal feels comfortable’. He also indicated India does not want to dictate any terms in this regard, as ‘Nepal has prerogative over its natural resources’.

Trade in power, according to Akbaruddin, would create a win-win situation for both the countries, as it would help Nepal narrow down trade deficit and help India in its economic development endeavour.

“Trade in power will create a win-win situation for both nations, as balance of trade (between Nepal and India) is tilted towards India. One way to (bridge) this is by (supplying) power to India, as we export lots of petroleum products (to Nepal),” Akbaruddin said.

While exporting power is in Nepal’s interest, the southern neighbour is also interested in importing power from Nepal to give impetus to economic development, which, according to Akbaruddin, ‘is a priority for India’.

I hope Narendra Modi’s visit will be fruitful for both nations.