Let China "take a back seat" in Nepal? India's hydropower market is playing tricks

"In addition to strengthening engagement with Nepal, India is also quietly trying to curb China's growing influence in Nepal through economic diplomacy. A recent article by the Observer Research Foundation, an Indian think tank, put it bluntly. Nepal, a landlocked mountain country in South Asia, borders China to the north and India on the remaining three sides. Nepal is rich in hydropower resources, accounting for about 2.3% of the world's total hydropower reserves. In the past 10 years, with the participation of Chinese enterprises, Nepal is developing towards becoming a "net exporter of electricity". Comprehensive Reuters reports and relevant information from India and Nepal can clearly see that India is trying to make China "take a back seat" in Nepal - when Nepal hydropower stations deliver large-scale electricity to India, India has introduced relevant policies to disguise the Chinese-funded factors that play an important role in the development of Nepal's hydropower industry. However, India's tactics do not hinder cooperation between China and Nepal.

Nepal's hydropower has developed rapidly, and Chinese enterprises have made great contributions

About 10 years ago, Nepal was a country with a shortage of electricity. A Chinese who lived in Kathmandu, the capital of Nepal, in 2013, told the Global Times: "At that time, the power outage could reach more than 10 hours a day, and the dry season (equivalent to the domestic winter and spring seasons) was even worse. ”

Time has passed, and now Nepal's power generation and power supply situation has greatly improved. In August 2022, the top management of the Nepal Electricity Authority said at an event celebrating the 37th anniversary of the establishment of the Board that "as of the end of the last financial year in mid-July, 92.52% of the mainland's population has access to electricity", stressing that "all citizens of Nepal will have access to electricity by 2024".

Nepal's power supply has undergone earth-shaking changes in the past 10 years, and Chinese enterprises have made outstanding contributions. On September 26, 2016, after 45 months of construction, PowerChina and Nepal began generating electricity for the first unit of the Shangmaxiangdi A hydropower station, which was praised by Nepalese officials as a model of cooperation between Chinese and Nepalese enterprises, "sending the message to other investors that Nepal is a safe place to invest and opening up new ways for Nepal's energy sector to develop." With a total installed capacity of 50 MW, the Shangmasangdi A Hydropower Station is the first project developed, constructed and operated by a Chinese enterprise in Nepal, and the first hydropower station in the history of Nepal's hydropower construction to realize power generation ahead of schedule, providing long-term stable power supply for Kathmandu and the famous tourist city of Pokhara. In November 2022, Nepal also awarded the "Hydropower Industry Special Contribution Award" to the hydropower project

In March last year, the Shangtamashi Hydropower Station, Nepal's largest hydropower station, built by Chinese enterprises and known as Nepal's "Three Gorges Project", was put into full operation. Construction of the Upper Tamksi project began in 2010. In July 2021, the first unit of the hydropower station was connected to the grid for power generation. It is reported that the total installed capacity of the Upper Tamaksi Hydropower Station will reach 456 megawatts, and the entire project will contribute about 1% of Nepal's gross domestic product.

Nepal's electricity demand peaked at 2,036 MW in FY2022-2023, but the country's current generating capacity has exceeded 2,650 MW, according to the Nepal Electricity Authority. The Kathmandu Post reported that according to the power authority, the peak electricity demand in Nepal will gradually climb to 2280 MW and 2568 MW in 2024 and 2025, but at the same time the country's power generation capacity will gradually climb to 4507 MW and 5251 MW. Even by 2026, Nepal's own power generation capacity will be able to meet domestic demand, even during the dry season with low water levels.

Electricity export is a realistic need of Nepal

Due to the distinct dry and wet climate in the southern foothills of the Himalayas, seasonal fluctuations in power generation have become an important feature of Nepal's power generation capacity, and have also caused an insoluble contradiction in the country's power development - if self-sufficiency in electricity can be ensured throughout the year (including the dry season), then there will inevitably be excess power generation capacity in the rainy season (roughly our domestic summer and autumn). If this electricity cannot find foreign markets, it can only be wasted, which in turn will discourage various capitals to develop Nepalese hydropower projects.

In order not to waste its power generation capacity during the rainy season and cherish its few channels to earn foreign exchange, Nepal urgently needs to find overseas markets for excess electricity during the rainy season, and its key target markets in South Asia are India and Bangladesh, which is extremely short of electricity. At present, India has allowed Nepal to sell 452.6 MW of electricity for 10 hydropower projects. As for the electricity trade between Nimeng, India's attitude is also crucial. Looking at the map, the southeastern part of Nepal and the northwestern part of Bangladesh are separated by the narrow Siliguri corridor in northeastern India.

Specific to the electricity transaction between Nepal and India, the special reporter of the Global Times learned the following information. In April 2021, the Nepal Electricity Authority was approved by the Indian side to enter the electricity trading market of the National Power Corporation of India (NTPC). In November of the same year, India's Central Electricity Authority allowed two hydropower projects in Nepal to sell electricity to India. Since November 2021, Nepal has been selling excess electricity to India during the rainy season in accordance with the quota agreed with India, and importing electricity from India during the dry season. Since November 2021, Nepal has sold about $90 million worth of electricity to India.

When introducing the import and export of electricity to local media at the end of 2022, Kul Gisin, executive director of the Nepal Electricity Authority, said that Nepal needs to import electricity for 4 months of the year, but that year is different from the past, the import volume is less than the export volume, and Nepal will become a net exporter of electricity from the perspective of power generation and trade profit and loss.

On the evening of May 26, Nepal exported a total of 100 megawatts of electricity to India for six consecutive hours due to a surge in rainfall and a rapid rise in river levels. This is Nepal's first electricity export to India after the start of this year's rainy season in more than five months.

"India warns Nepal"

On May 24, Reuters published an article: "India reached a power purchase agreement with Nepal in 2014, but changed its policy in 2018 to prevent the purchase of electricity from Nepal from countries that do not have a Bilateral Agreement on Power Sector Cooperation with India." "According to the rules set by India, it cannot buy electricity from Nepal that is invested or produced by China." The report also quoted Nepal's energy department officials as saying that since India changed its power purchase policy, Nepal has removed Chinese developers from six hydropower projects and awarded four hydropower contracts to Indian companies.

The Kathmandu Post published an article in January last year titled "No Chinese Participation Is India's Warning to Electricity Procurement in Nepal," revealing the truth. According to an official of the Independent Power Producers Association of Nepal (IPPAN), "the Indian side has always told us clearly that they will not buy electricity from Chinese-invested projects, or even from projects undertaken by Chinese contractors", and "we have discussed this with officials from the Indian embassy and the Indian power department, and they have made it very clear that it is unlikely to buy electricity from Chinese-invested projects". According to reports, if Nepalese power producers want to export electricity to India, they must submit relevant documents and materials required by India, including equity structure, to India, and only after the Indian side has passed the examination can they be eligible to export electricity to India.

Nepal's "New Business Times" recently published an article "India's Prospects for Investment in Nepal's Hydropower Industry", the article wrote: "China intends to invest in Nepal's hydropower projects, but India's policy is not to purchase electricity from Nepal produced by hydropower projects invested or built by other countries, especially China." In this context, it is difficult for China's investment in Nepal's power capacity to enter the Indian power market. This also makes it more difficult for Nepalese hydropower projects invested by other countries to enter the Indian electricity market, while Indian companies do not have to face such troubles. ”

An April article on the website of the Observer Research Foundation (ORF), an Indian think tank, said, "India Takes China Back in Nepal," revealed that "in addition to strengthening engagement with Nepal, India is also quietly trying to contain China's growing influence in Nepal through economic diplomacy." India's decision not to buy electricity from Nepal (produced by Chinese-invested or built hydropower projects) has dealt a severe blow to Chinese companies in Nepal that are involved in different hydropower projects in the country. Now, Chinese companies feel that investing in Nepal's hydropower sector is unsafe. Another decision by the Indian authorities not to supply explosives to projects carried out in Nepal by Chinese companies as developers or even contractors is also a huge setback for Chinese companies. Finally, the article said: "In recent years, India's economic diplomacy with Nepal seems to be working well, presenting a win-win situation for Nepal and India." In the new situation, many Indian companies have become interested in developing giant hydropower in Nepal, while China has suffered setbacks in doing business in the country. ”

Davarekhanash Dangor, a former official in Nepal's energy sector, said in an interview with BBC Nepalese News that India's policies meant the country was "trying to control Chinese investment into Nepal". When Gore stressed, "under any circumstances, the Indian side hopes that Chinese will not exert influence in Nepal's water resources sector, and the project should be under their control."

However, some Nepalese experts believe that India's investment in Nepal's hydropower is still insufficient. India is currently investing in seven hydropower projects in Nepal, with an estimated total generating capacity of 3,491 MW. Some of these projects have obtained survey permits, some have obtained construction permits, and some are under construction. For example, the Arun-III hydropower project under construction by India's state-owned construction company SJVN is expected to generate 900 MW after completion. The project is scheduled to start generating electricity in 2024, SJVN will have the right to operate for 25 years after the generation, and Nepal will receive 21.9% of the electricity free of charge.

"Cross-border grid interconnection between China and Nepal is crucial"

India's policy has had a certain impact on the participation of Chinese-funded enterprises in Nepal's hydropower development. According to the Kathmandu Post, in April this year, the Nepal Independent Power Producers Association held the eighth Nepal Energy Summit, and "Chinese companies did not show much interest." Ganesh Kaki, vice president of the association, said: "We have extended invitations to foreign companies, including Chinese companies, through diplomatic missions, but no Chinese companies and their representatives have confirmed their participation. Reports show that the summit is also partnered by the United States Agency for International Development (USAID), the Indian Embassy in Nepal and other institutions.

Luo Shan, editor-in-chief of Nepal's news website "Kathmandu Pati", told the Global Times that in the face of the power access policy of the Indian power market, it is very important to build cross-border power grid interconnection between China and Nepal. According to him, apart from the completion of some hydropower projects aided by India and built by Nepal, none of the Nepalese hydropower projects directly invested by Indian companies have been completed so far.

The interconnection of China-Nepal power grid is a new hope for the development of Nepal's hydropower industry. In March 2016, the Chinese and Nepalese governments issued a joint statement: they agreed to establish a dialogue mechanism on energy cooperation to better carry out long-term cooperation planning, including in the field of cross-border power grids; Nepal hopes that China will build cross-border power transmission and transformation projects, and requests China to make the project a priority project. In June 2018, the two sides signed the "China-Nepal Power Interconnection Research Cooperation Agreement", marking that the China-Nepal power interconnection project has entered the engineering feasibility stage. In December 2019, after joint investigation and design by experts from China and Nepal, the plan for building a power grid interconnection connecting Resowa in Nepal and the port of Kerung in China was determined. In January, the person in charge of the China-Nepal cross-border power grid interconnection project told local media that "the project is crucial to attract Chinese investment in Nepal's hydropower industry to sell electricity to China, and this 70-kilometer project that can carry 5,000 megawatts of electricity transmission will open the door to electricity trade between Nepal and China." On February 24, the Nepal Electricity Authority announced the completion of the live test of the Nepal-China Power Grid Interconnection Project in Nepal.

In February this year, at the energy investment promotion conference held by the Nepalese Embassy in China, Nepal's ambassador to China, Bishnu Schrestha, said that Nepal plans to "graduate" from the ranks of least developed countries in 2026 and become a middle-income country by 2030. The Nigerian government has developed various policies to attract foreign investment, including from China, into the country's "industries with great development potential". For example, Shrestha said that Nepal is rich in water resources, but it is underdeveloped, and it is urgent to release the potential of water resources to promote the country's economic development and improve people's living standards. He said that the shortage of funds has always been the main reason restricting the development of Nepal's energy industry. Nepal has made renewable energy a priority for development, and the investment environment is very friendly.

On March 16, the Nepal Silk Road Friends Club held a forum in Kathmandu on the "10th Anniversary of the Belt and Road Initiative – Nepal's Experience". Chinese Ambassador to Nepal Chen Song said in his speech that the "Belt and Road" is a chorus of partner countries, not China's solo song. China welcomes enterprises from all countries to cooperate in an open and transparent manner in accordance with market rules and the principle of fairness, so as to achieve shared benefits and risks. China has been the largest source of foreign investment in Nepal for seven consecutive years, and Chinese investment has created more than 100,000 jobs for Nepal.

Laxman Biyugi, editor of an energy magazine in Nepal, told the Global Times special reporter: "Sharing technology and knowledge, creating a win-win investment atmosphere, and strengthening reliable transmission network connections are crucial to bilateral energy cooperation between Nepal and China." Nepal needs Chinese investment not only in the hydropower industry, but also in renewable energy including solar and wind energy, and there is a lot of room for cooperation between China and Nepal in reducing carbon emissions. ”