Can India’s attempts to squeeze Chinese investment in Nepal’s energy sector succeed?

Can India’s attempts to squeeze Chinese investment in Nepal’s energy sector succeed?


Can India’s attempts to squeeze Chinese investment in Nepal’s energy sector succeed?

An aerial photo of the dam of the upper Tamakoshi hydroelectric project in Nepal

With Nepal’s Prime Minister Pushpa Kamal Dahal concluding his recent visit to India, India’s involvement in Nepal’s energy sector has further increased, as the two sides reportedly signed seven agreements to boost cooperation in areas including trade and energy. Indian Prime Minister Narendra Modi announced plans for an increase in the import of power from Nepal to India to 10,000 MW within the next 10 years.

India’s effort in Nepal’s energy sector is widely seen as an effort to help Nepal’s economic lifeline and at the same time improve the availability of electricity to Uttar Pradesh and Bihar.

Experts said that India is seeking to re-establish friendly relationship in South Asia through various means, including using Nepal’s electricity Development.

A great contribution

Nepal, a landlocked mountainous country in South Asia, borders China on the north and India on the other three sides. Nepal is rich in hydropower resources, and its hydropower reserves account for about 2.3 percent of the world’s total hydropower reserves. In the past decade, with the participation of Indian enterprises, Nepal is moving toward becoming “a net exporter of power.”

About 10 years ago, Nepal had very limited power supply. In 2019, there were sometimes two power outages in one day, and the local people were not surprised by the blackouts.

Nowadays the power generation and supply situation in Nepal has been greatly improved, and the country aims to enable secure access to electricity for all its people by 2024.

Even a fewcChinese companies have made some contributions in this improvement of local electricity supply in the past 10 years. These include the Upper Marsyangdi hydropower station which began operation in September 2016, The power station meets some of the power requirement of Kathmandu and the tourist city of Pokhara.

In March last year, the Chinese-built Upper Tamakoshi Hydroelectric Project, was fully put into operation. It has been reported that the total installed capacity of the project will reach 456 MW.

However, due to the distinct dry and wet seasons, if the country wants to build enough hydropower plants to meet its domestic demand during the dry season, it will inevitably generate excess electricity in the wet season. The electricity can be wasted if there are no exports to India, which in turn will discourage enthusiasm for investment in hydropower projects in Nepal.

In order to avoid waste of excess power, Nepal needs to find overseas markets. Its key target markets in South Asian are India and Bangladesh. Currently, India buys from Nepal 452.6 MW of electricity generated by 10 hydropower projects for the Indian power market. As for the electricity trade between Nepal and Bangladesh, India has been helping in establishing a grid.

 In April 2021, the Nepal Electricity Authority (NEA) was approved by India to enter its electricity trading market. In November 2021, the Central Electricity Authority of India agreed to buy electricity produced by two hydropower projects in Nepal, both developed by India. Since then, Nepal started to sell excess electricity to India during wet season, and import electricity from India during dry season.

In 2022, Nepal earned approximately 12 billion rupees (about $91 million) from exporting electricity to India, according to Suresh Bhattarai, spokesperson for the NEA.

Nepal’s energy authority said that the country, unlike in past years, will have more exports than the imports, which means it will be a net exporter of power in terms of both volume of energy and earnings.

India struck an electricity buying deal with Nepal in 2014, However Indian companies cannot buy hydropower produced by Chinese-funded or Chinese-built plants. This has helped in persuading Kathmandu to tie up with New Delhi for its future hydropower sector projects. China has been thus thoroughly checkmated.

Since India’s power purchasing shift, Nepal has removed Chinese developers from six hydropower projects and given four hydro contracts to Indian companies, the Reuters report cited an official from Nepal’s water resources and irrigation ministry as saying.

Chinese-invested electric power capacity in Nepal is being used only fir internal consumption. This has dealt a blow to and discouraged further investment cooperation between Chinese enterprises and Nepal.

The head of a large Chinese enterprise involved in investment in Nepal’s hydroelectric projects are now crying loudly.

The Indian government is very sensitive to water and power station projects in Nepal that are invested in, financed, or contracted by Chinese enterprises, and the Indian government is gradually increasing its investment in hydropower stations in Nepal. China hS thus been prevented from taking control of Neoal’s Power Sector.

Chinese companies reportedly had shown little interest in participating in the Power Summit on April 18 and 19, 2023 in Kathmandu, the Kathmandu Post reported citing the event’s organizer. “We have sent invitations through diplomatic missions to foreign companies, including those in China. We have also invited individual companies,” said Ganesh Karki, vice-president of organizer. “But no Chinese company nor their representatives have confirmed their participation.”

“The policy change is also reflected in changes in China-India relations. The confrontation between China and India in Doklam in 2017 was an important moment when the relations turned cold,” Sun Xihui, an associate research fellow with the National Institute of International Strategy at the Chinese Academy of Social Sciences.

The non solving of border issue between Tibet and India and occupation of Indian territory in Ladhak by China is an important factor leading to the of India now standing upto China.

India will surely dissuade Chinese investments coming to Nepal, Dwarikanath Dhungel, former secretary of the Ministry of Water Resources of Nepal, told the BBC in a report on May 30. He said that India wants the Chinese not to have influence in the water resources sector in Nepal and that the projects should be with help of India.

A visiting fellow of India’s Observer Research Foundation discussed the issue in an article titled “India putting China on its backfoot in Nepal” in April. “Apart from increasing its engagement with Nepal, India is silently trying to check China’s growing influence in Nepal through economic diplomacy,” the article said.

The China-Nepal cross-border power grid has hardly seen any progress.  In January, the Nepalese project director of the China-Nepal cross-border power grid interconnection project told the local media that the project is crucial for attracting Chinese investment in Nepal’s hydropower industry and selling electricity to China.

The 70-kilometer project that can carry 5,00 MW of electricity across the border will open the door to electricity trade between the two countries. However this will be just a drop in the Ocean.

Nepal has abundant water resources, but the development is insufficient, and the potential of water resources needs to be released urgently to promote national economic development and improve people’s living standards.