Context

• The National Hydro Electric Power Corporation of India (NHPC) recently signed an MoU with Investment Board Nepal (IBN) to develop 750 MW West Seti and 450 MW Seti River (SR6) Hydroelectric Projects in western Nepal (a total of 1,200 MW).
• The projects have been awarded to India nearly 4 years after China withdrew from these.
• The article discusses the offerings to India with regards to the India- Nepal cooperation, shared concerns, common interests and options and alternatives available for collaboration.

Background

• Announcement: The development comes after Nepal and India in early 2022 issued a Joint Vision Statement on Energy, which talks about expanding mutually beneficial bilateral cooperation in the power sector including joint development of power generation projects in Nepal.
  • It also entails development of cross-border transmission infrastructure
  • Bi-directional power trade with access to electricity markets in both countries
  • Coordinated operation of national grids
  • Institutional cooperation in sharing latest operational information, technology and know-how.
• About latest MoU: The total cost of these projects is expected to be around $2.4 billion. The NHPC has initiated a preliminary engagement of the site with an investment of over ₹18,000 crore and has also signed an MoU with the Power Trading Corporation Limited, India for sale of power.
• Significance: The signing of the MoU will pave the way for the NHPC to carry out the project study, hydrological study in two rivers, geo-technical survey, and drilling work among other things before starting the construction work.
• Earlier projects: India is already involved in the Mahakali Treaty (6,480 MW), the Upper Karnali Project (900 MW) and the Arun Three projects (900 MW) in western and eastern Nepal, respectively.
• Concerns: While awarding the West Seti and SR-2 projects to the NHPC Limited, some leaders in Nepal had raised concerns that the government did not opt for a competitive bidding process.
  • But the government remarked that since West Seti is a national priority project, it needs to be expedited and the contract can also be awarded through negotiations.

Many hurdles

• Conception: Historically, the 750MW West Seti Hydroelectric Project was thought of in the early 1980s as a 37 MW run-of-the-river
• Early License: Nepal issued the developing license to French company, which prepared a pre-feasibility study in 1987 proposing the scheme without building a dam.
• Project transfer: With the project failing to see the light of the day, an Australian Corporation acquired a majority stake in the early 1990s but attempts to make progress were affected due to investment and environmental concerns.
• In Chinese hands: Consequently, the China stepped in 2009, with Australian Corporation holding a majority stake. However, Chinese Corporation withdrew citing a poor investment environment.
  • In 2011, Nepal revoked the licence of the West Seti Hydropower Company Limited in which Australian Corporation had a majority stake, and handed it over to China, but Chinese corporation again withdrew in 2018, citing issues of resettlement and rehabilitation.
  • Nepal was thus left in a fix after two Chinese companies withdrew from the projects, after signing the MoUs with the government.
• Rallying domestic supplies: Subsequently, Nepal tried to develop the project by mobilising internal resources. However, increased costs resulted in further delays.
  • Meanwhile, the project was remodelled as the West Seti and Seti River (SR6) joint storage project (1,200 MW).

Reinvigorating ties

• Renewed optimism: The decision to involve India is a sign that Nepal is reposing its faith in India to complete the project. If completed, it is expected to provide India the much-needed leverage in future hydropower cooperation.
• Critical relevance: These hydropower projects will help India minimise the geopolitical influence of China and firm its presence in Nepal, considering that the West Seti Hydroelectric Project was a major Chinese venture under the Belt and Road Initiative.
  • The project has the potential to enhance cross-border power exchanges between the two countries.
• Address Nepal crises: Despite its huge hydropower potential, Nepal experiences power shortages during peak time, increasing its dependence on India to bridge the shortfall.
  • With an estimated potential of 83,000 MW, Nepal’s electricity exports to India are expected to increase foreign exchange and address the power shortage.
  • It is estimated that if the hydropower potential is fully harnessed, Nepal can generate revenue to the tune of ₹310 billion in 2030 and ₹1,069 billion per year in 2045 by exporting electricity to India.
• Address India’s growing energy demand: Similarly, India’s severe deficit in coal-based thermal power plants in recent years, which meet 70% of India’s electricity demand, has compelled the Government to arrange supplies through coal imports, accelerating the search for better alternatives.
  • Given the growing energy demand, the West Seti Hydroelectric Project can provide an added alternative and viable way to address power deficits.

Way forward

• For the project to be successfully completed, options and alternatives need to be explored as follows:
• Expedite project: Since investment-related constraints have already delayed the project, there needs a careful study of investment scenarios, particularly a conducive investment environment, distribution and transmission network and cost of resettlement and rehabilitation, at the preliminary stage.
• Revamped distribution share: To address Nepal concerns that electricity rates and supply from India may be inadequate to meet the rising demands, the new MoU has already revised the percentage share from 10% to 21.9%  of energy that Nepal will receive free of cost from the generation projects
  • Address domestic demand: The MoU allows Nepal to request the NHPC to sell the power generated from the projects to the domestic market before selling whole or part to the export market.
• Augmenting ties: The project can also be extended to other regional partners under the Bangladesh-Bhutan-India-Nepal (BBIN) framework for cross-border energy cooperation.
  • For example, if the combined estimated hydropower potential in Nepal and Bhutan, along with the potential of Northeast India, is effectively harnessed, a cross-border energy market can be created and optimally operationalised. It will be a win-win at the bilateral and regional levels.