India’s geopolitical game hurts outlook for Nepal’s hydropower

While electricity trade between India and Nepal appears to give the former a commanding advantage against China in Nepal’s hydropower sector, there is also growing concern as to whether India’s geopolitical game of edging China out could jeopardize Nepal’s power projects and energy supply ambitions.

Due to a strategic policy change that India implemented in 2018, India has outpaced China in securing hydropower contracts in Nepal, BNN Breaking reported on Monday.

Media attention to the competition for influence in Nepal’s hydropower sector came a few days after Nepal and India reportedly signed a power trade agreement for Kathmandu to export 10,000 megawatts of hydroelectricity to India over the next 10 years, according to Reuters.

Since the hydropower sector in the Himalayan nation has been considered a crucial arena for geopolitical tussles between India and China, the development was touted by some Indian and Western media outlets as evidence of India’s growing influence in the region.

Objectively speaking, it is a welcome development that India and Nepal are moving toward strengthening their power trade, which is in the interests of both sides, but that doesn’t necessarily mean that Nepal’s development should fall victim to India’s geopolitical maneuvers.

Indeed, India’s power trade policy, which prohibits the purchase of electricity produced by projects invested by Chinese companies, has cast a shadow on the investment dynamics of Nepal’s energy infrastructure.

In 2018, India changed its electricity buying policy 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.” Although it didn’t explicitly mention China, hydropower produced by Chinese-funded or Chinese-built plants is actually excluded in power trade with Nepal. As a result, Nepal has removed Chinese developers from six hydropower projects and given four hydro contracts to Indian companies, Reuters reported in May 2023, citing an industrial official in Nepal.

Indian companies have contracts to build and operate 10 hydropower plants in Nepal, while Chinese developers have such contracts for five of them, according to media reports.

The reason why India’s power purchase policy can have such great influence on Nepal is because its power supply has undergone dramatic changes over the past decade, and its generation capacity is now enough to meet domestic needs.

This also means that Nepal needs to find overseas markets for its surplus electricity during the rainy season, with India and Bangladesh being the target markets. Because of its geographical location, even the power trade between Nepal and Bangladesh requires India’s participation.

But such trade needs should not be tools used to exclude other participants for geopolitical interests. It is nothing but narrow-minded for a regional power to be obsessed about the geopolitical significance of its neighbors while neglecting their development needs.

This approach won’t gain positive regional influence for India. Specifically, given the past and current situation of Indian companies’ hydropower projects in Nepal, it is questionable whether India has the ability to support Nepal’s hydroelectric development, which reportedly has the potential to produce 72,000 megawatts of hydroelectricity.

By comparison, Chinese companies’ contributions to Nepal’s hydropower development are evident. With the participation and support of Chinese companies, Nepal has turned into a net exporter of electricity.

China has not only invested in hydropower projects in Nepal, but it has also discussed a cross-border transmission line with Nepal, which may be a solution to Nepal’s export needs.

Still, it is our sincere hope that India can have a more open-minded attitude toward Chinese investment in Nepal. If geopolitics is set aside, it will find that there is cooperation space between China and India on this issue, which is beneficial for all parties in the region.

China has construction and technological advantages in hydropower projects, and Nepal’s hydropower development, if smooth, will benefit India and Bangladesh.

In addition to hydropower projects, China and Nepal also have cooperation involving other infrastructure projects, which are also beneficial for regional development, such as the China-Nepal railway that is intended to greatly improve connectivity in South Asia. It would be a pity if India only saw these developments as part of its geopolitical competition with China.

If India is really concerned about its influence in the region, it is advised to invest more and help Nepal and other regional countries with infrastructure development, promoting regional economic prosperity.

The development of South Asia now hinges to a large extent on whether India can adopt a cooperative attitude in the face of the regional needs. This is also the common wish of many countries in the region.

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