India will not buy Nepal’s surplus electricity produced by hydropower projects having Chinese components or built by Chinese contractors, Indian authorities have reportedly conveyed to Nepal, days after the industry players from the two nations signed a landmark agreement for power trading.

Nepal became energy surplus last year, with a total installed capacity of 2000 MW while the domestic demand remains at around 1500MW. The Himalayan country, which still has huge hydropower potential, yet to be utilized, has built energy projects with the assistance of both China and India. [Read More]

Currently, only the Nepal government is allowed to sell electricity in India’s power exchange market that too from a few power projects.

Earlier this month, Nepal Power Exchange Limited, a private sector-owned power trading company, and India’s Manikaran Power Limited signed a memorandum of understanding on energy trading to facilitate bilateral power trading by private players.

However, according to a report in The Kathmandu Post, New Delhi has conveyed to private energy sector players in Nepal that they would be allowed to sell electricity only from those hydropower plants which don’t have Chinese components.

“The Indian side has been flatly telling us that they won’t buy electricity from projects with Chinese investment and even projects built by Chinese contractors,” an office-bearer of the Independent Power Producers Association of Nepal (IPPAN) was quoted as saying by The Kathmandu Post.

For New Delhi, the move is a part of a measure to check any indirect advantage that the Chinese could derive from Indian market access to the Nepalese. To sell electricity in the Indian market, the Nepalese need to make sure that power plants are not built by Chinese contractors or don’t have Chinese investment.

“We have discussed the matter with officials of the Indian embassy and the Central Electricity Board of India and they made it very clear that they are unlikely to buy electricity from projects with Chinese investment,” the IPPAN office-bearer said.

As per the recent agreement signed between the Indian company and Nepal Power Exchange Limited, the former has pledged to acquire a 15 percent stake in the latter and also agreed to purchase 500 MW electricity from it.

For Nepal, which has a huge trade deficit— roughly $5.9 billion—with India, its hydropower sector is of extreme importance. It is the only viable means to bridge the large trade deficit in the total bilateral trade of over $6.8 billion. However, for Nepal to achieve this, it needs to have a prior, long-term understanding with India regarding its power projects as India and Bangladesh (in the latter's case transmission lines will have to pass through India) are the only markets where it could sell power.

(SAM)