Nepal’s Dilemma Between China and India Hinders Investment in Energy Projects

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Just as Nepal prepares to showcase business opportunities at the Nepal Investment Summit 2024 this week, the government seems to be doing its utmost to dissuade international stakeholders.

A combination of red tape, corruption and geopolitics is sending the wrong message at the wrong time to potential investors, industry sources say.

Several Chinese companies that had been waiting to develop energy projects in Nepal have been left hanging in limbo due to geopolitical pressure. The Chinese company Risen Energy was ready to sign a project development agreement (PDA) for Nepal’s biggest solar electricity plant at the Summit this week, but the $190 million project is on hold for unspecified reasons.

The Investment Board Nepal (IBN) which is organising the Summit was itself involved in negotiations with Risen’s subsidiary, Risen Energy Singapore JV for the grid connected photovoltaic generation system.

The board’s spokesperson Pradyumna Upadhyay said the agreement was delayed because “final preparations are not complete, and negotiations are ongoing”. But sources in the government revealed there was pressure from India not to go ahead with the agreement because the two solar array sites were close to the southern border.

Risen’s proposal was to install two 125MW solar generation plants in Banke and Kapilvastu districts in the Tarai. The installation would store 20MW each of daytime generation to be transmitted during the morning and evening peak hours.

“The main reason it is stuck is because of Indian objections about a Chinese project so close to the Indian border,” the source told Nepali Times.

The CEO of IBN Sushil Bhatta and Wang Qiyang of Risen Energy Singapore JV signed an agreement three years ago to carry out a detailed feasibility study report, which was delayed due to the pandemic. The Department of Electricity Development had even issued a survey license.

Under the agreement, the entire capital investment for the project would have been from Risen which is registered as a public limited company at the Shenzhen Stock Market.

The company makes its own photovoltaic panels which is what made the project feasible. And Risen was the main contractor in the Nepal Electricity Authority’s 25MW solar generation plant in Devighat of Nuwakot which is already in operation.

Indeed, despite being a Chinese company, Risen in 2020 completed a 110MW solar electricity generation system in India and other investments in Mexico and Kazakhstan. It is also a global supplier of solar energy components.

To be sure, both of Nepal’s giant neighbours have geopolitical sensitivities about water and energy projects in Nepal. In 2018, IBN had given a go-ahead to the European company Dolma Fund Management to survey a 150MW solar electricity generation project in Mustang near the Chinese border.

Dolma completed its preparations and was ready to launch when Industry Minister Matrika Yadav wrote to IBN to cancel the Dolma agreement. The minister was said at the time to have acted on Chinese pressure.

“It is not easy to push foreign investment in Nepal there are many hurdles to cross,” says Risen’s assistant manager in Nepal Dixita Shahi. “Negotiations are going on, and the project will move ahead in future.”

This is not the first time that a Chinese investor in the energy sector has faced problems in Nepal. IBN had signed up with a Chinese contractor to build the 762MW Tamor Project in eastern Nepal that was agreed on during president Xi Jinping’s visit to Nepal in 2019.

By the government pulled out of the export-oriented project because India has said it will not buy power from projects in which the Chinese are involved. Tamor is now likely going to India’s state-owned Satluj Jal Vidyut Nigam, which is building a series of plants on the adjoining Arun River that will generate a total of 2,000MW.

Indeed, Indian companies are currently involved in building six hydropower projects worth nearly 5,000MW on the Arun, Seti and Karnali basins. Not only is India pressuring Nepal to cancel projects with Chinese investment, it is not buying electricity from existing plants that have Chinese involvement.

For example, even though the 460MW Upper Tama Kosi project was built with Nepal’s own investment, India will not buy power sourced from it because Chinese contractors were involved in the construction.

Although Nepal’s power generation is pooled in the grid, India is buying only 690MW of power that it regards as ‘China-free’. Nepal’s agreement to export only 50MW of power to Bangladesh is also stuck because it would have to use Indian transmission lines.

 

Source: Nepali Times – Ramesh Kumar