Nepal’s ambitious plan to export 10,000 megawatts (MW) of electricity to India over the next 10 years faces uncertainty as most major hydropower projects awarded to Indian companies remain stalled.
Nepal and India signed an agreement in January 2024 to facilitate electricity exports over the next decade. The deal is expected to generate substantial revenue for Nepal, reduce its trade deficit with India and support India’s efforts to decarbonise its power sector.
However, of the seven major hydropower projects awarded to Indian government-owned and private companies, with a combined capacity of around 4,700 MW, only the 900MW Arun-III project is currently under construction.
The delays have raised concerns about Nepal’s ability to meet its electricity export ambitions within the agreed timeframe and generate the expected revenue.
Former energy secretary Anup Upadhyay says the delays cannot be blamed entirely on developers, as government agencies have also failed to complete necessary decisions and administrative procedures on time.
Major projects face prolonged delays
Indian companies have secured several major hydropower projects in Nepal, including the Arun-III, Arun-IV, Lower Arun, Upper Karnali, West Seti, Seti River-6 and Phukot Karnali projects.
Among them, the 900MW Arun-III project, developed by India’s state-owned SJVN, is the only one under construction. Construction began in 2018, but its completion deadline has been repeatedly extended. The project, initially scheduled to begin commercial production in April 2025, is now expected to be completed by March 2028.
So far, 77.5 percent of the power generation component and 60 percent of the transmission line component have been completed. The estimated project cost is Rs144 billion.
The 679MW Lower Arun project, also awarded to SJVN, has progressed further in terms of contractual arrangements. A project development agreement was signed in June 2023, and construction contracts for major components have been awarded. However, financial arrangements and construction procedures are still being advanced.
The 900MW Upper Karnali project, awarded to India’s GMR, has also faced years of delays, particularly over financial closure. The Investment Board Nepal recently accepted the company’s financial documents, including proposed loans from India’s IREDA and a consortium of Nepali banks, clearing the way for construction to proceed.
Meanwhile, the 800MW West Seti and 450MW Seti River-6 projects have been awarded to India’s state-owned NHPC. Although the company has submitted detailed project reports, negotiations for project development agreements are still underway.
The 480MW Phukot Karnali project, also awarded to NHPC, faces uncertainty following a Supreme Court directive to increase Nepal’s share of free electricity from the project.
Disputes over free electricity and financial viability
The share of free electricity Nepal should receive has emerged as a major issue affecting project development.
Under existing agreements, Nepal is entitled to receive 21.9 percent of the electricity generated by Arun-III, Arun-IV, West Seti and Seti River-6 free of cost. Similar provisions have been included in agreements for other projects.
However, NHPC has informed the government that providing free electricity from West Seti, Seti River-6 and Phukot Karnali could make the projects financially unviable. The company has requested viability gap funding from the government.
Former energy secretary Upadhyay says the government must consider the financial viability of projects while determining the share of free electricity. He also stresses that delays in government decisions need to be addressed.
Transmission infrastructure moves ahead
While hydropower construction remains slow, Nepal and India have made progress in developing cross-border transmission infrastructure.
Currently, electricity trade takes place through the 400kV Dhalkebar-Muzaffarpur transmission line, which has a capacity of 1,000MW, along with other 132kV lines.
The two countries have agreed to increase electricity export capacity through the under-construction 400kV Dhalkebar-Sitamarhi transmission line to 1,650MW.
The Nepal section of the Butwal-Gorakhpur transmission line is targeted for completion by August 2027, while its substation is expected to be completed by December 2027. The line will initially allow exports of up to 200MW and imports of up to 130MW.
The government is also advancing plans for the 400kV Inaruwa-New Purnea and Dododhara (New Lamki)-Bareilly cross-border transmission lines.
Questions over Nepal’s export ambitions
Indian companies developing these hydropower projects are also expected to find markets for the electricity they generate, making India the principal destination for their power.
However, the 2024 electricity export agreement does not specifically clarify whether electricity generated by these particular projects will be included.
Former energy secretary Chiranjibi Chataut says delays in major hydropower projects are linked to several factors, including investment challenges, uncertainty over electricity markets and administrative sluggishness.
Former energy minister Pampha Bhusal has also expressed concern over the slow progress of projects awarded to Indian companies, saying the government must question the reasons behind repeated delays.
Despite Nepal’s growing electricity generation and export potential, the slow progress of major Indian-backed projects could undermine its ambition to export 10,000MW within the next decade.
Kathmandupost