Potential Power Pact: Nepal and India Poised to Seal Long-Term Energy Trade Deal This Month

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The two sides are expected to ink the deal in the next Joint Steering Committee meeting

Nepal and India are likely to sign the long-term power trade agreement initiated during Prime Minister Pushpa Kamal Dahal’s May-June visit to New Delhi within this month, a senior official at the Ministry of Energy, Water Resources and Irrigation said.

Once signed, the 25-year agreement is expected to pave the way for trading of power under medium- and long-term power sales agreements between the two sides. Indian Prime Minister Narendra Modi had announced during a joint press meet with Dahal on June 2 that the southern neighbour would buy 10,000MW of electricity in 10 years from Nepal under the long-term power trade agreement.

Officials at the time said the agreement could not officially be signed during Dahal’s Delhi visit because the Indian Cabinet had yet to endorse the agreement. But Energy Secretary Dinesh Ghimire told the Post in early September that the southern neighbour’s cabinet had endorsed it, paving the way for Indian authority to sign the deal.

“We have discussed with the Indian side to sign the agreement formally during the next secretary-level Joint Steering Committee meeting,” Ghimire told the Post on Wednesday. “The date has not been fixed for the next meeting. There has been an understanding between two sides to hold the meeting right after the Tihar festival.”

Tihar, the festival that is also known as Deepawali and is celebrated both in Nepal and India, ends in mid-November.

The last 10th meeting of the Joint Steering Committee was held in Jaipur, India in February. “The long-term agreement is ready to be signed,” Ghimire said. “Besides other issues, signing of this agreement will be the top agenda of the next meeting of the Joint Steering Committee to be held in Nepal.”

Nepali officials said the agreement, once signed, opens the door for the signing of a power purchase agreement (PPA) for five years or more within the framework of the 25-year umbrella agreement. There is also a provision for the renewal of the agreement. After 25 years, it will be renewed every 10 years automatically, they said.

According to the officials, the signing of the agreement would be important to ensure long-term guarantee of the market that is essential to create an environment to attract more investments in Nepal’s power sector.

As Nepal has a limited market, it aims to sell its electricity in India and beyond to maximise its economic potential.

Currently, India allows Nepal to sell 632MW of electricity in its market. As much as 522MW has been cleared for sale in India’s exchange market—both day-ahead and real-time markets. But Delhi has allowed to sell only 110MW of electricity under a relatively longer-term deal.

Under a five-year agreement, the NEA has been selling 110MW of power to the NTPC Vidyut Vyapar Nigam Limited, India’s nodal agency for bilateral electricity trade with its neighbours, and the electricity is being sold in India’s Haryana state, according to the Nepal Electricity Authority (NEA).

According to officials, the initialled agreement has stated that it will encourage mutually beneficial investments in the transmission and generation of hydropower. Some people are interpreting this provision to be that the southern neighbour will only to buy power from projects with Indian investments. But Ghimire said that the agreement does not bar export of power generated by the projects developed by Nepali and foreign investors.

But Delhi’s rule bars the export of power generated by projects with involvement of Chinese and Pakistani involvement in Nepal.

It has been exactly two years since the southern neighbour started buying Nepal’s power. In early November 2021, India had first opened the door for Nepal’s power to its vast market by allowing it to export 39MW from two projects. It has been gradually increasing the quantum of power that Nepal can export to the Indian market.

Source: Kathmandu Post