The Nepal Electricity Authority will hold talks with the Central Electricity Authority of India in New Delhi this week in a fresh attempt to finalise the terms of the agreement on the proposed New Butwal-Gorakhpur Cross-Border Transmission Line Project.

The move comes nearly five months after the sixth secretary-level meeting between the two countries in January decided to examine the funding and implementation modality of the planned power line.

The construction of the 135-km-long 400 kV transmission line will allow the power utility to export electricity procured at a lower rate during the rainy season when output swells due to high water levels in the rivers, and import power during the dry season when output drops. But a deal is unlikely to be reached soon due to uncertainties over its commercial viability and issues pertaining to risk management and grid harmonisation.

“Nepali and Indian utility officials will only try to find ways to address the issues during the planned talks, and propose a deal to high-level officials,” said Prabin Raj Aryal, spokesperson for the Energy Ministry. “After the high-level mechanism between the two countries finds a commercially viable way to build the project, it will go into implementation.”

But after the seventh secretary-level meeting initially slated to be held at Bengaluru in June was postponed owing to the recent Indian elections, no date has been fixed for the joint mechanism needed to strike a deal on the transmission line.

Earlier, officials from the two countries had reached a broad agreement that the portion of the transmission line passing through Indian territory would be built by a commercial entity, after India rejected Nepal’s proposal to develop the line under a government to government financial model.

Around 120 km out of the Butwal-Gorakhpur Transmission Line's 135-km length lies in Indian territory. The proposed entity will be a joint venture between Indian and Nepali entities with an equal portion of grants and interest-free loans from the respective governments. An agreement on the proposed investment modality is yet to be reached because of questions over the commercial viability of the arrangement.

After failed attempts to convince India to agree on a government to government model, the state-owned power utility will propose developing the cross-border line under a company of the same type operating the Muzaffarpur-Dhalkebar power line, according to an official close to the situation. But the Nepal Electricity Authority will have a greater share in the company.

“The Butwal-Gorakhpur Transmission Line can act as a suitable channel to fulfil the seasonal complementaries of demand and supply as Nepal relies heavily on run-of-the-river projects whose output peaks during the monsoon when India’s farm sector sees a surge in power demand,” the anonymous official said. “And Nepal can also import energy through this line during the dry season when the plants run at less than 50 percent of their capacity.”

The proposed power line project is a major component of the $630 million Electricity Transmission Project and Road Maintenance Project funded by Millennium Challenge Corporation of the US under a Nepal-US compact; and if a deal cannot be reached, the compact will become ineffective as this is a prerequisite for Nepal to receive the funds.

Lack of an agreement will also limit the options for power trade with India, particularly deferring the export of surplus energy which Nepal is poised to produce in the upcoming year. With this in mind, the government has prioritised the initiation of the project in the 2019-20 budget.

The Energy Ministry has accorded the project high priority as the Electricity Transmission Project will result in efficient distribution of imported power to high energy consuming cities like Bhairahawa, Butwal, Pokhara and Narayangadh. Also, the lines can be used to evacuate energy produced in the Kali Gandaki, Marshyangdi and Trishuli corridors where there is a high concentration of power schemes.

As per a report by the National Renewable Energy Laboratory’s Strategic Energy Analysis Centre of the US, Butwal is a strategic location for cross-border energy trade between India and Nepal because of its proximity and ability to connect with India’s Uttar Pradesh state and the Northern Regional Load Despatch Centre via Gorakhpur where power demand is high during the monsoon.

“Market fundamentals and longer-term trends appear to favour connections to the Northern Regional Load Dispatch Centre region, which tends to be a net importer of electricity. Upgrading the Butwal-Gorakhpur path is consistent with this likely value proposition,” the report states.

In May, Millennium Challenge Account-Nepal, an agency of the Nepal government formed to manage the Nepal-US compact, requested prospective contractors to come forward and share information on the 400 kV transmission line and construction standards and modalities as the first step in implementing the US-funded Electricity Transmission Project and Road Maintenance Project.