The Kathmandu Valley has been enjoying uninterrupted power supply for about a month now after the new executive director of the Nepal Electricity Authority (NEA) Kulman Ghising ended load shedding. Residents have heaped praise on Ghising and Energy Minister Janardan Sharma despite the fact that an increase in power cuts elsewhere in the country, more than their efficient management, is what has made it possible.

Minister Sharma, enthused by all the laurels and perhaps completely oblivious to the demand-supply dynamics of the electricity trade, has chosen to indulge in blatant bluff and aggressive populism. He has promised to free the entire country of load shedding besides trading power with Bangladesh. Last week, he organised Power Summit 2016 which, due to lack of proper planning, was a fiasco. The theme of the conference ‘10,000 Megawatts (MW) in 10 years’ is a refrain that the Nepali people have been hearing for the last 10 years. Even without this summit, the 10,000 MW goal looks like an easy target if the natural progression in investment and project development is unimpeded by political, policy and institutional hindrances.

Cross-border connections

Nepal’s installed electricity generation capacity barely exceeds 800 MW, and actual production during the November-May dry season is 450 MW. On the other hand, the country’s requirement amounts to 1,300 MW year-round. The Kathmandu Valley alone needs 250 MW. A highly optimistic scenario shows that Nepal may add another 500 MW to the national grid in three years and another 1,000 MW in five years. It is apparent from these figures that the Sharma and Ghising duo’s load shedding-free project is heavily contingent on India’s willingness to supply electricity to Nepal for at least the next five years.

India has been fairly generous in energy cooperation with Nepal. Both Sharma and Ghising have visited India to request the southern neighbour to increase electricity exports, enhance the transmission capacity and provide more cross-border connecting points. In response, India has installed extra transformers in Muzaffarpur so that an additional 80-100 MW can be transmitted by December-end. Two other cross-border connections, Raxaul-Parwanipur and Kataiya-Kushwahaare, are about to be completed. The possibility of supplying power through Tanakpur in the west is being explored. Nepal is all set to import 300 MW of electricity from India soon.

Ghising and Sharma deserve credit for their management acumen and courage in freeing the Kathmandu Valley of power cuts. At the same time, however, they deserve criticism for extra hype and unrealistic bluff. For example, trading electricity with Bangladesh is a Nepal-India-Bangladesh trilateral issue. Clearly, it is impossible to construct a 30-km transmission line on Indian territory to reach Bangladesh without Indian consent, cooperation and participation.

On December 5, India released its Guidelines on Cross-Border Trade of Electricity, which contains its policy for purchasing power from neighbouring countries. This indeed is a breakthrough for countries like Nepal. So far, India has been trading electricity with Nepal, Bhutan and Bangladesh under bilateral pacts or power trade agreements (PTAs). These new guidelines can be a basis for trading power across the South Asian region. Since the policy has been developed by India, it is no surprise that it contains provisions to protect Indian trade interests.

Unfounded apprehension

Cooperation between Nepal and India has always been a politically sensitive issue, and it often becomes an over-pitched political tool. The guidelines, too, have received some criticism in the Nepali media and intelligentsia. The main criticism is related to the conditions under which India will import power. India will only buy power from companies which have a minimum of 51 percent Indian public or private sector equity, companies entirely owned by the government of a neighbouring country or power trading companies with at least a 51 percent Indian stake. It will also buy surplus power certified by the government of a neighbouring country.

There are ‘hegemony theorists’ in Nepal who see these proposals as a scheme to allow India to be selective in electricity imports or, plainly, a pretext not to import all our surplus power. Their concern is particularly based on the assumption that there may be significant Chinese investments in Nepal’s hydropower and the power generated may not have access to the Indian market. But that is a largely unfounded apprehension. As yet, there has been no large scale Chinese investment in Nepal’s hydropower sector. Even if it happens, it will be at least another decade before power is generated. By that time, the entire dynamics of domestic demand, geopolitics and trade regimes are sure to see a sea change.

The Indian guidelines are also not as draconian as have been portrayed in some quarters. First, this is a generic framework for all neighbouring countries and not solely targeted at Nepal. Second, it is not like a treaty, so there will naturally be trade-offs. Third, given the heavy involvement of state-owned NEA in power production and trade and the substantial foreign direct investment from India, there will be no problem for Nepal to export power even under these conditions. Fourth, the guidelines have failed to consider the fact that any substantial amount of electricity cannot be traded until it is transmitted through the respective national grids; only the aggregate and export quantities should matter when actual trade takes place.

It is time for Nepal to streamline investment policies. A VAT rebate of Rs5 million per MW to developers is definitely a move in that direction. But there is a lot that needs to be done to enhance institutional efficiency. The current activities of the Ministry of Energy have rendered the Investment Board a redundant entity, and the board has retaliated by converting itself into a red tape maniac. The government should either take such a high profile entity on board when making related decisions or have the guts to dissolve it altogether. This is only one example among many ills in our system. Hydropower is a sector that requires huge investment, has a long gestation period and needs multi-agency cooperation and significant policy predictability. So, publicity stunts, immature overtures and political verbosity are no substitute to proper planning, meaningful economic diplomacy and long-term vision for healthy growth of the hydropower sector in Nepal.

Wagle, a founding editor of the economic daily Arthik Abhiyan, is an eco-political analyst