Nepal-India Cooperation in Hydropower Development in Nepal

On the eve of the visit of Indian Foreign Minister Sushma Swaraj to Nepal for making an arrangement for the visit of Indian Prime Minister Narendra Modi, the leaked Draft proposal titled "Cooperation in Power Sector with India" has shadowed the publicity of the visit of the Indian dignitaries. Most of the media publicity has been negative to the draft proposal. Some experts wondered why India needed a fresh agreement on hydropower when India could implement so many power projects following the previous agreements. Some of the agreements have been three-decade old but nothing has been done so far.

Historically, the government of India headed by Jawaharlal Nehru had signed and implemented two major lopsided water resources projects causing immense loss to Nepal while all benefits went to India in 1950s. At that time, Nepal had only two-percent literacy; the country had been just liberated from the century-old despotic administration of the Rana prime ministers. The power struggle among the political leaders, the monarch, and the remains of the Rana rulers had gripped the country. So, the media and the people in general except for the leftists had not rose up against the water resources deals with India. Consequently, Jawaharlal Nehru placed the dam on the huge Koshi River just on the border between Nepal and India. Most of the agricultural land ended up being under water in Nepal while irrigating most of the land in the Bihar state of India. Similarly, Jawaharlal Nehru took the advantage of the weak newly liberated Nepal for diverting the water from another huge Gandak River to India. Unfortunately, one of the rising world statesmen Jawaharlal Nehru did not feel shame on manipulating a tiny country like Nepal for the advantage of his huge country.

Today, majority of Nepalis are educated. They have the global connections. They could make voices against any disadvantage of the agreements the government of Nepal was going to sign off with India or any other countries. Today is the 21st century but the Indians have been dreaming of doing the similar things as of India did in 1950s submitting the lopsided proposal for the hydropower development.

According to some experts that had gained an access to the proposed draft proposal titled "Cooperation in Power Sector with India" submitted by the Indian authorities to the Nepalese authority apparently for signing off by Prime Minister Narendra Modi with the Nepalese prime minister during the Modi’s visit to Nepal, India would make Nepal a backyard for producing hydropower if the proposed agreement were to sign off. Some experts said it would make Nepal another Sikkim that became one of the Indian states in 1972. However, it was not a correct conclusion. Nepal could be another Bhutan concerning the hydropower development. India would build hydropower stations, generate power, and buy it at the rates India wanted. Consequently, Bhutan had a little benefit of its hydropower but India took a huge bite of it. So, it was no wonder that the Indian diplomat in Kathmandu proposed a regional power grid linking Nepal, Bhutan and India. It was a nice dream of Indian authorities, as India could tap the hydropower without interruption from both Bhutan and Nepal if the power grid were to materialize.

India blocked the attempt of foreign companies interested in generating hydropower in Nepal and selling it to India and other adjoining countries in 1990s when hydropower development was the fashionable topic to talk about. India offered a price for buying power many times lower than the cost of production. India also blocked any attempt on taking power from Nepal to Bangladesh and Pakistan. So, foreign companies could not dare to invest in the hydropower projects in Nepal.

India wanted to be a single market for the Nepalese hydropower. Nepalese authorities needed to think about this attitude of the Indian authorities. The draft proposal for an agreement on developing power in Nepal indicated that India had replaced the old regime with the new one but the mindset of the authorities had not changed. It remained as old as of the 1950s even though we were in the 21st century.

In this circumstance, what Nepal had the choice of doing business in the hydropower sector? Nepal needed to build a powerful team of matured negotiators including the experts in power sector, and sit with the Indian team for negotiation. Nepalese team needed to give the strong impression that they were the good negotiators. They needed to negotiate with India so that both the parties would benefit from the hydropower development in Nepal.

As the Indian diplomat in Kathmandu had said that the draft proposal for an agreement on power projects in Nepal was for the win-win situation for both the parties. The win-win situation for Nepal means good advantage to India if we were to believe in what the Indian diplomat said publicly. However, he would be correct if Nepal could sell the power to India at the market price. Former minister Dr Prakash Chandra Lohani had advocated for it in the recent article published on myrepublica.com, July 23, 2014. And Nepal would have an access to the Bangladeshi and Pakistani markets for selling power through the Indian Territory. It would be possible only when India would give Nepal an access to other countries’ markets for selling its surplus power following the international convention.

Minister for Energy Radha Kumari Gyawali said that she would not signed off the agreement without the consent of other political parties. She had successfully kept the draft top secret for three months. The Indian diplomat had directly submitted the draft proposal to the energy minister ignoring the diplomatic protocol of the need for going through the Ministry of Foreign Affairs. The Nepalese minister could not dare to say to the Indian diplomat to pass the draft proposal through the foreign ministry following the diplomatic protocol. So, both the Nepalese minister and the Indian diplomat violated the diplomatic protocol. The Nepalese foreign minister also could not protest against the violation of the diplomatic etiquette. The energy minister would not have much time to discuss the proposed draft with the political leaders for making it possible to sign off at the time of the visit of Indian Prime Minister Narendra Modi. So, Nepal would lose one of the opportunities of having power deal with India for the mutual benefit as the Indian diplomat in Kathmandu said.

Political leaders particularly of the left parties sitting on the opposition in the parliament had been strongly opposing the energy minister for not making the proposed draft public. They warned the minister of the consequences of signing off the agreement on the power deal with India without considering the concerns of other political parties. Not disclosing the draft proposal to the public, some experts said that the energy minister violated the rights of the people to the information on the vital issue such as the hydropower development.

The history of India taking the advantage of developing the Nepalese water resources for its benefits seemed to be repeating. The government headed by the Koirala brothers in 1950s signed off the water resource deals with the Indian government headed by Prime Minister Jawaharlal Nehru giving tremendous advantages to India while Nepal losing most of the benefits of its water resources and at the same time losing huge chunk of fertile land to the water dammed up for irrigating Indian land. The draft proposal for developing hydropower in Nepal would be for the advantages of India if the government headed by another Koirala were to signed off at the time of Modi’s visit to Nepal, according to the experts in hydropower.

In the article recently posted on myrepublica.com, former minister Dr Prakash Chandra Lohani wrote that Nepal would need 40,000 MW power if Nepal were to be the middle-income country in the 25 years to come. It was a clear hint of turning over power to India would cause shortage of power in Nepal, as Nepal has 43,000 MW hydropower to harness even though the widely publicized hydropower potential of Nepal were 83,000 MW.

“India needs 800,000 megawatts (MW) of electricity by 2030, of which 507,000 megawatts should be fulfilled through water resources alone. We have plans to produce electricity from nuclear and gas plants too. So it is our necessity to meet the huge power demands in the days to come,” the Indian ambassador said (Source:myrepublica.com, July 22, 2014). The Indian diplomat clearly hinted at the proposed Indian power deal with Nepal was a drop in the bucket of the power need of India.

Former minister Dr Lohani wrote, “Both India and Nepal probably agree that the water resources agreement of 1950’s cannot be a future guide. The new model must be based on two important ground realities. First, exploitation of water resources and its use both for agriculture and industrial development as well as export has been a consistent theme of Nepal’s development strategy even though our success has been limited. Second, India needs energy and water to fuel its future growth in the Indo-Gangetic region that is home to over 450 million. Both these objectives can be achieved if we design a framework of energy development and understanding on principles regarding water use for irrigation, plus navigation from large high dam projects that are economically viable and politically acceptable to both the nations” (Source: myrepulica.com, July 23, 2014).

Former minister Dr Lohani wrote, “Free trade in power between Nepal and India has been proposed by Nepal for last 18 years. In 1996 when I was the foreign minister in Sher Bahadur Deuba government, the two countries had signed a power trade agreement in Bombay incorporating some of the provisions I have outlined above. Again in 1997, the then Nepali state minister for water resources Rajiv Parajuli and his Indian counterpart S. Venugopalachari signed an expanded version of 1996 agreement and it was general understanding that we would enter a new area in energy cooperation with market playing the central role. There was also expectation that the Pancheswor agreement, then signed by Pranab Mukherjee, who is now the President of India, and myself as the foreign minister of Nepal, would be launched and the power trade agreement would be instrumental for the project’s success. But for the last 16 years there has been no progress and Nepal and India acted as if both were frozen in time” (Source: myrepulica.com, July 23, 2014).

Kathmandu, July 22, 2014: Indian Ambassador Ranjit Rae said that the draft proposal titled “Cooperation in Power Sector” was not meant to control Nepal’s water resources, but to create a “win-win situation” for both countries to utilize the huge hydropower potential in Nepal for the mutual benefit. Speaking at a program on “Connecting the Sub-continent: South Asia and New Silk Road” in Kathmandu on July 23, 2014, Indian diplomat Rae said, “I think the proposal is a win-win situation for both the countries.” The envoy said that Indian and Nepali governments were discussing pricing and ways to generate hydropower in Nepal and erect cross-border transmission lines for exporting and importing hydropower.

The draft proposal has sought assurance to give preference to Indian investors for generating hydropower in Nepal. A section of Nepali media has termed it interference in Nepal’s sovereignty. Indian Embassy in Kathmandu has already refuted the allegation. Ambassador Rae stated the CPS document was just a draft proposal and Nepal, as a sovereign nation, has full right to accept or reject it. “It is an agreement between two sovereign nations. Both have full rights to accept or reject it,” he said, “If any party disagrees on any clause, it can be amended.”

He added that electricity could be sold to India only after meeting Nepal’s needs. He said that the two countries had not developed even a single joint hydro project in Nepal for the last 65 years due to mutual suspicion. (Source: Thehimalayantimes.com, July 22, 2014)

Kathmandu, July 20, 2014: Minister for Energy Radha Kumari Gyawali said that the media reports on the draft agreement India submitted to Nepal recently on the development of hydropower resources were inaccurate and added that the government would not reach any agreement without building a consensus on it among the political parties.

According to the media reports, an Indian draft agreement sought to develop water resources in Nepal in a way that gives maximum benefits to India. Various political parties have pressed the government not to sign off the agreement as submitted by India.

Meanwhile, the Embassy of India in Kathmandu in a statement said that the draft proposal was for the broad principles and parameters for overall cooperation in the power sector including trading, transmission lines development and grid connectivity and construction of power projects. The embassy further said that every power project to be developed required a separate project implementation agreement, and power purchase agreement, terms and conditions of which would need to be agreed. In no way does the draft constrain Nepal’s sovereign rights to develop its hydropower potential, said the embassy.

“Power trade in India is under the OGL (Open General License) list. An Electric Power Trade Agreement was signed in 1997. Separately, Bilateral Power Exchange Committee meetings are held from time to time to review power exchange arrangements between India and Nepal,” the statement reads. The proposal forwarded by India is a draft for discussion and would require bilateral negotiations prior to finalization. Both sides are free to propose amendments or modifications to the draft, said the embassy. (Source: Thehimalayantimes.com, July 20, 2014)

Kathmandu, July 20, 2014: Chairman of UCPN-Maoist Prachanda expressed serious concern about news reports on the proposed hydropower deal with India. Chief Secretary of the party Hitraj Pandey said that at the standing committee meeting on Sunday, Chairman Prachanda said that the party was seriously concerned with the news reports and the party would deal with the matter seriously. “The government should not deal with the issue of hydropower without consulting the opposition and in absence of the Prime Minister. Any deal should favor the country,” Chairman Prachanda said. (Thehimalayantimes.com, July 20, 2014)

Kathmandu, July 21, 2014: Minister for Energy Radha Gyawali said that the government would sign off a power cooperation deal with India on equal footing before Indian Prime Minister Narendra Modi would visit Nepal. “In the cooperation draft sent by India, there are some provisions that need discussion. We will discuss them in detail before signing an agreement. But overall, the draft proposal is positive,” Minister Gyawali said in Kathmandu, Monday.

Former energy minister also NC cadre Dr Prakash Sharan Mahat said that there was nothing in the draft as publicized in the media. “If we indulge in politics in the name of energy, we can never develop our county,” he said. (Source: Nepalnews.com, July 21, 2014)

Kathmandu, July 21: UCPN-Maoist and CPN-Maoist leaders have said that the government should not compromise on the issues of the long-term national interest. At an interaction program held by the ‘Janasanchar Abhiyan’ in Kathmandu, they said that the government should signed off the agreement focusing on the national interest in overall development of the energy sector.

UCPN-Maoist leader also Energy Department Chief Lilamani Pokhrel said that the agreement signed off unilaterally without discussing with the opposition would not be acceptable. CPN-Maoist Politburo Member also Energy Department Chief Dharmendra Banstola said that India tried to take Nepal's water resources in its control. Sending a new proposal rejecting the Nepal's proposal was not justifiable, he said. (Source: Gorkhapatraonline.com, July 21, 2014)

Kathmandu, July 20, 2014: In a statement issued in Kathmandu, Chairman of CPN-Maoist Mohan Vaidhya said that the news reports on the preparation for an export-oriented PDA (power development agreement) with India was shocking. He also said that the existing unequal treaties on Koshi, Gandak, Mahakali, Upper Karnali, Arun III, and High Koshi Dam should be scrapped.

Chairman Vaidhya demanded the government immediately disclose the facts about the reported power agreement, and warned the government of not signing off any such unequal treaties including PDA at any cost. (Source: RSS news on Gorkhapatraonline.com, July 20, 2014)

Kathmandu, July 24, 2014: Speaking at the Legislature-Parliament meeting today, lawmaker Haribol Gajurel of the UCPN-Maoist demanded the government make its views public through the parliament concerning the proposal for the development of the energy sector of Nepal forwarded by the Indian government to the government of Nepal before signing off an agreement on it.

Lawmaker Bhim Rawal of the CPN-UML also demanded the government inform the House on the contents of the Indian proposal for power trade. He stressed the need for any agreement on the power trade making of mutual benefits.

Lawmaker Prem Suwal of the Nepal Workers and Peasants' Party also demanded that the government should immediately inform the House on the contents of the proposal for the hydropower development submitted to the Nepal government by the Indian government. (Source: Gorkhapatraonline.com, July 24, 2014)

Kathmandu, July 23, 2014: Minister for Energy Radha Gyawali said that the government of Nepal was going to sign off the Nepal-India Power Development Agreement (PDA) for the prosperity of the country. At a face-to-face program held in Kathmandu by the Sambad Club Nepal today, she claimed that the agreement would be of the national interest and of the energy development.

The Minister said that PDA would not be national betrayal, it was for the development of the country, and the ministry would not signed it until the cabinet make a decision on it. She said that such agreements also were necessary with Bangladesh, Sri Lanka and China, and the decision on signing off an agreement would be made only after building a consensus among all political parties.

Former State Minister for Water Resources also RPP Spokesperson Thakur Prasad Sharma, and leftist intellectual Sonamsingh Sherpa said that Nepal should not sign the agreement that would benefit only India. (Source: Gorkhapatraonline.com, July 23, 2014)

Kathmandu, July 23, 2014: Indian Ambassador to Nepal Ranjit Rae said that India was ready to review the proposed draft of an agreement on the hydropower development in Nepal with the mutual consent. Speaking at an interaction at the Reporters' Club in Kathmandu today, the Ambassador said that the two countries could settle the disputed issues through a discussion. "The proposal is not our final version," Ambassador Rae said, "We are ready to review the draft after discussions with Nepali authority."

The Ambassador was of the view that both countries could benefit from the proposed agreement on 'Cooperation in Power Sector'. Ambassador Rae also said that it was the right time to sign the contract, as both the nations had the stable governments. He, however, stressed the need for building a political consensus on it among the national stakeholders, and for considering the sovereignty of both the nations before finalizing the agreement. (Source: Thehimalayantimes.com, July 23, 2014)

Kathmandu, July 25, 2014: At the meeting held at the Prime Minister's Baluwatar residence today afternoon, the ruling parties such as NC and CPN-UML and the major opposition UCPN-Maoist party decided to suggest the government to concentrate on garnering the Indian support for large-scale projects during the upcoming visit of Indian Prime Minister Narendra Modi to Nepal. They also agreed that the government should take the advantage of the Indian PM's visit to expand the Indian support for the large development projects with a focus on the interest of Nepal in general.

The parties also agreed to make every possible effort on taking the age-old mutual relations between the two countries to a new height through the visit of the Indian Minister for External Affairs Sushma Swaraj starting today and the visit of the Indian Prime Minister starting on August 3, 2014.

Talking to the reporters following the meeting, NC General Secretary Krishna Prasad Sitaula said that the leaders agreed on bringing in the support for big projects including the under-construction postal road, mid-hill highway and the energy and infrastructure development projects. He also said that the leaders welcomed the upcoming visit of the Indian Prime Minister at the friendly invitation of Prime Minister Sushil Koirala with a positive note, and discussed the subject matters of bilateral talks.

Vice-chairman of UCPN-Maoist Narayan Kaji Shrestha said that the visit of Indian Prime Minister Modi would be utilized as an opportunity for consolidating the relations between the two countries but an agreement was reached not to sign off any treaties in a hurry. (Source: Gorkhapatraonline.com, July 26, 2014)

Kathmandu, July 26, 2014: “Nepal can generate whatever electricity it needs for domestic consumption and export the excess power, which India will buy at market rates,” Joint Secretary of the Indian Ministry of External Affairs Syed Akbaruddin told a press conference held on the sidelines of the Nepal-India Joint Commission meeting in Kathmandu today. It would create a win-win situation for both the countries, according to Joint Secretary Akbaruddin.

To facilitate and promote electricity trading, Joint Secretary Akbaruddin said that India was willing to sign the PTA whenever ‘Nepal feels comfortable’. He also indicated that India did not want to dictate any terms and conditions, as ‘Nepal has prerogative over its natural resources’.

“Trade in power will create a win-win situation for both nations, as balance of trade (between Nepal and India) is tilted towards India. One way to (bridge) this is by (supplying) power to India, as we export lots of petroleum products (to Nepal),” Joint Secretary Akbaruddin said. (Source: Thehimalayantimes.com, July 26, 2014)

Kathmandu, July 27, 2014: Nepal and India agreed on finalizing the text of the Power Trading Agreement at the earliest to pave the way for India to purchase any quantity of electricity, according to the joint statement issued in Kathmandu. To finalize the draft agreement, a Nepali delegation led by energy secretary is expected to visit India soon. These were some of the understandings reached during the third Nepal-India Joint Commission meeting co-chaired by Nepalese Foreign Minister Mahendra Bahadur Pandey and Indian Minister for External Affairs Sushma Swaraj today in Kathmandu.

The two leaders also agreed on expediting the process for preparing a detailed project report of Pancheswor Multipurpose Project, which has the potential to generate nine billion units of electricity per year, and finalize the terms of reference of the Pancheswor Development Authority, which would oversee implementation of the Pancheswor Project.

An understanding also was reached to expedite the construction of 132kV Kataiya-Kusaha and 132kV Raxaul-Parwanipur transmission lines to make Nepal able to import additional power from India to mitigate the power shortage in Nepal during the dry season.

“In order to promote Nepal’s exports to India, the Indian side agreed to further relaxing the rules of origin requirements; simplifying and streamlining transit and customs related procedures; eliminating technical barriers to trade and making (quarantine processes) less stringent; and lifting quantitative restrictions on exports of Nepali products to India,” says the statement. (Source: Thehimalayantimes.com, July 27, 2014)

Kathmandu, July 27, 2014: The Parliamentary Committee on Agriculture and Resources directed the Government of Nepal to immediately sign off the power trade agreement with India expressing serious concern over the postponement of the same at the Nepal-India foreign minister level talks.

Reading out the Committee's decision, lawmaker Amrit Kumar Bohara said that such an agreement was necessary to attract investment, and he emphasized the need for concrete homework and coordination between the government and the committee.

Earlier at the meeting, Minister for Energy Radha Gyawali said that as energy was the first door to development of Nepal, a PTA with India was essential for it. "The Ministry will not step back on matters of national interest but power development is in the interest of Nepal", she said.

Speaking at the committee meeting, NC lawmaker Gagan Thapa blamed the energy ministry for creating unnecessary debate on the proposed PTA with India. CPN-UML lawmaker Kashinath Adhikari sought an explanation from the government for the delay in concluding the agreement though Nepal had sent its draft to India four years ago.

Secretary at the Energy Ministry Rajendra Kishore Chettri said that the PTA had been postponed due to the lack of doing necessary homework. Executive Director of Investment Board Radhesh Pant said some conditions of the investors had to be met for attracting investment in power development. (Source: Gorkhapatraonline.com, July 27, 2014)

Addendum

Emailed Article
Date: Mon, 21 Jul 2014 09:42:55 +0545
Subject: Draft agreement for "Cooperation in Power Sector with India"
From: Ratna Sansar Shrestha <ratna.sansar@gmail.com>

If any one is to deem the draft agreement sent by India harmless, the person would be above blame as the draft showers “love” on the small neighbor by the “big brother”; however, it intends to smother with love to death.

The draft is dangerous not only because of what is stipulated in it but also by what has been cunningly not stipulated (left out):

A. Sharing benefits of positive externalities accruing from a storage/reservoir projects – famously called downstream benefit – and recompensing Nepal for suffering negative externalities by building storage projects in Nepal like Pancheshwar, Naumure, Koshi High dam, etc.

B. It does deal with export of power from Nepal in the name of “trade” but only exclusively to India – precludes export to third countries like Bangladesh, China, etc. An effort aimed at converting Nepal a captive supplier of high quality cheap power.

The above should be understood in conjunction with the provision for transportation of arms and ammunition, required for Nepal through India in “famous” 1950 treaty. There is no stipulation requiring Nepal to seek Indian permission to source arms and ammunition from third countries and/or importing from other routes. Even then India embargoed Nepal for importing some arms and ammunition from China in 1989 in their endeavor to bring Nepal to her knees in which India failed.

Further, following 2 provisions are detrimental to Nepal’s interest:

Article III (a) specifies that “the parties shall encourage and facilitate investments in each other’s country in the fields of power generation and transmission, including joint venture investments between the two countries subject to their extant policies and legislation” which sounds harmless. However, the provision has been twisted in clause (b), which refers to “harnessing of Nepal’s hydropower potential through facilitation and speedy construction of hydroelectric power projects in Nepal either with 100% Indian investments or joint venture with Indian entities.” In this manner, Nepal’s investment in Indian hydropower sector has been precluded. Further, it aims to “harness Nepal’s hydropower potential” – sort of giving exclusive right to harness Nepal’s hydropower potential to India.

Furthermore, there is no reference to harnessing Indian hydropower potential. Nothing could be more lopsided than this.

Article IV, titled “power trade and tariff” starts out with cooperation on a bilateral or multilateral basis in development of policy, again sounding very innocent/innocuous. But the dagger is hidden in clause (c) in which there is talk of only Nepal exporting and India importing not the other way around. Further it specifies that “the rate at which this power will be sold by Nepal to India shall be mutually determined … taking into account the cost of the project including their financing costs, O&M charges, depreciation at rates applicable to similar projects in India, prevalent market conditions and other relevant factors”. Basically India is agreeing to import power from Nepal “deemed” to be “surplus” at minimum cost plus.

What is glaringly missing is at what rate India will be exporting power to Nepal; which means it will be charging full commercial rate on exports to Nepal. Effectively Nepal will be exporting at rates ranging from 1 US¢ to 3 US¢ while India will export at the commercial rate of 10 US¢.

To conclude, Koshi and Gandak treaties, concluded by 2 Koirala brothers, Matrika and BP respectively created 2 bad projects. But after the original treaties were amended in Nepal’s interest under absolute monarchy (which recently has been abolished), these treaties have established “absolute territorial sovereignty” over Koshi and Gandak rivers (in the latter there is restriction on inter-basin transfer in the months of February, March and April).

By concluding Mahakali treaty, Nepal’s absolute territorial sovereignty over this river was surrendered. However, the “agreement between government of the republic of India and government of Nepal on cooperation in power sector”, if signed will result in surrendering absolutely territorial sovereignty over 6,000 rivers of Nepal (Nepal is famed to have 6,000 rivers). It basically amounts to Sikkimization of Nepal’s water resources.

ENDS

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