The geopolitics of water and electricity in Nepal

In March, the Deuba-led government decided to revoke the license issued to the China Gezhouba Group Company (CGGC) to develop the gigantic $2.5 billion Budi Gandaki hydropower project and build the 263m high dam. to generate 1,200 MW on its own.

Budi Gandaki has been the victim of a geopolitical ping-pong for five years. In 2017, the government of Maoist Prime Minister Pushpa Kamal Dahal awarded the project to CGGC, but the subsequent Deuba government reversed the decision, angering the Chinese. In 2018, KP Oli’s government reinstated the contract, only for Deuba to cancel it again this year.

Chinese Ambassador Hou Yanqi said in May that it was “wrong to change policy (on Budi Gandaki) with every change of government and… such actions have killed the investment climate”.

“It is not diplomatically ripe to repeatedly reverse the decisions of previous governments every time power changes hands,” said foreign affairs expert Dinesh Bhattarai.

Experts say India’s policy on energy imports will not only discourage future Chinese investment in Nepal, as is its aim, but also other investors, besides unbalancing Nepal’s equidistance policy between China and India.

Australia’s Snowy Mountain Engineering Company (SMEC) pulled out of the West Seti project in 2010 after India showed no interest in buying its power. Then Norway’s SN Power pulled out of the 650 MW Tamakosi 3 after it failed to get the go-ahead from India to buy its power.

So far, most of Nepal’s power projects are run-of-the-river projects where generation capacity decreases during the dry season. This means that Nepal has an electricity deficit in winter when it needs to import from India, and has a surplus during monsoon when it can export to India.

Having reservoir projects would change this and give Nepal greater production capacity all year round, while regulating the water on the rivers as a bonus.

“India sees water as a strategic resource and is shrewdly trying to keep Nepal’s energy system under its sway,” said Dipak Gyawali, the former minister.

Clearly, Nepal needs to prioritize domestic electricity consumption over its export and channel it into the electrification of transport, industry and homes. All of this will automatically reduce oil imports, reducing its growing trade deficit.

Selling raw electricity to India is not as profitable, experts point out, because Nepal sells its electricity at a much cheaper rate to India than to domestic consumers. Switching to electric vehicles to cut Nepal’s oil import bill by just 10% would save the country more than Rs 30 billion a year.

The combined capacity of Nepal’s hydropower projects has now exceeded 2,100 MW even though the average domestic demand is only 1,550 MW. An additional 2,500 MW of electricity will be added to the grid over the next two years, while 3,000 MW of new projects are in the works.

In a few years, Nepal will have a year-round electricity surplus, and experts say it would be a mistake to rely so heavily on selling electricity to India.

Instead, Nepal must rework its energy needs to increase domestic consumption and reduce oil imports to reduce its growing trade deficit with India.

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