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Discussion on Indo-Nepal Power Cooperation Agreement (Draft) – Discussion Summary

With the recent visit by Indian Minister of External Affairs Sushma Swaraj and the forthcoming visit of Prime Minister of the Republic of India, Mr. Narendra Modi, Power Trade Agreement between Nepal and India has become a concern for many in the Nepalese political-economic discourse. The recently proposed draft Agreement between Government of the Republic of India and Government of Nepal on Cooperation in Power Sector has been subject to immense political scrutiny for a number of reasons making the discussion on the proposed power cooperation agreement imperative.

Samriddhi, The Prosperity Foundation thus conducted its latest round of Econ-ity tilted “Discussion on Indo-Nepal Power Cooperation Agreement (Draft)” on the 31st of July, 2014. The event was held at Hotel Himalaya, Kupondole, Lalitpur and the panelists/speakers were:

• Dr. Prakash Sharan Mahat- Nepali Congress
• Mr. Lila Mani Pokharel- UCPN Maoist
• Dr. PC Lohani- Rastriya Prajatantra Party
• Mr. Dharmendra Bastola- CPN-Maoist

This edition of econ-ity was moderated by Mr. Kuvera Chalise.

Discussion on Indo-Nepal Power Cooperation Agreement (Draft)

Discussion on Indo-Nepal Power Cooperation Agreement (Draft)

Here is a snippet of what the speakers said during the forum.

1. Dr. Prakash Sharan Mahat

Dr. Mahat commenced his deliberation by stating why it is high time that Nepal enter into a Power Trade Agreement PTA with India. He shared that hydropower is a highly capital-intensive industry and all investments are made before the generation begins. Therefore, developers shy away from entering the industry until a prospect for market has been established. This market can be secured by a PTA.

In the mean time, he also expressed that Nepal’s domestic needs should be fulfilled first. There is immense amount of water flowing throughout the country and with right investments this water can be converted in to economic goods. He talked about the need to guarantee that small projects cater to domestic demand and only large projects export electricity to fulfill the needs of the neighbor. There is seasonal fluctuation of water supply in Nepal. Therefore, storage-type projects are must for Nepal. Given the high costs associated with these types of projects, due to high expenditure in building dams, relocating locals of the land, environmental impacts etc., he shared that the state should lead the construction of such high capacity projects. If the state guarantees that investors get a respectable return, he further hinted towards the possibility of channeling the remittance money into construction of these mega-projects.

He further clarified that this proposed PTA, if agreed upon, would mean that Nepal sells only the excess (otherwise spill-over) electricity and it does not mean selling electricity while Nepalese people remain in darkness. With the pace that hydropower developers are investing in Nepal, after 2017 we are all set to face spill-over and this PTA guarantees that such excess electricity can be sold to India. He further added that the Nepali side must be cautious about whether or the not the condition – that Nepal can also import electricity from India when it faces shortages – makes it to the agreement. This is a must, he shared.

Responding to the allegations that India plans on controlling the entire water resource of Nepal and dominating Nepal, he said that the proposal sent by Indian side is just a draft and it is open to negotiations. Nepalese side should table their own conditions and take the discussion forward rather than alleging India of trying to dominate Nepal, he added. The proposed agreement opens possibilities of further cooperation between India and Nepal and at the moment we should carefully analyze the proposed clauses and try to earn a better deal for ourselves than doing nothing about it.

Then he went on to say that the proposed agreement sets Nepal into a path of changing the way Indo-Nepal cooperation moves forward. He shared that Indian political leadership is trying to make real cooperation with Nepal after 17 years and this is the best possible situation for Nepal. We should extract the best out of this opportunity. He added, we have borne the brunt of handling this responsibility to bureaucracy in the past and today, we have the opportunity to change this.

Dr. Mahat then talked about the benefits this PTA offers to Nepal. He said that this PTA opens the way for Nepal to make PTAs with Bangladesh, China and others in future. Furthermore, removing tariff barrier, as proposed, is a great deal for Nepal. Removing tariff barrier means that Nepal’s electricity will be cheap and there will be more demand for our electricity in India. There is a clause that secures non-discriminatory treatment for our electricity.

He concluded his deliberation by warning all political and opinion leaders that this PTA should not be taken into an ideological debate.

2. Mr. Lila Mani Pokharel – UCPN (Maoist)

Mr. Pokharel talked about how problems that have surfaced following the 1950 treaties have made us think about the consequences of this proposed PTA as well. Therefore, it is important that we take this fact into consideration. He further expressed his dissatisfaction over how the details regarding the proposal by the Indian side was kept under-cover.

Then he spoke about how selling raw materials has never made any country rich. He said that we need to use our water resources to fulfill our own needs. Therefore we should not be too dependent on selling electricity.

He then went on to talk about the motives of India behind this power agreement. He explained how energy is not the primary concern or India. He said that there are alternative sources of energy for India. It is not energy that India wants. They want control of our water.

He also highlighted some of the issues that were not included in the PTA but which should have been there. There is no mention whatsoever of the downstream benefit sharing in this draft. He said that current PTA proposal compromises Nepal’s irrigation projects, while India gets surplus water.

He concluded his deliberation by mentioning that Nepal should also ask India for right to sell electricity to Bangladesh.

3. Dr. PC Lohani – Rastriya Prajatantra Party

Dr. Lohani started by acknowledging that in any bilateral agreement, both countries have their own national interests. Likewise, India and Nepal have their national interests. The right thing to do under such a situation is to openly discuss the interests and strike a deal with mutual benefit.

He then went on to pointing out the shortcomings of the proposed cooperation. The proposal fails to acknowledge the concept of value added water. When Nepal builds dams to store water so that India can have enough water during their dry season, it offers them a lot of benefits. Nepalese side should table this issue while discussing PTA. He then shared that we should be transparent with our bilateral issues. We cannot do a deal under cover without allowing enough public discourse over the deal . Other relevant ministries should also be on the same page.

On the bright side, he said, Indian side is ready to negotiate the terms and therefore need to expedite the process. He suggested that we should put in the concepts of sub regional grid common market mechanism without government intervention in the PTA.

He concluded his speak by mentioning that there should be a different framework policy in dealing with water resources. A high-level committee could be created to prepare a draft report within 3 months.

4. Mr. Dharmendra Bastola: CPN-Maoist

Mr. Bastola began his speak by saying that PTA should happen, but the terms and conditions and modality need to be discussed further. He also warned that India wants to exercise control over Nepal’s water. India needs water for various reasons such as irrigation and flood control. They need to deal with their dry season shortage and this is what guides this PTA, he said. Therefore signing this PTA under current terms and conditions will make Nepalese people poorer and force them to live in the darkness forever, he added.

He then went on to talk about how the Nepalese government should take up the responsibility of constructing larger scale projects. If we do not have enough funds, one option is that we take loans and pay interest. Another alternative is that If the government can channel the remittance money (which amounts to over $ 5 billion) into hydropower sector, we can invest $ 4 billion in Upper Karnali. Then we can build hydro projects and still have 1 billion dollars’ worth of saving.

He then added the benefits of developing hydropower projects by Nepal itself. We could then concentrate on bringing in foreign investments on the ground that production costs are cheaper in Nepal due to cheap energy. If we have enough energy, we could lure foreign companies into Nepal.

He then shared that the economic model of Public Private Partnership (PPP), which we are practicing at the moment is a wrong economic policy. We need Public Private Cooperative Partnership (PPCP).

Coming back to the prospect of PTA with India, he shared that storage-type projects should be the priority. Record Keeping on how much electricity flows out and how much electricity flows in should be done properly. Prices should be fixed by Nepal. Tariffs should be made applicable. If all these issues are included in the PTA, then we can move on with the proposal and sign a deal, he said.

Interaction with the audience

The participative and interactive audience then further talked about price fixing mechanisms including that for import in the short and medium term, need and prospects of a power trading company for Nepal, transmission lines provisions and other pertinent clauses in the proposed (draft) agreement. Some of the highlights of the interaction session were:

• This proposal is silent about the prices that will be charged to Nepal when Nepal has to import electricity from India. This could cause problems in future. This issue needs to be worked out.

• This PTA is similar to Bilateral Investment Protection and Promotion Agreement (BIPPA) that Dr. Babu Ram Bhattarai, former Prime Minister of Nepal did with India. Signing this PTA will open avenues for making PTAs with other neighboring countries like China and Bangladesh for Nepal.

• Agreements like the one that has been proposed by India affects not just the Ministry of Energy, but the Ministry of Agriculture and Ministry of irrigation as well. In order to smoothen the policy making and ease up the monitoring of different activities related to water resource management, agriculture and harnessing hydropower, these ministries could be accommodated into one.

• Unfair terms of trade are bundled together and proposed here. We should separate these and discuss them one by one. A team can work that out. A consensus base model is what is required.

• We do not have a Power Trading Company in Nepal right now. Even in India Power Trading Company, India is a near-monopoly institution. We have to make a PTCN and a new transmission company. Then only, both countries will be on balanced terms.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is a researcher at Samriddhi Foundation where his focus areas are investment laws, public enterprises and education.

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