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Nepal and India
Two Natural Partners for Power Trade

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<p style="text-align: center;"><span style="font-size:18px">Nepal and India<br /> Two Natural Partners for Power Trade</span></p>

--BY MADAN LAMSAL

The Nepal-India power cooperation started decades ago. Since the construction of the 1MW Fewa 1 hydropower project, the first hydropower project with Indian assistance, in the late sixies, the two countries have come a long way in making bilateral institutional arrangements to exploit Nepal's water resources. The Joint Steering Committee (JSC) and the Joint Working Group on Power (JWG) are the bilateral mechanisms which meet on a regular basis and discuss issues on power cooperation between the two countries. 

In recent times activities of power cooperation have gained momentum with the Power Grid Corporation of India Ltd (PGCIL) assisting Nepal in preparing its electricity master plans for short-term (up to 2018-19), medium term (up to 2021-22) and long term (up to 2035). Accordingly, a number of high capacity cross-border interconnections are being considered between the two countries. 

For the time being, these interconnections will be utilised for transfer of power from India to Nepal which is expected to have a power deficiency of 1,000 MW from 2018/19. However, Nepal will have an exportable surplus from 2021 till 2035; during this period, the cross-border interconnections will be used to transfer power from Nepal to India. 

For 2018/19, during the period of power shortage in Nepal, a new Butwal-Gorakhpur 400 kV transmission line has been proposed in addition to the Muzaffarpur-Dhalkebar 400 kV line. Similarly, the Indian government recently sanctioned Rs 91.58 billion for investment in Arun III Hydropower project (See box).   

Assistance for Transmission Lines
Things about power cooperation gathered pace especially after former Prime Minister Dr Baburam Bhattarai's India visit in October 2011. Ending the load-shedding in Nepal was one of the major issues raised during that visit. So, it was decided to upgrade and augment the existing transmission lines.

As a result, India's PGCIL, through a Government of India (GoI) grant assistance of Rs 124.6 million, successfully implemented the short term augmentation of transmission line Project. According to the Indian Embassy in Kathmandu, in 2013, GoI approved Rs 464 million as grant assistance for the mid-term augmentation of a) 15 Km-long Kataiya-Kushaha DC Line New, b) 15 km-long Raxaul–Parwanipur DC line New) 15 km, and c) Tanakpur–Mahendranagar Transformer upgrading. Work on the Raxaul–Parwanipur and Kataiya–Kushaha lines is going on and both are at an advanced stage of completion. Nepal has been already importing nearly 400 MW of electricity from India. Once the ongoing transmission lines are completed, an additional 100 MW of power can be imported through them from India.

Similarly, The Muzaffarpur – Dhalkebar line is planned to be charged at 220kV with the commissioning of a 220kV Dhalkebar substation in Nepal by March 2017. This will facilitate additional 150 MW of power transfer to Nepal. This would be followed by commissioning of 400 kV Substation at Dhalkebar (Nepal), which would enable operation of Muzaffarpur – Dhalkebar 400kV DC line at its rated voltage, leading to increase in power transfer to Nepal by 300 – 400 MW.

Though the cross–border transmission lines are at present being used for importing power from India, they can equally be used to export power to the southern neighbour in the future. These cross – border transmission lines, on completion, will enhance the transmission capacity of up to 1000 MW.

Cooperation in Hydropower
So far, 28 survey licenses have been issued to Indian firms for hydropower projects in Nepal with the total generation capacity of 8249 MW. Major among these are Arun – III (900 MW), Upper Karnali (900 MW) and Upper Marsyangadi (600 MW).

The Pancheshwar Multi–purpose Projects, which is in accordance with the Mahakali Treaty of 1996, will have 5,600 MW of installed capacity and create irrigation potential for 1,30,000 hectares in Nepal and 2,40,000 hectares in India. The statue for constitution of the Pancheshwar Development Authority (PDA) was signed in September 2014.

Similarly, the two countries also plan to develop the Sapta Kosi– Sun Kosi Multipurpose Project which is expected to generate 4,689 MW of power, create irrigation potential of 1.0 million hectares in Nepal, generate flood benefits to both countries and potentially open navigation channel from Kosi to the Ganges.

Apart from these, the rehabilitation of 15 MW Devighat Hydroelectric Plant was completed in 2011 with the assistance of USD 4 million. India is also supporting development of 32 MW Rahughat Hydropower Project with approval of USD 67 million through the LoCs of USD 100 million and USD 250 million extended by Exim Bank, India to Government of Nepal.

Indian govt okays Rs 91.58b investment for Arun III
In the last week of February, the Indian government sanctioned an investment of Rs 91.58 billion (Indian Rs 57.24 billion) by the Satluj Jal Vidyut Nigam Limited (SJVNL) for the development of the 900 MW Arun III Hydropower Project, giving new momentum to the project that was first mooted by Nepal some three decades ago.

 The decision was taken by the Indian cabinet's committee on economic affairs chaired by Prime Minister Narendra Modi. The decision has paved the way for the Indian developer to attain financial closure for the project within September 2017, the deadline set for this task.

The Indian government has approved the investment proposal for generation component of Arun III Hydropower Project in Nepal by SJVN Limited, a central public sector enterprise of the Indian government, nearly after nine years of the signing of the Memorandum of Understanding between the Nepal Government and SJVN Limited for the project. The MoU was signed in March, 2008.

SJVN Ltd has registered SJVN Arun-III Power Development Company (P) Limited (SAPDC) as its 100 percent subsidiary for implementing the project.

The hydropower project that was abandoned by the World Bank in 1994 over some political issues was pursued by the Indian developer under the Build-Own-Operate-Transfer (BOOT) model for a period of 30 years including five years of construction period. 

The Investment Board Nepal and the SJVN Limited signed a project development agreement (PDA) on November 25, 2014, during the official visit of Indian Prime Minister Modi to Nepal. According to the PDA, the project shall provide 21.9 percent free power to Nepal for the entire concession period of 25 years.

While the Indian government has sanctioned the investment of Rs 91.58 billion, the Nepal government will provide Rs 4.5 billion as grant to the developer. The project is estimated to cost Rs 104 billion.

Similarly, the developer will enjoy income tax holiday for the first 10 years of power generation and 50 percent tax waiver for another five years if the project starts generation by 2022/23. The project is expected to be completed by September 2022. 

IBN CEO Maha Prasad Adhikari said that the decision of the Indian cabinet committee will make it easier for the developer to carry out necessary work in Nepal as well as sign a power purchase agreement. "The decision will clear all constraints toward their side in arranging resources," he added. The project is expected to generate 3,000 construction employments.

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