The rising tensions between India and Bangladesh have cast doubt on Nepal’s proposed electricity exports to Bangladesh, particularly those involving Indian-backed projects.

One such project, the India-funded Upper Karnali hydropower project in Nepal, now faces a setback after the Bangladeshi government recently decided to annul all agreements signed under its Special Powers Act. The move threatens a proposed power purchase agreement between the project’s developer, India’s GMR Group, and Bangladesh.

The decision comes amid worsening India-Bangladesh ties, with both countries reportedly imposing trade restrictions that could have broader economic implications across the region.

The termination of agreements under the Special Powers Act, including the one with GMR, could disrupt regional ambitions to expand subregional energy cooperation involving Nepal, India, and Bangladesh.

According to The Daily Observer, a Bangladeshi newspaper, a preliminary agreement to purchase 500 megawatts of electricity from the 900-megawatt Upper Karnali project is now likely to be canceled. The report highlighted growing strategic and geopolitical concerns in Bangladesh over the proposed use of a 117-kilometer, 765 kV high-voltage transmission line through Indian territory, which was part of India’s proposal to facilitate the cross-border trade.

The current interim government in Bangladesh, installed after the previous Awami League administration, has shown little interest in advancing agreements signed by its predecessor. Mohammad Rizwan Karim, chairman of the Bangladesh Power Development Board (BPDB), confirmed to the press that all agreements under the Special Powers Act have been suspended, which includes the proposed deal with GMR.

The export agreement gained public attention after GMR Energy executive S.N. Barde wrote to Bangladesh’s energy secretary in February 2025, urging the government to formalize the power supply agreement for electricity exports from Nepal. The proposed 25-year power sales contract, expected to commence in 2029, was signed in principle on December 5, 2024, by GMR Upper Karnali Hydropower Ltd, BPDB, and India’s NTPC Vidyut Vyapar Nigam.

Despite these developments, Nepal’s Investment Board spokesperson Pradyumna Prasad Upadhyay stated that no formal communication has been received from either GMR or the Bangladeshi government regarding the cancellation. He noted that while GMR had sought to secure a long-term electricity market in Bangladesh, the Upper Karnali project also has the flexibility to sell power to India or within Nepal if necessary.

Former Energy Secretary Dinesh Ghimire described the potential collapse of the export deal as a setback for Nepal’s broader vision of subregional energy cooperation. “This is not encouraging news for Nepal,” he said, adding that the country has long considered Bangladesh a key market for its hydropower exports, alongside India.