‘Geopolitical games’: Nepal hands over hydropower projects from Chinese to Indian companies

In recent years, Nepal has shifted hydropower projects worth billions of dollars from Chinese developers to Indian companies. This is happening, experts say, not for economic or ecological reasons – two areas where Nepal’s ambitious pursuit of hydropower has been criticised – but because India, as Nepal’s principal buyer of the exported electricity, apparently refuses to buy power produced by Chinese-built plants.

The story of the 750-megawatt West Seti hydropower project in western Nepal shows how geopolitics is steering this shift. In 2012, Nepal signed a memorandum of understanding with the China Three Gorges Corporation to develop the project, one of the largest planned in the country at an estimated cost of USD 1.2 billion. This was followed by a 2017 deal to set up a billion-dollar joint venture company. In 2018, however, the Chinese company backed out, citing lower-than-expected returns, and geographic and other development challenges.

10,000 MW

Installed hydropower capacity the Nepal Electricity Authority hopes to achieve by 2030, from 2,190 MW as of 2021.

According to the Investment Board Nepal, the government agency responsible for promoting and facilitating domestic and foreign investment in the country, the Chinese company had asked to downsize the project from 750 MW to 600 MW, arguing that the larger amount was not economically viable.

“Nepal’s government agreed to the terms and asked for documents to proceed to start the project but the company didn’t submit required documents,” reads a report prepared by the Investment Board Nepal for other government agencies.

A different reason was given by Sher Bahadur Deuba, the prime minister of Nepal and chair of the Investment Board Nepal. “India won’t buy electricity from the West Seti hydro project if it’s built by Chinese companies so I am going to give it to India,” Deuba told the media in May 2022 while campaigning for local elections.

The following month, the Investment Board Nepal decided to award the West Seti project to India’s state-owned National Hydro Power Company, with an agreement signed in August. In a press release, Deuba said: “We will be able to reduce the trade deficit with India by selling electricity and this will help foster better cooperation and mutual sharing of water resources between two countries.”

Another project downriver of West Seti, Seti River-6, was included in this agreement. The total cost of the two projects is now estimated at $2.4 billion, although the Investment Board Nepal was, when this article was published, yet to upload documents with details about the projects to its website.

‘Nothing in return’ for Nepal

During a ceremony in August to mark the signing of the agreement, National Hydro Power Company’s president AK Singh said: “It is our history that when we enter a project, we complete it. We understand that West Seti is taken as a harbinger of development. We will not leave any stone unturned.”

This is not how this turn of events is perceived by everyone. “There is a strong sense of feeling in Nepal that India promises but doesn’t stand by its promises and we need to deal with it quickly,” said Ranjit Rae, India’s former ambassador to Nepal, during a webinar in August hosted by the Institute of Chinese Studies – a think tank funded by the Indian government.

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