Prime Minister Narendra Modi being received by the Prime Minister of Nepal K.P. Sharma Oli

After India’s refusal to buy hydro-power from a Chinese project in Nepal, the Chinese company leading the project scrapped it

by Jyoti Malhotra

New Delhi: A day before Kathmandu welcomed Prime Minister Narendra Modi for the BIMSTEC summit Thursday, China withdrew from its promise to build a high dam in Nepal, citing the high and unpredictable cost of resettling as many as 10,000 families.

But the real reason is far simpler: New Delhi had warned Nepalese Prime Minister K.P. Oli during his trip to Delhi in April that while he could award as many dams as he liked to Chinese developers, India would not be able to buy the hydro-power they produced.

At the time, a government source had told this reporter, “The Nepalese can do what they like. But they have to respect India’s red lines.”

In other words, Nepal had to pay heed to New Delhi’s discomfort in Beijing’s expanding reach in South Asia, especially at India’s cost.

The Geography Factor

With India’s enormous market out of the reckoning, China Three Gorges International (CTGI), the state-owned power company contracted to develop the West Seti Hydroelectric Project, realised the Nepalese domestic market was too small to absorb the 600 MW it would to produce.

As Modi and Oli meet in Kathmandu Friday, it will dawn on the Nepalese Prime Minister that his determination to lean towards Beijing in order to play off India must be moderated by the fact of geography.

Tibet’s rocky terrain in Nepal’s north is hardly conducive to laying down power transmission lines, while its small population is probably already well-serviced by domestic power producers.

That leaves India’s huge energy-hungry population, ready to consume the power that Nepal produced, as a viable customer base.

But instead of wooing India — like Bhutan has done for the last several decades and, in turn, got the Indian government to not only pay for several hydroelectric projects, but also buy back power at cheap rates despite Thimphu’s recent problems with Delhi – Nepal’s governments in recent years have openly sought to balance India with China.

Oli’s United Marxist Leninist (UML)-led alliance has been particularly critical of Delhi’s moves to persuade Kathmandu to have a more egalitarian Constitution, in which the people of the Terai have a greater say.

Nepal’s upper caste politicians, led by Oli, have mostly refused to listen. After the India-inspired blockade of the Terai in 2015-16, Oli swept the polls last December on an anti-India platform and has since been determined to play the big stakes with Beijing.

Neighbourly Warmth & Chills

The Chinese have responded warmly, not only flooding Nepal’s market with goods, but also offering scholarships to Nepalese students (6,400 at last count), and building several infrastructure projects in and around Kathmandu, the airport in Pokhara as well as one near Lumbini in the Terai.

India has watched quietly, increasingly unhappy. So when Oli came visiting in April, New Delhi diplomatically reminded him that he had the sovereign right to pick his friends, but India also had the right to respond in kind.

New Delhi’s refusal to buy Chinese power in the high Himalayas is one such decision.

The Nepalese now fear the West Seti example could be replicated for other dam projects as well.

The $2.5 billion Budhi Gandaki project in central-western Nepal, to be built on the river by the same name, was awarded in June 2017 to the Chinese Gezhouba group, weeks after Nepal joined Chinese President Xi Jinping’s much-vaunted Belt and Road Initiative.

In November 2017, the then pro-India prime minister Sher Bahadur Deuba of the Nepali Congress cancelled the Budhi Gandaki project, but when Oli returned to power, he promised to revive it.

“Political prejudice or pressure from rival companies may have been instrumental in scrapping the project,” Oli told the Hong Kong-based South China Morning Post in March, “But for us, hydropower is the main focus and come what may, we will revive the Budhi Gandaki project.”

But the latest turn of events has lent a new twist to the strategic games that Asia’s biggest neighbours are playing in India’s neighbourhood. Uncomfortable with Beijing’s growing reach, Delhi had so far not been able to do much about it.

Wooing Beijing

Meanwhile, Kathmandu seems ready to bend backwards to appease the Chinese developer. It has agreed to downsize the West Seti project, from 750 MW to 600 MW. It has promised China a US dollar power purchase agreement (PPA) in extremely generous terms.

Nepalese officials, in an attempt to mollify the Chinese company, have said that debt repayment in convertible currency would go on for 12 years, instead of the 10 years it had earlier committed to.

According to a report in the Kathmandu Post, Nepalese finance minister Yubaraj Khatiwada and energy minister Barsha Man Pun have told the Chinese developer that it is willing to relook several issues, including the matter of the market that would potentially consume the energy.

The Investment Board of Nepal is now banking on the Nepalese Prime Minister to pull the chestnuts out of the fire.

“We failed to conclude the negotiation,” the board’s CEO Maha Prasad Adhikari was quoted as saying in the Post report, adding, “We will take the issue to the board, which is chaired by the Prime Minister, who will make the final decision.”