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India is now trying to get governments out of it. Hydropower seems to enjoy the support of all the major parties in Nepal, including the Maoists, whose manifesto talks of adding 10,000MW of capacity in mission mode over the next 10 years through domestic and external financing.
Two MoUs were signed before the elections with private Indian developers to build and operate hydropower plants for electricity export to India. GMR bagged the 400MW Arun III and Satluj Jal Vidyut Nigam got the 300MW Upper Karnali. The World Bank's IFC announced on Tuesday that it would finance 25 per cent of the cost of both projects.
A third project, the 600MW Budi Gandaki, did not get proper bids and is being re-tendered. Bids were evaluated according to pre-announced criteria, including the share of free power the developer would make available to the domestic market, and the share of equity it would offer the NEA.
Based on the winning bids, and subsequent negotiations in consultation with a parliamentary committee, GMR will share 12 per cent of the electricity produced as free power and offer 27 per cent as equity to the NEA, while Satluj will share 22 per cent as free power.
The highly seasonal waters of Nepali rivers are largely wasted during the monsoons as they run down to the sea through the Ganges, causing floods on the way. Dry season flows are insufficient to irrigate even Nepal's Tarai.
Meanwhile, Nepal is looking at 56-hour powercuts this winter. The irony is that power-rich Nepal imports power from India while a huge energy-starved market sits just across the border.
GMR and Satluj now have to form JVs with the NEA, apply for survey licences, tie up the financing, enter into power purchase agreements with India's Power Trading Corporation or other buyers, and prepare detailed project reports. All this is expected to take two years, after which construction could take another five years.
Some civil society groups remain opposed, and one of them has challenged the MoUs in the courts on the grounds that under the interim constitution agreements entailing the export of natural resources require the approval of a two-thirds majority of the parliament. However the court refused to grant a stay, and may decide that while water is a natural resource, electricity produced from it is not.
A possible complication can be the federal arrangements the new constitution will propose for sharing benefits of hydropower projects. What will happen to projects already in the pipeline for the expected two years during which the constituent assembly does its work?
Dams and storage reservoirs decrease excessive monsoon flows, alleviating floods, while increasing flows in the dry season, rendering the water much more valuable for irrigation. Some activists argue that these regulated flows are a valuable byproduct of hydropower projects which India should be willing to pay for, just as it is willing to pay for electricity. This will be a factor in the huge high dam projects that have been under investigation for decades now.
It has arisen even in the case of the 750MW West Seti being promoted by the Australian Snowy Mountain group with Indian, ADB and Chinese investment. The promoters argue that they have no way of charging for downstream irrigation and flood control benefits in India. Irrigation water is a notoriously under-priced resource in India as it is in Nepal.
This is an area where the governments will have to come in, although investors are hoping it will not further hold up projects like West Seti, which has been 13 years in the making.
Prabhu Ghate is a columnist for the Economic Times in New Delhi.
