China Moves into Nepal Hydropower Sector

China has signed a $1.6 billion agreement to develop the 760-megawatt (MW) West Seti Project hydropower plant in Nepal. The deal marks China’s entrance into Nepal’s energy sector, which has been primarily the domain of India for decades. The contract coincides with the delay of several major hydropower projects, mostly developed with Indian funding, caused by a variety of reasons, including protests against awarding to foreign companies.

With plentiful water resources, Nepal has an estimated 83,000MW of hydropower potential, but currently the actual production is a mere one to two percent of that potential. Selling energy to India is worth billions to Nepal and vitally important to India, which is in desperate need of electricity to help advance its economy. Nepal’s neighbor Bhutan has one of the highest per capita incomes in South Asia, partly thanks to electricity sales to India.

But once India’s partnerships in Nepal stalled, China’s entry into the power sector is expected to result in the timely completion of the projects. The West Seti Project, scheduled to be completed by 2019, is designed for purely domestic consumption so the Nepal Electricity Authority (NEA) will not seek a power-purchasing agreement with India.

Official projections suggest that by 2019 Nepal will have an assured supply of more than 17,000MW against total demand of 2,000MW, which will prevent Nepal from needing India for peak-time purchase.

Nepal officials deny that the decision not to hold open bidding gave China preferential treatment. Energy Minister Post Bahadur Bogati notes, “It would have taken time and Nepal would have lost one more opportunity to involve a credible company of international repute.”

The official also points out that the West Seti contract was originally awarded to an Australian company in June 1997 but had to cancel the contract over delayed start dates and disagreements over costs.