More power to Nepal-Bangladesh ties

Bangladesh is growing at an average rate of six per cent for the last decade with relatively stable political environment. New industries and international business ventures have contributed to healthy manufacturing sector, establishing thousands of industries across different parts of the country. These industries employ hundreds of thousands skilled, semi-skilled as well as unskilled labour, who have together formed a backbone of an emerging economy. Naturally, Bangladesh's economic hunger has led to a sharp increase in its energy consumption and the demand for electricity is growing faster than any time in the nation's history. A study called Bangladesh National Conservation Strategy suggests, by 2030 the electricity demand in the country will be around 34,000 MW. 

Currently, Bangladesh generates over 15,379 MW of electricity; mainly through gas fired thermal power plants, which will gradually decrease after 2018. Therefore, Bangladesh government formulated Power System Master Plan that has given sufficient attention on importing renewable energy from neighbouring countries as it is not possible to produce clean energy on large scale due to lack of appropriate land. There is still a shortage of around 10,000 MW, which could double over the next decade as the industrial structure changes from labour to energy intensive and it is hoping to become a member of High Income Countries by 2041.

In order to fulfil its energy demand, it imports 600 MW of electricity from India and has signed a Power Purchase Agreement with India to import additional 60 MW from Tripura state. Similarly, a joint venture company of India and Bangladesh is developing 1,320 MW thermal power station in Bangladesh. There is already a plan to build an oil and gas pipeline between India and Bangladesh that will boost mutual cooperation between these countries, and another ambitious plan to lay 6,900-km of pipeline that will bring in Myanmar's natural gas to both the countries. The projects promise to bring the two South Asian economies closer, by fostering mutual interdependence. This is good news for Nepal, which is looking to expand its energy market in South Asia.

Despite Bangladesh's aggressive pursuit for economic growth, the government in Dhaka is also under pressure to reduce its dependence on fossil fuel to increase contribution of renewable energy sources for both long-term energy security and environmental sustainability. The rate at which the economy of Bangladesh is growing, and the importance being put on clean source of energy, will eventually prompt Dhaka to look towards Nepal and Bhutan to fulfil its clean energy deficit. This will not only fulfil Bangladesh's energy demand but also protect it from vulnerability due to climate change due to greenhouse gas emission. 

Ministry of Power, Energy and Mineral Resources of Bangladesh has already shown interest in importing electricity from Nepal by sending an official letter to Ministry of Energy in Kathmandu, for signing a mutual Power Trade Agreement (PTA). Bangladesh has proposed to invest $1 billion in Nepal's hydropower sector to import thus produced electricity for its own consumption. The Nepali side has welcomed this proposal as the existing hydropower generation potential in the country is much more than Nepal's consumption capacity and will need an international market. But that alone is not sufficient. A successful trans-boundary energy trade requires convergence of energy policies among neighbouring countries. This means, Nepal needs to engage closely with India for facilitating trans-boundary energy transmission infrastructure and help develop necessary infrastructure for the connectivity. 

As Nepal and Bangladesh do not share common border with each other, they need to use transmission system of India to trade electricity with each other by paying wheeling charges. During Bangladesh's Prime Minister Sheikh Hasina's visit to India in April 2017, India has shared its commitment to play facilitative role in transferring electricity from Nepal to power hungry Bangladesh, though there is no written document. New Delhi's position is in consistence to Framework Agreement for Energy Cooperation signed by SAARC member countries during Kathmandu Summit in 2014. The framework agreement provides non-discriminatory transmission access for cross-border electricity trading. Bangladesh is already keen to import electricity which will be generated from the under construction Upper Karnali Hydroelectric Project (900 MW) which is being developed by India's GMR company. Both, Bangladesh and Nepal are establishing power trading organisations in their respective countries to facilitate energy trade in the near future.

After the convergence of economic policies of Bangladesh, Nepal and India, a lot of positive initiatives have been taken in the field of energy cooperation, transportation, communication and other sectors to integrate the sub-region for mutual benefits. The growing economic interdependence between India and Bangladesh could act as a fulcrum in this region, possibly entire SAARC region, bringing prosperity and peace to people living in this block by harnessing human and natural resources. 

With closer cooperation, Nepal, Bangladesh and India can unleash unexplored avenues of economic integration through greater connectivity via highways, waterways and railways. This sort of integration not only increases interdependences, it also helps to foster mutual trust that guarantees peace and development. In the long-term, the cooperation among these countries has the potential to lift a large section of population from poverty, setting the sub-region into higher growth trajectory.

(This article was originally published in The Himalayan Times in February 25, 2018, and can be reached at http://epaper.thehimalayantimes.com/textview_7000_3142_4_1_20_25-02-2018_71_0.html) (It was reprinted in The Daily Observer, Bangladesh as an op-ed in March 4, 2018, and can be reached at http://www.observerbd.com/details.php?id=125551) 

On the Brighter Side

Nepal and India must keep energy sector away from their geopolitical calculations and cooperate for an energy sufficient future.

There has been much written and said about Nepal's rich water resources and its potential for harnessing electricity. Hundreds of rivers flowing down from the Himalayas can produce upto 83 GW, which not only fulfill the national energy needs but can also help in meeting the demand of neighboring nations. However, given the disappointing generation capacity of the country over last two decades, Nepal has had to import nearly 50% of the electricity from India, instead.    

In the last two years alone, Nepal imported a significant amount of electricity from India to overcome 12-16 hours of power-shortages which had brought the industries to a grinding halt, contributing to unemployment, inflation and mass exodus of skilled workforce to other countries. Dramatically, in the last 12 months industrial output has increased and the costs in the service sector has gone down. This has significantly cut the inflation rate and contributed to creation of new jobs in the economy, especially the industrial sector.

The industrial output is estimated to increase by 9.7% in the current fiscal year, according to the survey report released by Ministry of Finance of Nepal. Additionally, availability of electricity has played a key role in promoting entrepreneurship and business activities with the surge in registration of productive and energy depended industries. This shows growing confidence of private sector in the economy and has contributed to healthy economic growth rate projection of 6.79% for the current fiscal year.

The demand for electricity in a growing economy like Nepal varies from hour to hour and month to month due to shifting pattern in electricity consumption for households and industrial needs. Similarly, the availability of electricity from various sources such as hydro, wind and solar plants also depends on seasonal changes due to availability of water in the rivers, flow of wind and number of sunlight hours respectively. Until we attain a stable and surplus supply of electricity from bigger projects in the pipeline, such variations and gaps between demand and supply side could have significant impact in our resurgent economy.   

An analytical study, Economic Benefits from Nepal-India Electricity Trade, by Integrated Research and Action for Development (IRADe) has taken this into account and suggests, Cross Border Electricity Trade (CBET) between Nepal and India can benefit both countries as Nepal can import electricity from India until it can overcome the deficit, and can export the electricity back to India when the construction of its ongoing mega projects from public and private sectors will be completed, as projected by 2025. This is a mutually beneficial arrangement for the two neighbors who have lot to depend on each other for.

For India, an economically strong Nepal will not only create a viable market for its goods, it will also be an attractive destination for shifting its industries which consume large amount of electricity and require competitive workforce. Importing surplus electricity from Nepal will also further help to relieve pressure on its energy hungry economy.     

For Nepal, the money earned from energy trade as well as hosting Indian industries not only helps in decreasing trade deficit and improving balance of payments, but also in increasing gross domestic product (GDP) and creating new jobs in the economy, which will help to reverse migration of skilled manpower.

The energy cooperation between the two countries will help India in meeting its demand in the peak hours, once Nepal starts exporting the electricity. India can then balance its energy generation in favor of renewable sources, reducing dependence on huge thermal and nuclear power plants. This will significantly cut down carbon emission and contribute to India's international commitments on Nationally Determined Contributions (NDCs), including Paris Accord. 

However, to realize the boundless possibilities in energy cooperation between Nepal and India, crucial steps must be undertaken. The most prominent being, a political consensus at the domestic front within both the countries, and at the bilateral level. This means, keeping energy trade away from immediate diplomatic and geopolitical calculations. The conventional understanding that Indian interest in Nepal's hydro-power sector is guided by its strategic needs rather than energy requirements, must change for better. India can demonstrate this by investing in cross-border transmission lines and reaching out to Nepal's private power producers. 

Lack of transmission system has been one of the biggest bottleneck in facilitating cross-border electricity trade, and it is more expensive and challenging than the construction of a hydropower project due to its linear nature. Nepal and India have planned to build three different cross-border transmission lines, but have only managed to complete only one, which stretches from Dhalkebar to Muzzafarpur. Other transmission projects such as Butwal-Gorakhpur and Lumki-Bareli have remained stagnant due to land acquisition, right of the way and environmental and social concerns on both Indian and Nepali side. Both countries need to step up efforts to effectively deal with these issues without further delay.

Nepal must do its homework sincerely by expediting necessary policy reforms in the energy sector to attract both public, private and international investments. The government formulated New Hydropower Policy in 2001 to address some policy related issues, but it has yet to formulate a New Hydropower Act. As a result, we have several constraints like, a state monopoly in the construction of transmission lines in Nepal. It is necessary to have a multi-buyer/seller model to create level playing fields for all and increase efficiency in the supply chain, for both domestic consumption as well as for exports. 

Secondly, it is utmost necessary to harmonize policy, the legal and regulatory framework as the current policy and legal frameworks are primarily designed with the objective of utilizing domestic resources. As a result, they have limited provision for utilization of resources at the regional level. It causes significant challenges for financial institutions, developers for making the investment in the regional utilization of energy resources. 

At the regional level, both India and Nepal should lobby to form a competitive power market in South Asia for power trading, instead of participating governments dictating their terms, which is often guided by their geopolitical interests rather than market rationale.  A regional power sector master plan could prove very effective in ensuring energy security in South Asia, by bringing together countries that have potential for surplus generation but lack sufficient investment capacity, and the growing energy hungry nations that can help boost production in these countries and benefit from energy trade. A smart energy diplomacy is the future.

(This article was originally published in The Himalayan Times in June 25, 2017, and can be reached at http://epaper.thehimalayantimes.com/detailimageviewer.php?id=2487&boxid=3275&cid=3&mod=1&pagenum=1&pagedate1)