Beijing and New Delhi are competing for influence in Nepal. Navin Singh Khadka asks how this rivalry will shape the country’s hydropower policies.

Editor’s note: in February, Nepal signed a US$1.6 billion agreement with China to develop the 760-megawatt West Seti hydropower project within its borders. This marked a major push by China into Nepal’s water and power sector, which has long been dominated by India. It came as several other major dam projects, mainly developed with Indian investment, have stalled for various reasons, including protests by a faction of Nepal’s ruling Maoists against the awarding of deals to foreign companies. Nepal is sometimes called the "yam between two rocks” due to its position between India and China. Its hydropower sector is living up to the name.

It has become something of a merry-go-round. A Nepali lawmaker in a parliamentary subcommittee probing the West Seti hydro project deal reportedly accused energy ministry officials of behaving like Chinese agents.

Meanwhile, a faction of Nepal’s Maoists, the ruling party, opposing the initial agreement signed with Indian companies to develop Upper Karnali and Arun III hydropower projects, called the deal pro-India and anti-national.

If those were sweeping swipes and extreme judgements, consider this softer approach: no sooner had Nepal’s energy ministry signed the Memorandum of Understanding (MOU) on West Seti with the China Three Gorges International Corporation (CTGIC), than hopeful Indian hydropower developers contacted ministry officials, according to senior sources.

“They told us we were so quick to sign the MOU with the Chinese company while the projects they wanted to develop have remained in limbo,” one source told me. “They said they were happy to see the fast progress in case of West Seti and hoped that same would happen to the projects they have applied for.”

Indeed, it has been four years since the Nepali government signed MOUs with Indian companies GMR Energy and Sutlaj Jalvidyut Nigam to develop Upper Karnali and Arun III respectively. These projects have not moved forward since.

While it was barely a year ago that CTGIC came in contact with the Nepali government, the two have already signed the initial agreement. Power generated by the West Seti project will be entirely for Nepal, whereas Upper Karnali and Arun III, as agreed in the MOUs, will generate electricity mainly for the Indian market.

Who could understand that distinction better than the power-starved Nepali population? Perhaps that was why the Indian developers too “have agreed to be flexible to make more electricity available to Nepali consumers,” according to a senior politician involved in informal discussions with the Indian companies.

If that is how the Indians have begun to lobby, particularly in the wake of the deal signed with the CTGIC, what will the Maoist-led government do now? “We will be guided by the national policy of equidistance with both our neighbours,” energy minister Post Bahadur Bogati said in an interview for a report I did for the BBC Nepali service. “That policy will be followed in the area of hydropower development as well.”

Even if the Maoists tried seriously to pursue that policy, will it work? Especially, when observers believe Beijing and New Delhi have intensified competition to secure increased influence in Nepal?

Chinese companies have slowly but surely secured several development projects, including hydropower schemes. While some of them may have been completed in a satisfactory manner, many have seen costs spiral or severe and painful delays — the mirage of the Melamchi drinking water project is a striking example.

Even the CTGIC that built the almost 20,000-megawatt Three Gorges Dam has had financial troubles. China’s National Audit Office has uncovered 31 financial issues related to accounting, financial management, investment, bidding and corporate management, according to the Chinese state-run Xinhua news agency.

It is true that most Chinese contractors with projects in Nepal are private companies from the northern neighbour. But the latest contract signed, the 750-megawatt West Seti hydro-electric project, was witnessed by Chinese ambassador Yang Houlan himself. This happened in the same Nepal where, back in 1954, ministers agreed during a meeting with India that “…in matters relating to the relation of Nepal with Tibet and China, consultations will take place with the government of India.”

A lot of water has flown down Nepali rivers since then. Meanwhile, India has been able to secure a series of water-resource treaties that critics say do not much favour Nepal. And now, when Nepali bureaucrats talk of so many yet-to-be-done surveys before deciding whether or not to go for the Kosi high dam – that will control floods in India’s Bihar state – Indian state politicians have no doubt that the structure will be built.

Next, keen observers say, will be the newly elected chief minister of India’s Uttar Pradesh state, Akhilesh Yadav, who could start pressing for the Pancheshwar multipurpose project. Apart from dealing with the bordering Indian state governments, an unstable and disunited Nepal will also have to be receptive to New Delhi’s bigger agenda; like the mammoth river linking project involving more than 30 rivers.

So, will the tug of war between the two Asian giants shape Nepal’s water resources and hydropower policies? During his recent whistle-stop visit to Nepal, Chinese premier Wen Jiabao said Beijing wanted to see Nepal-India relations become stronger. A few days later, his Indian counterpart Manmohan Singh reportedly said India was happy to see Nepal’s good relations with China.

If Singh and Wen really meant what they said about Nepal garnering good relations with both, hydropower development would be an area to reflect that. Movement here would indeed indicate a change in the way Beijing and Delhi regard each other when it comes to Nepal.

Navin Singh Khadka is a BBC journalist based in London

This article was first published in the Kathmandu Post. It is reproduced here with permission

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