With the start of trilateral hydropower trade, South Asia embarks on historic cooperation

On November 15, a trilateral power-sharing agreement was signed between India, Nepal and Bangladesh came into force. Under the agreementsigned on October 3, hydropower-rich Nepal will export 40 MW of electricity via India’s power grid to energy-poor Bangladesh.

Nepal and Bangladesh do not share a border; Therefore, India, which connects the two countries, is part of the cross-border energy trade initiative. The project, which was jointly inaugurated by ministers of the three countries, is a historic milestone in regional cooperation.

It is the first trilateral hydropower project in South Asia.

India, Nepal and Bangladesh are also working together to develop the 683 MW Sunkoshi-3 hydropower project. Although the dam is located 60 km from Kathmandu in Nepal, the project will be jointly developed by conglomerates and developers in the three countries in collaboration with the three governments.

According to media reports, relations between India and Nepal, and between India and Bangladesh, are not in the best of health.

New Delhi is said to be angry with Nepalese Prime Minister KP Sharma Oli and has therefore not given him an extension invitation to visit India. India’s relations with Bangladesh are said to have deteriorated after the fall of Sheikh Hasina’s government. It is reported to Indian Prime Minister Narendra Modi have ‘declined’ a request from Bangladesh to meet with Chief Advisor to the Interim Government Muhammad Yunus on the sidelines of the recent United Nations General Assembly Summit in New York.

Despite their difficult relations, cooperation between these countries on multilateral projects is making progress in practice. The recent launch of the Trilateral Power Supply Agreement between Nepal, India and Bangladesh is an example of this.

Hydropower sharing between India and Nepal goes back decades. Last year, the two countries signed agreements providing for India purchase of 10,000 MW of hydropower from Nepal in the next ten years.

Progress has also been made in fuel supply connectivity between India and Nepal. On September 10, 2019, the two countries reached a historic milestone when they completed a 69-kilometer oil pipeline from Nepal’s Amalekhunj to India’s Motihari. The $45 million Indian-financed pipeline is the first cross-border oil pipeline in South Asia. India, the sole fuel supplier to landlocked Nepal, previously transported oil to Nepal only through tankers. Thanks to the oil pipeline, Nepal can now import fuel at a lower cost. In fact, the India-Nepal pipeline will save Nepal around $8.7 million in fuel transportation costs annually.

Intra-South Asian connectivity is among the worst in the world. Bilateral tensions, anti-India sentiments and smaller countries’ fears that India will dominate their much smaller economies have hindered improving connectivity.

As a result, South Asian countries suffer from poor ‘HAT’ connectivity, where H stands for hydropower, A for aviation and T for transit and tourism.

Cross-border hydropower projects are scarce in South Asia and the full potential of bilateral and trilateral cooperation between hydropower exporting countries such as Nepal and Bhutan and importing countries such as India and Bangladesh is yet to be realised.

As far as aviation is concerned, flying from Kathmandu in Nepal to Thimphu in Bhutan – the two countries are separated by a narrow strip of Indian territory – is more difficult than flying from Kathmandu to Thailand. There is no direct flight between New Delhi and Islamabad. Travelers must take flights via Gulf cities.

Transit travel isn’t any easier either. Bangladesh is less than half an hour’s drive from Nepal’s eastern border. However, to travel to Bangladesh, a Nepali traveler from the Far East of Nepal must go to the Bangladesh Embassy in Kathmandu, a 15-hour drive away, to obtain a visa. To get to Nepal from Bangladesh via India, there are troubling single-entry and double-entry issues, which harm the potential tourism connectivity in the region.

Hydropower exports from Nepal to Bangladesh and oil exports from India to Nepal through pipelines are among the rare cross-border connectivity projects in South Asia.

As the largest country in South Asia and the only one that shares borders with almost all countries in the region, India is uniquely positioned to facilitate and even lead HAT connectivity initiatives.

India’s recent efforts in energy connectivity vis-à-vis some of its neighbors indicate that the country is keen to emerge as a hub for trade in electricity and petroleum products in the region. In addition, India, Nepal and Bangladesh, where it has intensified cooperation on energy connectivity, will supply liquefied natural gas (LNG) for Sri Lanka’s power plants. Work is also underway on a submarine transmission line to supply electricity to the island.

However, such cross-border energy transmission arrangements are not always simple. Indias Adani power has been supplying electricity to Bangladesh since April 2023. However, in the wake of the currency crisis and political crisis following Sheikh Hasina’s resignation, Bangladesh has been unable to pay more than $800 million in dues to Adani Power. Adani Power has cut off the offer by more than 60 percent and says it will resume supply once Bangladesh starts repaying the outstanding amount. With post-Hasina bilateral relations in flux, India seems unwilling to budge from its position.

Despite some visible irritations on the diplomatic and political fronts, voices in support of regional connectivity and cooperation are growing in all countries. Such cooperation is an important agenda item for private players. South Asian governments must heed their demands and channel their energies toward regional cooperation.