Nepal can and has been working with Indian, Chinese and other countries and donors to develop its hydropower. With India, there can be three types of cooperation: harness border rivers, allow Indian companies to invest in hydropower, and accept Indian government aid for projects.
First, the Pancheswor multi-purpose storage project on the border Mahakali River is the one most ready to go. Nepal and India signed an agreement on this 6,700 MW dam 18 years ago, and the detailed project report is also ready.
Pancheswor is mutually beneficial for water and energy, and Nepal should seriously revive the proposal this time.
Second, many Indian companies have licenses for hydropower projects in Nepal. Among them, Upper Karnali and Arun III have reached the power development agreement (PDA) stage. The draft for Upper Karnali is ready and can be signed during the Modi visit, and presented as a precedent for other investors.
Third, the project most suitable as Modi’s gift is Arun III since it is ready to go and is being built by a state-owned Indian company, Sutlej. If a neighbour wants to gift us a project, that would be welcomed. But it may not be appropriate for Nepal to beg India to build Arun. Instead, Nepal could fund it with a soft loan from India, China or build the project by itself to attain self-sufficiency in energy infrastructure.
On the eve of the Modi visit, a minimum common understanding seems to be emerging between various political groups, especially with regards the proposed power trade agreement (PTA). The lack of a PTA with India has delayed projects like Upper Karnali and others, which is why it is urgent that its provisions be finalised during the Modi visit. Nepal had sent a draft PTA in 2010, but the Indian side did not respond for four years. When it did send its draft, its ambiguous provisions made it controversial. It is necessary to separate the generation of hydropower and its trade. We should have an agreement about trading power with India, but how we develop our generation capacity is up to us. We need to do this to remove our crippling power shortage and to spur industrialisation.
There are two schools of thought: that we should never have an agreement with India or that we should accept all conditions from India and sign an agreement. We need a middle-of-the-road solution. Nepal should develop its water resources, and for this it needs to cooperate with India while preventing negative longterm impact from it. The visit is an opportunity for Modi, too, to show that he is generous not just in words, but also in deed.