India and Nepal have signed an agreement to start selling electricity to each other, deepening energy ties between the two nations and boosting New Delhi’s efforts to grow its influence among its smaller neighbours.
Under the agreement, India will help develop Nepal’s vast but under-exploited hydropower potential and buy electricity to help tackle its own energy shortages. The agreement commits both countries to buy and sell electricity during times of shortages.
Nepal is estimated to have the potential to generate as much as 42,000 megawatts of electricity by harnessing the power of its rivers, but it has installed capacity of just over 800 MW and suffers blackouts for up to 18 hours a day.
The power trade agreement with India will initially help Nepal to import electricity to meet domestic shortages. India could start buying power from Nepal once the GMR plant starts generation in 2021 and Kathmandu is generating enough electricity to meet domestic demand.The export of power would also help Nepal’s trade deficit with India, which stood at $4 billion in 2013, up from $3.1 billion a year earlier.