Nepal | January 15, 2021

Bangladesh-Nepal energy cooperation; the horizon of new possibilities

Muhammad Hasanujzaman and Umesh Raj Rimal
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Bangladesh-Nepal bilateral relationship found new pace in August 2018 with the signing of an energy cooperation agreement to oversee investment, development and trade in hydroelectricity between the two countries. Under this arrangement, Bangladesh will import up to 9,000 MW of hydropower from Nepal by 2040.

The agreement also set up a Joint Working Group (JWG) to facilitate cooperation and a Joint Steering Committee (JSC) to review the progress of the JWG. The two committees are tasked to meet regularly and expedite the implementation of the agreement. The JSC has met twice, and the JWG has conducted several rounds of deliberations. However, the progress has not made headway due to delay in signing a tripartite agreement that includes India.

Bangladesh, with an average GDP growth rate of around 7.5% in the last decade, has positioned itself as one of the fastest-growing economies in the world. The aspiration of elevating its stature to a high-income country by 2041 should be coupled with sustained production of energy to feed the ever-growing energy demand from the infrastructure and industrial sector. Since non-renewable natural gas is contributing 75 per cent of its total fuel consumption, Bangladesh is in haste to replace this scenario by importing energy from other countries so that the depleting gas reserve can be slowed.

There are several reasons for Bangladesh’s interest in importing power from Nepal. The first is obviously to meet the ever-increasing demand to support its industrial growth. The second is to diversify the power-mix so that over-reliance on natural gas is minimised. Studies have shown that Bangladesh has ample reserves of high-quality coal. However, Bangladesh’s recent inclination to massively expand its coal-based power plants is not equally welcomed by environmentalists and concerned citizens groups. Moreover, environmental and resettlement issues have surfaced, prompting the government to shift its focus on renewable energies.

While the eroding stock of natural gas, which is mostly used for electricity generation in Bangladesh, puts pressure on the price of electricity due to the variable input cost, economists see a reliable supply of hydropower from Nepal. Moreover, being a strategic product, electricity import from multifarious sources would strengthen Bangladesh’s regional outlook by minimising its over-dependence on a specific entity. In this way, power purchase from Nepal would offer some additional economic and strategic incentives to Bangladesh, on top of providing a cushion for energy reliability.

Nepal, on the other hand, despite possessing technically and economically feasible 40,000 MW of hydroelectricity potential, has not been successful in harnessing the possibility. Having passed the period of intermittent power outages for long hours, the narrative of Nepal’s era of darkness has now become a thing of the past. Cross-border electricity trade has played a dominant role in this success story.

The other important aspect for Nepal to consider is the economic value of the export. The export basket of Nepal constitutes mainly agricultural and raw products of low value, and the total export cannot even support the import of petroleum products. While its neighbour India exports 13.7% of GDP and Bangladesh 16.6% of GDP, Nepal’s export is merely 8.6% of GDP with a whopping trade deficit of 38.1% of GDP. Despite the implementation of numerous policy measures by the government, including NTIS 2016, and cash incentives based on value-addition, exports have remained almost the same in the last decade.

Here comes the importance of electricity export not only to close the widening gap between import and export but also to bring in the much-needed foreign investment in the hydroelectricity sector. The export proceeds, which were less than US$ 1 billion in FY 2018/19, can be doubled by exporting just 1600 MW of electricity annually. Additionally, as Nepal is endowed with abundant hydropower potential, the export of 1600 MW will not affect the capacity to meet its internal demand.

The 15th Five-year Development Plan (2019/20-2023/24) of Nepal has set strategies to make electricity an exportable commodity. Nepal hopes to raise its power generation to more than 5000 MW from its current level of 1250 MW of electricity in five years, which would make Nepal an energy surplus country. On the flip side, Bangladesh wants to invest, produce and import surplus energy from Nepal.

Regional organisations like SAARC, BBIN and BIMSTEC can play a vital role in creating a common energy corridor that results in huge economic benefits for all the neighbouring countries. Although SAARC has not delivered as envisioned by the founders up until now, their idea of cooperation has become more relevant in recent years. Bangladesh, India and Nepal are not only member states in all of the three forums but they also openly embrace the policy of liberalisation. Given their common participation in multilateral fora like the WTO, there should be no reasons to block the common interest of these three historically, culturally and politically friendly neighbours.

The 21st century is the age of shared prosperity. The fragrance of prosperity spreads through cooperation and connectivity. Shying away from this reality benefits none. Envy and obstruction drag down all. The people in this region are eagerly waiting for collaborative concrete actions.

The first step towards energy cooperation should be the immediate signing of a tripartite agreement among Bangladesh, India and Nepal. A broader framework should be designed that encompasses private investment, public sector participation, cross-border transmission line construction, R & D and technology transfer, especially in the renewables, and sector-specific training and development programmes.

These three countries should create a Special Purpose Vehicle (SPV) jointly to administer cross- border transmission of electricity. A 100 KM transmission line connecting the three countries should immediately be constructed so that any surplus energy can be transferred and the deficit adequately met.

Let us not forget that every drop from the sky on Nepali land touches Bangladeshi land through India before completing the monsoon cycle that starts from the Bay of Bengal. The natural complementarity should not be hindered by any artificial prejudices, doubts and ambiguities. This region is like a human body, the Himalaya being the head and the vast ocean its feet.

Hasanujzaman is Joint Director of Bangladesh Bank, the Central Bank of Bangladesh and Rimal works for the Government of Nepal 

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