Kathmandu: Nepal and the US will prioritise constructing part of a proposed cross border transmission line between Nepal and India under the funding of Millennium Challenge Corporation (MCC), a US aid agency, Nepali officials said.

The MCC Compact, a $500 million aid programme of the US government has entered into implementation phase starting from August 30, which is supposed to construct around 20km Nepal section of proposed 140km New Butwal-Gorakhpur Cross Border Transmission Line in western Nepal.

A joint venture company formed by Nepal Electricity Authority (NEA) and Power Grid Corporation of India have already started work to construct the 120km Indian section of the proposed transmission line.

Prime Minister Modi and Nepali Prime Minister Pushpa Kamal Dahal had virtually held a groundbreaking ceremony for the 400kV cross border power line during Dahal’s New Delhi visit from May 31 to June 3.

The two countries had agreed to complete construction of the 120 km Indian section of the power line by March 2025 during the energy secretary level-joint steering committee meeting held in Jaipur, India in February.

“As India section of the proposed transmission line is expected to be completed in early 2025, a greater urgency will be shown to complete the Nepal section even though our mandate is to complete the project within five years,” a senior official of Millenium Challenge Accounts-Nepal (MCA-Nepal), a special purpose vehicle formed to implement the MCC projects in Nepal, told India Narrative.

Under the MCC Compact Programme, a 315-km transmission line with capacity of 400kV will be built while a section of Nepal-East West Highway will be improved. Nepal government will also be funding as much as $197 million U.S. dollar to implement the MCC funded projects.

NEA and the MCA-Nepal reached an understanding to fast-track the construction of this section of transmission line considering the target of completing the India section in early 2025.

“We have reached an understanding with the MCA-Nepal to match the construction of the Nepal section with that of the India section,” Dirghayu Kumar Shrestha, chief of transmission directorate at NEA told the Indian Narrative. “We have requested the MCA-Nepal to complete this section by the end of 2024 as the India section is expected to be completed by early 2025.”

Considering the possible delay while implementing the project under the MCC, the state-owned power utility body had earlier considered constructing this section of transmission line by itself by taking it over from the purview of the MCC. Later they reached an understanding that the MCA-Nepal would itself build this project in a fast-track manner.

NEA officials say the construction of this project is important as the country is looking to export power to India in large quantities as the Himalayan country is facing power spillage in the wet (summer) season.

The lack of adequate high capacity cross border transmission lines has emerged as major concerns as Nepal aims to boost its power export to India and beyond.

Currently, the 400KV Dhalkebar-Muzaffarpur Cross-border Transmission Line, is the only high capacity cross border power line between two countries. It is being used for exporting and importing power between Nepal and India. Nepal buys power from India during the dry season (winter) when Nepal’s mostly run-of-the river hydropower projects generate only one third of their total capacity.

Nepal and India have also agreed to transmit a maximum 800MW through the 400KV Dhalkebar-Muzaffarpur Cross-border Transmission Line from where maximum power of 452.6MW has so far been allowed to transit till date.

This cross-border transmission project can transmit power up to 1000MW. But Nepal is projected to generate 5,251MW by July 2025 while domestic demand is projected to remain at 2,568MW, according to the NEA. So, additional transmission lines will be required to export more power to India, according to the NEA officials.

According to Nepal’s state-owned power utility body, the proposed New Butwal-Gorakhpur line, whose construction will begin shortly, can transmit up to 3500MW.

With Prime Minister Modi promising to buy as much as 10,000MW of Nepal’s power in next 10 years during Nepali Prime Minister Dahal’s visit to New Delhi, the two countries will require more cross border transmission lines to ensure trading of power on such a large scale.

Besides these two cross border transmission lines, the SJVN Arun-3 Power Development Company Pvt Ltd, which is developing 900MW Arun-3 Hydropower Project in eastern Nepal, is also constructing 400kV Dhalkebar-Sitamarhi Cross Border Transmission Line.

Two other new cross border power lines are also in the pipeline after two sides agreed to build these two new projects during the last energy secretary level Joint Steering Committee held in Jaipur, India in February. Once all planned cross border power lines are built, there will be five high capacity transmission power lines between the two sides.

Move towards these major power infrastructure is taking place at a time when Nepal has emerged to become a power exporter after living in darkness for a decade and South Asia, particularly India, has big ambitions to fuel its economy with clean energy.

Nepal had faced a prolonged load shedding from 2007 to 2017 with power cuts prolonging to 18 hours a day at times. In 2018, the country had announced the end of all types of load shedding, by increasing imports from India initially.

When the country was facing prolonged power cuts, lack of high capacity transmission lines was identified as a key constraint to Nepal’s economic growth. Subsequently, the MCC decided to fund the 315-km transmission line project. Under the MCC, part of the New Butwal-Gorakhpur power line is also being implemented.

And, the proposed project has brought together Nepal, India and the US together to build a single cross border power line. Though it is not being constructed under trilateral cooperation among these three countries, both parts of the same project are being constructed with separate bilateral deals.

However, the involvement of the MCC for constructing the Nepal section of the proposed New Butwal-Gorakhpur Cross-Border Transmission Line would not be possible without India’s nod. In fact, one of the key US conditions for its funding for this cross border power line was that Nepal should first secure the southern neighbour’s nod.

A foreign policy expert said that growing convergence between the India and US interests also helped Nepal to secure India’s nod for building a cross border power line with US funding.

“India usually does not want expanded influence of outside powers in its neighbourhood including Nepal with its southern neighbour considering its neighbourhood as its sphere of influence,” Vijay Kanta Karna, Nepal’s Former Ambassador to Denmark, who is a keen observer of Nepal’s international relations, told India Narrative. “But India gave its nod to construct the cross-border power line with US funding amid growing convergence in interests between India and the US.”

He said that India’s own interest to secure hydropower from Nepal through the new cross border power line also helped Nepal to secure India’s nod for this MCC funded project.

Another important element of transmission line development under the MCC funding in Nepal is that only Indian companies will only be involved in constructing the 315-km transmission line in Nepal.

It is because only Indian companies participated in international bids called by the MCA-Nepal though even the Chinese companies were free to participate.

Association of Megha Engineering and Infrastructure Ltd. and Power Mech Projects Ltd; Kalpataru Power Transmission Limited; KEC International Ltd; Transrail Lighting Ltd; Tata Projects Ltd and Larsen and Toubro Ltd are the Indian companies that participated in the bid, according to the MCA-Nepal.

A senior MCA Nepal official said that they aim to award a contract in the next three months.

Until a year ago, the future of the MCC Compact Programme in Nepal was in doubt as it became a political hot potato issue in the Himalayan country after it was linked with the Indo-Pacific Strategy of the US, which many believe is aimed at containing China.

“We don’t fully rule out the possibility of some political challenges to implement the MCC funded projects but there is no visible big political risk at the moment,” a MCA-Nepal official said.