The 13th Joint Steering Committee on energy cooperation between India and Nepal, which concluded on July 15, 2026, in Pokhara, presented a familiar performance. Officials toasted to new agreements, raising the combined power transmission limit to 1,650 megawatts for exports and 1,400 megawatts for imports. On paper, it looks like a triumph for regional integration. In reality, it is a masterclass in asymmetrical diplomacy. Nepal remains trapped in an energy paradox, where its vast river systems are leveraged not for its own rapid industrialization, but as chess pieces in a larger geopolitical game controlled entirely by New Delhi.
While press releases focus on transmission lines, the structural gridlock holding back Nepal’s energy sector is worsening. India's stringent cross-border power guidelines, combined with a highly contentious domestic legal battle over the Phukot Karnali Hydropower Project, have turned the dream of a Himalayan energy powerhouse into a commercial and political minefield.
The Illusion of Capacity Upgrades
A higher ceiling on transmission lines does not guarantee that power will flow freely.
At the Pokhara summit, negotiators agreed to expand the transfer limits across the 400 kV Dhalkebar-Muzaffarpur and Dhalkebar-Sitamarhi lines. This was celebrated as a necessary step toward fulfilling the 2024 bilateral agreement, under which India pledged to buy up to 10,000 megawatts of electricity from Nepal over ten years.
But transmission capacity is merely hardware. The software—the regulatory and geopolitical rules that govern who can sell power to whom—is where the real bottleneck lies.
+-------------------------------------------------------------------------+
| THE TRANSMISSION CAPACITY GAP |
+-------------------------------------------------------------------------+
| Existing Transmission Limit (Exports): 1,100 MW |
| Newly Agreed Limit (JSC Pokhara): 1,650 MW |
| Actual Dry-Season Power Deficit (Nepal): Recurrent domestic shortages|
| India's 10-Year Import Commitment: 10,000 MW |
+-------------------------------------------------------------------------+
Nepal’s river systems are primarily run-of-the-river. They gush with water during the monsoon, creating a massive surplus of electricity that Nepal’s underdeveloped domestic grid cannot absorb. During the dry winter months, however, river flows drop drastically. The country’s generation capacity plummets, forcing Nepal to turn around and import expensive coal-fired power from India to keep its lights on.
By focusing almost exclusively on building high-voltage export corridors, the Joint Steering Committee is serving Indian market demands while doing very little to solve Nepal's seasonal energy insecurity. The infrastructure is being laid, but the terms of trade remain heavily skewed.
The Phukot Karnali Quagmire
Nowhere is the friction of this energy partnership more visible than in the ongoing drama surrounding the 480-megawatt Phukot Karnali Hydropower Project.
In May 2023, during a high-profile visit to New Delhi by then-Nepali Prime Minister Pushpa Kamal Dahal, Nepal’s state-owned Vidyut Utpadan Company Limited (VUCL) and India’s state-run NHPC Limited signed a Memorandum of Understanding (MoU). Under the agreement, NHPC took a 51 percent controlling stake, while VUCL retained 49 percent. As part of the bargain, Nepal was to receive 21.9 percent of the generated electricity completely free of cost.
Then the courts intervened.
Local activists filed a writ petition, arguing that giving away a high-yield national resource to a foreign state-owned company under those terms violated the national interest. In a ruling that shook the bilateral energy establishment, Nepal’s Supreme Court ordered the government to amend the MoU. The court directed that Nepal's share of free electricity must be increased significantly, in direct proportion to the state's prior investments in pre-construction and feasibility studies.
The ruling has thrown the project into total chaos.
NHPC has made its position clear. The Indian utility argues that the original 21.9 percent free power threshold already pushed the project to the brink of financial unviability. If Kathmandu demands more free electricity to satisfy the Supreme Court, NHPC wants the Nepali government to provide approximately Rs 56 billion ($420 million) in Viability Gap Funding to bridge the deficit.
The original MoU expired in May 2025 and has not been formally renewed. During the Pokhara meetings, the issue hung over the delegates like a dark cloud.
The Kathmandu government is trapped in a classic political vice. If it petitions the Supreme Court for a review of the ruling to appease India and save the project, domestic opposition parties will immediately paint the administration as sellouts yielding to Indian pressure. If it stands by the court's decision, NHPC may walk away entirely, leaving Nepal with a half-studied river basin and a severely damaged reputation among international investors.
This is the commercial reality behind the diplomatic theater. Joint ventures are not built on goodwill; they are built on rate-of-return math, and currently, the math does not work.
The Geopolitical Veto
To understand why Nepal cannot simply look elsewhere for investment, one must look at India’s Cross-Border Electricity Trade (CBET) guidelines.
Introduced and refined by New Delhi, these rules are designed to prevent countries that do not have a bilateral power agreement with India—specifically China—from exporting electricity into the Indian grid. In practice, India will not buy electricity from any project in Nepal that has even a fraction of Chinese involvement, whether through direct equity, construction contracts, or even the purchase of Chinese-made equipment.
This is a highly effective, non-tariff barrier that serves as a geopolitical veto.
Nepal’s hydro potential is estimated at over 40,000 megawatts of economically viable power, but the country lacks the domestic capital to build these multi-billion-dollar plants. For years, Chinese state-run firms were active bidders, offering cheaper construction costs, faster timelines, and willing capital.
India’s CBET guidelines ended that.
Faced with the reality that any project built by Chinese contractors would be barred from exporting to India—the only viable export market—Nepal has been forced to systematically cancel contracts with Chinese firms. These projects are then handed over to Indian Public Sector Undertakings (PSUs) like NHPC and Satluj Jal Vidyut Nigam (SJVN) on a nomination basis, bypassing competitive bidding.
This is not a free market. It is an enforced monopoly.
+-----------------------------+
| NEPAL'S HYDROPOWER |
| DEVELOPMENT DILEMMA |
+--------------+--------------+
|
+----------------------+----------------------+
| |
+-----------v-------------+ +-------------v-----------+
| THE CHINESE TRACK | | THE INDIAN TRACK |
| • Cheaper construction | | • High-cost development |
| • Faster execution | | • Slow implementation |
| • Abundant capital | | • Guaranteed grid access|
| BUT | | BUT |
| • Banned from exporting | | • Asymmetrical terms |
| power to India | | • Strict sovereignty loss|
+-------------------------+ +-------------------------+
By shutting out third-country competition, India has kept the price of imported Nepali power artificially low. Nepali consumers often pay higher rates per unit of electricity domestically than what India pays to buy the country's wet-season surplus. It is an economic arrangement that extracts cheap, clean energy from a developing neighbor while ensuring that neighbor remains dependent on Indian grid management and capital.
The Symbolic Bangladesh Sidebar
Throughout these regional tensions, diplomats often point to the trilateral power trade involving Bangladesh as a sign of progress.
Nepal recently resumed its seasonal export of 40 megawatts of electricity to Bangladesh via the Indian transmission grid. Promoters of the deal call it a historic milestone in South Asian connectivity.
But let us look at the actual scale.
For a country like Bangladesh, which faces severe industrial power shortages, 40 megawatts is a drop in the ocean. It is barely enough to power a few textile mills. Nepal and Bangladesh have agreed in principle to expand this supply to 60 megawatts, but even this minor adjustment has been sitting in New Delhi for months, awaiting Indian approval.
India controls the physical wires. Because the electricity must pass through the narrow Siliguri Corridor on Indian soil, New Delhi maintains absolute transit control. It can permit, throttle, or shut down this trade at its own political discretion.
Using 40 megawatts as proof of successful trilateral cooperation is an exercise in public relations, designed to mask the reality that no power moves in South Asia without India’s explicit permission.
The Path Left Untravelled
If Nepal wants to escape this cycle of dependency, it must reconsider its fundamental energy policy.
For decades, Nepali policymakers have operated under the assumption that the country’s primary path to wealth is exporting raw, unrefined electricity. This is a flawed economic premise. Exporting electricity is the equivalent of exporting raw timber instead of finished furniture.
Instead of building multi-billion-dollar transmission corridors to supply Indian industries, Nepal’s internal strategy should focus heavily on domestic industrial electrification.
By offering cheap, reliable, and subsidized power to local manufacturing, cement plants, agriculture, and transport, Nepal could dramatically reduce its massive trade deficit, which is heavily tilted toward India and China. Using clean energy to substitute for imported fossil fuels would keep the economic value of that power within the country’s borders.
The Pokhara summit made one thing clear: as long as Nepal treats its rivers primarily as an export commodity, it will remain at the mercy of its neighbor’s regulatory whims. True sovereignty is not negotiated at a Joint Steering Committee table. It is built by lighting up your own factories first.
