China is steadily making strategic inroads into Nepal. China’s latest deal with Nepal to build another largely Chinese owned dam project in that landlocked Himalayan country highlights its growing success in clinching major infrastructure contracts in India’s backyard to advance its economic and foreign policy interests.
Imagine the nationalistic backlash in Nepal had India tried to similarly secure a contract to set up a largely Indian owned dam there? Maoists, communists and nationalists in Nepal have seriously impeded hydropower development in partnership with India, which they portray as a regional hegemon. China, however, does not face such opposition, which explains why the new deal over the planned 750-megawatt West Seti Dam does not constitute the first Chinese hydropower project in Nepal.
China is quietly enlarging its presence in and leverage over Nepal, which risks becoming a client-state of Beijing.
While dressing its investment in the cloak of economic aid, China is imposing stiff commercial terms on Nepal, plus taking majority project ownership upfront. For example, its State-run China Three Gorges Corporation will have a 75% stake in the West Seti Dam, in mid-west Nepal.
Nepal potentially holds up to 83,000 megawatts of hydropower reserves, which, if tapped even partially, could make it a major exporter of electricity. By harnessing the natural bounty of the Himalayas to produce renewable electricity, Nepal could emulate the success of Bhutan in generating the hydro-dollars to fuel its rapid economic development.
Yet today, Nepal produces barely 800 megawatts of electricity for its 30 million citizens from all sources of energy, with the result that power outages for several hours a day are common, even in Kathmandu. Nepal controls the headwaters of, or serves as the corridor for, several rivers that flow into India, yet it imports electricity from that country.
As opposed to China’s water mega-projects at home, smaller scale, ecologically friendly projects in the Himalayas — if properly planned and designed, and backed by thorough and impartial environmental impact assessments — can yield major benefits without carrying significant environmental and social costs. Environmentally sound hydropower is particularly attractive because, despite the high upfront capital intensity, a hydropower plant has a life span almost double that of a nuclear-power reactor and generates electricity with no fuel cost.
India, as the subcontinent’s largest energy consumer, has sought to incentivise a sub-regional energy grid. Yet, the vast majority of its own Himalayan hydropower projects have been delayed, suspended or shelved, largely due to grassroots opposition. Although India has employed water cooperation as a tool of its diplomacy with Nepal, including extending credit on concessional terms, the political dividends have been meagre.
Nepal serves as the corridor for several rivers that flow into India’s Gangetic plains from Tibet. In fact, virtually all of Nepal’s rivers empty into the Ganges basin. Five important river basins run through Nepal, including the Mahakali in the west, the Karnali, the Gandak and the eastern Kosi. The Kosi is a seven-river system drawing waters from the Arun, Sun Kosi, Indravati, Bhola Kosi, Dudh Kosi, Barun and Tamur rivers.
The United Nations describes Nepal, with a per capita notional availability of 7,296 cubic metres per year, as “one of the Asian countries with the highest level of water resources per inhabitant”. Yet, such is Nepal’s water curse that the failure to adequately harness water resources has resulted in water shortages in its major cities, including Kathmandu.
Whereas countries afflicted by what development economists call the “resource curse” find it difficult to break out of slow rates of economic growth and high levels of income inequality, despite relying on major exports of natural resources, Nepal’s water curse has come without exploiting its resource reserves for its own needs, let alone exporting hydropower.
No less significant is the fact that Nepal has several water treaties with India but none with China, which has dammed the Karnali just before it enters Nepal, and which is planning to build a cascade of five dams on the upper reaches of the Arun. The construction of that cascade, by diminishing flows into the Ganges, could affect India’s Ganges water-sharing arrangement with Bangladesh, with India being forced by the treaty’s terms to bear the shortfall in downstream flow volumes.
Water can potentially be to Nepal what oil is to Arab sheikhdoms. The problem is that Nepal has been wracked by severe political flux since the early 1990s. It remains today in a politically shaky position — a country increasingly divided by its murky politics.
The sorry state of affairs in Nepal has seriously hampered its hydropower and irrigation expansion, even though such advance is essential to bring much-needed development and revenues and to help tame the trans-boundary rivers that often overrun their banks in Nepalese and Indian areas during the monsoons. Bangladesh has actively sought the construction of hydro works in Nepal to augment the Ganges’ lean-season flows at Farakka, the critical downriver point where the waters are shared between India and Bangladesh.
In fact, the integrated development of the Ganges basin demands trilateral institutional collaboration between Nepal, India and Bangladesh, with the cooperation extending to energy, transit and port rights.
However, the picture has been muddied by China’s entry as an important player in the Nepalese hydropower sector and its dam-building activities in Tibet. Beijing is steadily increasing its clout in Nepal at India’s expense. Nevertheless, Nepal still needs India, simply because of geography.
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China can replace India as Nepal’s main provider of essential supplies only by moving the Himalayas southward. Given that Nepal shares multiple river basins with India, it must cooperate with India to harness the waters of the common rivers for shared benefit. But if Nepal remains battered by political turmoil, it risks becoming a failed state — a development that will carry major implications for India, given the open India-Nepal border, which is already a security headache for India.
Brahma Chellaney is a geostrategist and author
The views expressed are personal