IDR Blog

Water Wars : Exploiting Nepal’s Hydroelectric Potential
Star Rating Loader Please wait...
Ashwani Gupta | Date:01 Dec , 2017 0 Comments
Ashwani Gupta
Ashwani Gupta, Senior Fellow at CLAWS.

Nepal’s biggest hydroelectric project awarded to Chinese firm, Gezhouba Group Corporation (CGGC) was scrapped in November 2017 citing procedural shortcomings. The $ 2.5 billion project on Budhi Gandaki river had been awarded in June 2017. The project was touted by China as a strong component of the Chinese Belt and Road Initiative (BRI) and Chinese commitment. Having a catchment area of 5005 square kilometres, the project on completion would have generated 1200 MW meeting the bulk of Nepal’s annual requirement of 1400 MW. The funding for the project was to be arranged by CGGC as a soft loan. The cancellation of the contract is a blow to Chinese efforts to enlarge its footprint in Nepal by construction of infrastructure projects. The cancellation of the contract again brings focus on China and India as both the nations are vying for influence in the mountain kingdom with aid and investment in infrastructure projects.

A substantial segment of hydroelectric potential is concentrated in Bhutan, China and NE India. The growing regional demand can be met by harnessing the vast resources available, especially in Bhutan and Nepal. Bhutan has an estimated potential of 23,760 MW capacity and as its own consumption is low, a considerable portion is exported to India. It is estimated that by 2020, Bhutan will have an installed generation capacity of 10,000 MW with Indian assistance [1]. On the other hand, Nepal has the one of the largest generation potential at 84,000 MW out of which 43,000 MW is considered as commercially viable [2]. But, the present installed capacity is only 753 MW. Chinese firm Three Gorges International Corporation has been awarded a 750 MW project on West Seti river in western Nepal. Also, two Indian firms have been awarded 900 MW projects each for export to India [3]. Given the huge potential, it becomes an attractive proposition for India to develop the hydroelectric plants in Nepal for export to India on the similar lines as Bhutan. The huge reservoir of untapped energy led to massive Chinese investment as development of hydropower plants would also necessitate construction of roads and other infrastructure which would have been undertaken by Chinese firms.

China has been providing heavy assistance fo rconstruction of infrastructure projects in Nepal with an aim to wean it away from Indian influence. In a two day Nepal Investment Summit held in March 2017, Chinese firms had pledged an investment of $ 8.3 billion whereas Indian investment was $ 317 million [4].  China has active funding in 108 projects in Nepal with projects in sectors ranging from agriculture, tourism to hydropower and roads [5]. Chinese firms are building two airports in Nepal, at Pokhara and Lumbini. The Pokhara airport,with a planned 2500 metres runway is partly funded by China’s EXIM bank and is slated to be completed by 2021; the existing Lumbini airport is being upgraded to an international airport and is likely to be completed by 2019. In September 2017,  China linked the highway from Shigatse to Kodari in central Nepal. The highway (G318) that connects to Lhasa and Kodari is linked to Kathmandu by the Araniko highway. Thus, the road connection from Kathmandu to Lhasa is now a reality. The Chinese plan to bring rail network to Kathmandu envisages an $ 8 billion investment to link the rail network from Kathmandu to the Chinese border town of Gyirong. The Shigatse-Gyirong rail link will provide connectivity to Lhasa. Having signed the BRI agreement in May 2017, Nepal has been looking forward to substantial investment by Chinese firms to construct and upgrade its existing infrastructure. The Chinese FDI was welcomed in Nepal after years of instability and Chinese firms were involved in every sector. The Nepalese society has, however, now realized that development is on Chinese terms by way of funding, hiring minimal locals and using its own firms and labour for construction. There are concerns that China may use development as a means to undermine sovereignty of Nepal [6].  Fears of rising debt due to Chinese loans and sovereignty concerns could be the reasons for cancellation of the 1200 MW Budhi Gandaki project.

The Madhesi blockade had affected Nepal’s relations with India and China was quick to exploit the situation by offering Nepal a gateway via Tibet. Post the blockade an increased Chinese investment enabled it to strengthen its influence over Nepal. India and Nepal have strong bilateral relations and enjoy strong cultural, religious and people to people contacts. India must increase its investment in Nepal to counter the growing Chinese influence. It would be in India’s interest to strengthen its relations not only with Nepal but also other neighbourhood countries to thwart Chinese regional influence by investing and participating in construction of infrastructure projects for regional economic development which provide tangible benefits to all participants.

Courtesy: With permission reproduced from


[1] International Hydropower Association report on Nepal. Available at Accessed on 14 November 2017

[2] Ibid

[3] Nepal scraps $2.5-billion hydropower plant deal with Chinese company, dated 13 November 2017 and published in Economic Times. Available at  Accessed on 14 November 2017

[4] Giri Anil, Chinese firms to invest $ 8.3 billion in Nepal. Published in Hindustan Times on 04 March 2017. Available at Accessed on 14 November 2017

[5] Nepal’s China Challenge, 16 August 2017. Available at Accessed on 14 November 2017

[6] Ibid

Rate this Article
Star Rating Loader Please wait...
The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

Post your Comment

2000characters left