China pulling out from a $1.2 billion project in Nepal could be an opportunity for India

• China Three Gorges International (CTGI), has pulled out of the West Seti hydropower project, explaining that it isn’t feasible.
  
• CTGI’s exit will have a definite impact on the credibility of Chinese firms in Nepal, and could set a troubling precedent for similar projects.
  
• It could be ripe moment for India to step in. Earlier this year, India’s state-backed Satluj Jal Vidyut Nigam (SJVN) commenced construction on one of Nepal’s largest hydroelectricity projects, Arun 3.
  

India has always been increasingly wary of China’s growing closeness with its neighbours over the recent years, a key example being Nepal. In need of financing for development and infrastructure, Nepal has signed deals worth billions of dollars with China for hydroelectricity, road construction, manufacturing and agriculture projects.

However, the countries’ burgeoning relationship might have just hit a snag. A state-owned Chinese power company, China Three Gorges International (CTGI), has pulled out of the West Seti hydropower project after explaining to the Nepalese government that the project isn’t feasible.

The $1.2 billion undertaking would have resulted in the completion of Nepal’s first reservoir project by 2019, but without construction not even having begun yet, the project will likely be shelved indefinitely.

The two sides have been sparring over the terms of the project for some time now. The Nepalese government had offered to reduce the capacity of the project by 20% to 600 MW and extend the power purchase agreement from 10 years to 12 years, but CTGI still felt that high displacement and transmission expenses would compromise the cost-effectiveness of the project.

A possible rift

The pullout of CTGI from the project will have a definite impact on the credibility of Chinese firms in Nepal, and could set a troubling precedent for similar projects. Additionally, Nepal is also wary of finding itself in a Chinese debt trap, as experienced by other South Asian countries like Pakistan and Sri Lanka.

All things considered, it could be a ripe moment for India to step in. India already has a number of vested interests in Nepal’s hydropower sector, a sector that it has traditionally been monopolised.

Earlier this year, in May, India’s state-backed Satluj Jal Vidyut Nigam (SJVN) commenced construction on one of Nepal’s largest hydroelectricity projects. The 900 MW Arun-3 project represented a mending of ties between India and Nepal following an economic blockade at their border in 2015 and 2016.

Regardless of the outcome of the West Seti project, India should see CTGI’s exit as a way to improve its own clout in Nepal. Nepal’s Prime Minister, KP Oli, had been relying on Chinese investment to reduce the country’s dependence on India, however the latest development could see things pivoting back to the latter.