[Diplomacy] India Nepal Power trade Agreement (PTA): Features, issues; Bhutan Hydro Love-n-Hate

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  1. D1: India-Nepal agreements during Modi visit
  2. D2: Power Trade agreement (PTA) with Nepal
  3. D3: India-Bhutan: Hydropower sharing
  4. D4: Indian Intervention in Bhutan Politics

D1: Power Trade agreement (PTA) with Nepal

Happened in September 2014, after Prime Minister Narendra Modi came back from Nepal.

  • Now any Nepali public or private entity can sell electricity to India.
  • India wanted to setup a joint venture Company with Nepal- for trading electricity. But Nepali Government did not agree.
  • India even offered to help developing Nepal’s hydro-electricity power but their political factions disagreed.
  • Modi has earlier said- Nepal has immense hydropower and just be selling electricity to India, they can become a developed country(!)
Features of PTA with Nepal
Includes Doesn’t
electricity power trade, cross-border transmission, inter-connection and grid-connectivity Indian investment in Nepali power sector.


Don’t confuse
Power trade agreement Power Development pact
Between respective Governments of Nepal and India Between GMR India with Nepali Government to develop Karnali hydropower.
Signed with consensus of Maoists and other political factions of Nepal. Nepali maoists don’t like this, not one bit so they’ve began protests.

D2: India-Nepal agreements during Modi visit

India Nepal Agreements during Modi visit (Aug’2014)
  • HIT – Highways, Information ways, Transways.
  • Modi promised them $1 billion loan for infrastructure and energy projects
  • Will form Boundary working group – to construct boundary pillars.
  • Joint commission on border issues
  • Raxaul-Amlekhgunj petroleum pipeline
  • Hydel projects- Upper Karnali (Nepal and GMR), Arun III, Upper Marsyangdi and Tamakoshi III
  • Cross border railways – at 5 border points, 4 integrated check posts
  • Bridges – over Mahakali river at Mahendra nagar
  • India to allow 3 additional air entries – Janakpur, Bhairahawa, Nepalgunj
3 MoU
  • Pancheshwar Developmental Authority
  • Tourism in Nepal
  • Doordarshan and Nepal TV
Trade India will remove quantitative restrictions on Nepalese products.
  • Grant to provide iodized salt to Nepalis.
  • Donated 2500 kgs of Sandlewood to Pashupatinath temple.

D3: India Bhutan Love n Hate over Hydroprojects

Topic in news because during April 2014, India and Bhutan signed a new Inter-Governmental Agreement for hydro projects.
Sequence of Events

  • 2006: India Bhutan signed agreement. India promised to develop 10,000 MW hydropower in Bhutan. Bhutan promised they’ll export surplus electricity to India by 2020.
Following three already supplying electricity to India
Chukha project 336 MW
Kurichu project 60 MW
Tala project 1020 MW
Total 1416 MW


Following will supplying electricity from 2018
Punatsangchu-I 1200 MW
Punatsangchu-II 1020 MW
Mangdehchu 720 MW
Total 2940 MW


New Agreements in April 2014
Kholongchu project 600 MW
Bunakha project 180 MW
Wangchu project 570 MW
Chamkarchu project 770 MW
Total 2120 MW

numbers not important but these are all “run of the river” type dam. They don’t store water in reservoirs, hence less problem of siltation and ecological damage.

D4: Indian Intervention in Bhutan Politics

India Bhutan Chumbi valley China

  1. Bhutanese economy is based on agriculture, forestry and tourism. But major of GDP comes from construction and hydro-electricity.
  2. India is the only “importer” of Bhutanese Hydroelectricity.
  3. We also supply them Bhutan laborers, food imports and defense equipment.
  4. But relations turned sour during previous PM Jigme Thinley’s inclination towards China.

Chinese Angle

  • 2008: China begins Border settlement talks with Bhutan.
  • China asked Bhutan to give 250 sq.km from North Bhutan. And offered to give 500 sq.km area from China in return.
  • But this smaller 250 sq.km area is in Chumbi valley- @tri-junction of Bhutan, India and China.
  • If China sets up base here, they can easily penetrate India and cut off North Eastern India from rest of the country.
  • Fortunately Bhutan government declined the offer.
  • 2012: RIO+20 summit. Chinese leaders again made offer PM Jigme Thinley , he responded positively.

India alarmed, begins “teaching lesson” to Bhutan

  1. Until now we gave “Aid/donation” to Bhutan for building their Hydroplants. But now we stopped giving free aid. Only “loans” for Bhutan.
  2. Stopped kerosene and cooking gas subsidy.
  3. Subprime crisis=> declined tourists. GDP stagnates. No money to repay Indian loans.
  4. So far Bhutan PM completed only 3 Hydro project = not sufficient production to cover the costs.
  5. Cannot give any more subsidy on Kerosene and cooking gas =>Bhutanese juntaa protests. 2013 General election in Bhutan, they vote new Prime Minister Tshering Thogbay.

PM Tshering Thogbay visits India & promises “I’ll remain in my aukaat, will not take any decision against Indian security interests.” India is satisfied, and stops teaching lesson

  1. Announced Rs.500 crore economic aid. (aid=don’t have to repay loan principal / interest.)
  2. Restored subsidy on kerosene and cooking gas
  3. Promised additional HEP projects with help of Indian public sector undertaking.

Fast forward to April 2014: we signed agreement for Chukha, Kurichu, Tala projects.
Visit Mrunal.org/Diplomacy for entire list articles on Diplomacy & International relations (IR) for Mains GS2 paper of UPSC Civil service IAS/IPS Exam.

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One Comment on “[Diplomacy] India Nepal Power trade Agreement (PTA): Features, issues; Bhutan Hydro Love-n-Hate”

  1. HI Mrunal,

    You are crazy(Cool) & amazing person by heart and mind . Such good localization of topics to India audience .
    God should bless you more with great health .


    What would be impact on India ,if Bhutan becomes more developed and interdependence for India is reduced .
    Does India have solution or agreement to sign today with Bhutan not to violate the land handover to china in future political journey ?

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