Hydropower as Statecraft: Electricity Trade as a Tool for Nepal’s Foreign Policy

Abstract

Nepal is a landlocked country located between two large economies, India and China. Nepal, despite being a small country compared to its neighbors, boasts abundant water resources, with a hydropower potential of up to 83,000 MW. However, nearly 43,000 MW is considered achievable from the technical perspective. Nepal has focused on hydropower production as a major foundation of its development in recent years. The production of hydropower and its export to neighbors is a recent development associated with Nepal’s foreign policy. This study examines the relationship between hydropower and Nepal’s statecraft, considering Nepal's utilization of hydropower as a diplomatic tool. Nepal's location between large countries and its rich water resources and recent production of hydropower and export have placed it in a unique stage from where it is poised to accelerate economic prosperity and join the regional integration. For the research, a mixed-method approach is applied, where qualitative content analysis is used. The policy documents, including the power trade pact, official reports, and datasets, are studied and applied under this. Similarly, quantitative analysis, especially of the electricity trade pattern, is made. Nepal’s power trade between India and Bangladesh is presented as a case study to enrich the article.  The impacts of the power trade with these two countries and subsequent relations in regional geopolitics and energy have shed light. The data collected over nine months were analysed for a comparative study. With this, the cross-border electricity trade and diplomacy, and the opportunities and barriers surrounding it are explained. The findings of the study showed that bilateral involvement with India was deepened while bringing together Bangladesh in the power agreement. Bangladesh has emerged as a credible partner for power trade in addition to India. Nepal’s pact with India and Bangladesh created an opportunity for Nepal to secure a status in the energy regime of South Asia. The hurdles relating to infrastructure and regulatory dependence on India are also shed light on, showing the risks of over-dependence while diversifying the energy market. Even the geopolitical sensitivities this has caused have dented Nepal's negotiating capacity. Nepal can leverage its hydropower potential as a foreign policy tool, but only with careful management of energy markets and institution-building.