As part of its neighborhood first policy, India has finalized a draft tripartite power trade agreement with Nepal and Bangladesh. The proposed pact is
likely to be signed in the coming months. Nepal and Bangladesh had a long-standing demand from India to allow power trading between them through the Indian grid.

Indian Prime Minister, since the beginning of his tenure, has emphasized the importance of cooperation among the South Asian neighbors. He unveiled plans for India to facilitate the export of hydropower from Nepal to Bangladesh during Nepal Prime Minister Pushpa Kamal Dahal’s New Delhi visit in early June. The Nepal Prime Minister indicated that in the beginning, Nepal would be exporting 50MW which is likely to increase in view of the country’s huge potential for hydropower generation far outstripping the domestic demand.

The development regarding energy cooperation has come on the back of Indian efforts to forge greater energy connectivity with Bangladesh, Bhutan, Nepal, and Sri Lanka through electricity transmission networks and petroleum pipelines. The tripartite agreement between Nepal, Bangladesh, and India is a break from the electricity trade agreement with neighboring countries in the past mainly based on bilateral agreements.

The agreement on the new guidelines for trade in electricity among the three countries was reached in May 2023 after consultations with all the stakeholders. The agreed guidelines would allow neighboring countries to purchase and sell power through the Indian grid and participate in Indian power exchanges in the future. The finalization of new guidelines for the Cross Border Trade of Electricity (CBTE) in recent years served as the building blocks of the new arrangements.

Bangladesh amid the present season of summer and unusual heat is facing an acute power shortage. While the demand for power in the country is estimated to be around 15,000 MW, the power plants in the country are producing power in the range of 12,000-13,500 MW, leaving a shortage of 1,500-3,000 MW. The instability and shortage in power supply in Nepal have deteriorated partly because of a rise in import cost due to rising energy prices in the international market, especially since October 2022 due to the continuance of the Russia-Ukraine war in particular.