Kathmandu- Nepal–India relations, particularly in the sensitive area of cross-border electricity trade, have come under strain following the unilateral termination of a power purchase agreement between the Nepal Electricity Authority (NEA) and India’s PTC India Limited.
Energy experts and legal practitioners warn that the decision has not only raised serious questions about institutional credibility and financial propriety but also risks undermining Nepal–India energy diplomacy, which India treats as a matter of international relations rather than a purely commercial transaction.
Agreement cancelled amid controversy
On October 13, 2025, the NEA signed an agreement with PTC India to purchase 180 megawatts of electricity at a rate of Rs 6.95 per unit through the Dhalkebar–Muzaffarpur transmission line. The agreement was concluded despite earlier discussions indicating a lower offered rate of Rs 6.74 per unit.
Subsequently, allegations surfaced that the agreement would result in a financial loss of approximately Rs 430 million due to higher purchase rates, additional wheeling charges, and losses that are not applicable on the Dhalkebar–Muzaffarpur line. Media reports also questioned why the NEA entered into the agreement without prior approval from the Electricity Regulatory Commission.
Amid mounting scrutiny, Energy Minister Kulman Ghising chaired a meeting of the NEA Board of Directors, which decided on December 15 to terminate the agreement.
Indian approval came after termination
Under India’s Electricity Import–Export (Cross-Border) Guidelines 2018, any company seeking to export electricity must first obtain approval from India’s Designated Authority, the Central Electricity Authority (CEA), with the consent of the Government of India.
PTC India had applied for such approval on November 11—nearly a month after the agreement was signed. While the approval process was underway, the NEA moved to cancel the agreement.
However, on January 2, the Indian Designated Authority granted permission to PTC India to export 180 MW of electricity to Nepal from January 3 to May 31. According to the approval letter, 100 MW was permitted through the Dhalkebar–Muzaffarpur transmission line and 80 MW through the Bihar (State Grid)–Nepal 132 kV line, with electricity sourced from Meenakshi Energy Limited.
Diplomatic and legal implications
India’s cross-border electricity trade framework explicitly states that electricity import and export are matters connected to international relations. Section 4.6 of the 2018 guidelines notes that approvals must be granted only after obtaining consent from the Government of India, including the Ministry of Power and the Ministry of External Affairs.
“This clearly indicates that India considers electricity a strategic commodity, not merely a market product,” said an energy-sector expert. “When a deal under consideration at the Indian government level is unilaterally cancelled by Nepal, it risks diplomatic fallout.”
Experts argue that if the agreement needed to be scrapped, Nepal should have pursued diplomatic channels through the Ministry of Energy and the Ministry of Foreign Affairs, including a formal note verbale, as has been done in past cross-border energy disputes.
Risk of compensation claims
Legal practitioners say the unilateral termination may expose the NEA to compensation claims.
“The agreement clearly defines conditions under which it can be terminated,” a legal expert said. “If approval from the Indian Designated Authority was granted before PTC was formally notified of termination, the company may seek compensation for loss of profit and related damages.”
Former NEA Deputy Executive Director Sher Singh Bhat also warned that such actions could damage the Authority’s reputation.
“The agreement with PTC is not a government-to-government deal, but it is still governed by international regulatory frameworks,” he said. “Unilateral termination sends a negative signal and affects institutional credibility.”
Call for competitive bidding
Energy experts have suggested that Nepal should rely on competitive bidding for short-term winter electricity imports instead of ad-hoc agreements.
“There are dozens of licensed power trading companies in India,” Bhat said. “Going for open bidding would have been more transparent and cost-effective.”
Surya Prasad Adhikari, president of Green Energy Entrepreneur Nepal, echoed similar concerns, stating that cancelling an agreement initiated by Nepal itself could complicate future energy trade.
“Energy cooperation between Nepal and India began at the prime-ministerial level,” he said. “Decisions taken without due maturity may force future negotiations back to the political level, complicating energy diplomacy.”
Broader concerns
Experts caution that while the full diplomatic impact may not be immediately visible, the incident has already raised concerns about Nepal’s approach to cross-border energy governance.
“When electricity trade is treated as a strategic diplomatic issue by India, unilateral actions driven by internal controversies can have long-term consequences,” one expert noted. “This is not just about one agreement—it is about trust, process, and institutional discipline.”
