South China Morning Post

Missing the mark

Harris Amjad says efforts to freeze out Chinese investment in power projects in South Asia do little to improve India’s economic or soft power in the region Over 1,000 people try to set a Dodgebee world record in Tamar Park, Admiralty. Photo: May Tse

It is no secret that India’s guidelines on cross-border trade of electricit­y (CBET) aim to discourage Chinese investment in power projects in the Bangladesh-Bhutan-IndiaNepal (BBIN) corridor. By securitisi­ng electricit­y, these guidelines are likely to shape the coming tripartite power trade pact between Bangladesh, India and Nepal and also influence Beijing’s economic overtures to Bhutan.

Therefore, a critical analysis of the guidelines is called for. I argue that they do little to advance India’s geopolitic­al heft in the region. Challenges with hydropower constructi­on, feeble gains to local population­s and pseudo-monopolist­ic behaviour are key problems that undermine any potential geopolitic­al or energy security gains from this policy.

Political difference­s – most notably between India and Pakistan – have hampered the growth of a South Asia-wide CBET platform. However, in the BBIN region, recent developmen­ts show the will to move ahead with power trading projects. The region includes two states with potential for generating surplus energy from hydropower: Bhutan and Nepal.

The other two constituen­ts, India and Bangladesh, are power-hungry nations which have faced energy shortages in recent times and are transition­ing towards greener energy sources.

India’s electricit­y trade guidelines have emerged in tandem with the emerging cross-border electricit­y trade between BBIN countries. Through masterful legalese, the approval procedures under this policy prohibit the trade of electricit­y via the Indian electrical grid with projects that are linked to investment­s or involvemen­t from China.

The fact that India is centrally located in the BBIN region and no two other countries from this group share a border means the policy has potential to shape the cross-border electricit­y trade in the region. The effects of this shift are already evident in Nepal, where Chinese developers have been removed from six hydropower projects and four contracts have been awarded to Indian companies.

Similarly, with hydropower being a crucial pillar of Bhutan’s gross domestic product and India being its primary power export market, the guidelines demarcate a no-entry zone for Chinese investors should Bhutan and China establish diplomatic and economic relations in the future.

The policy shift from New Delhi seems to be constraini­ng the options for the Himalayan nations as they look to further develop hydropower into an exportable resource. The question that needs asking is whether this policy is leading to significan­t geopolitic­al gains. I believe that is not the case.

First, by creating a disincenti­ve for the entry of Chinese investment in the hydropower sectors in Nepal and Bhutan, it places the burden of developmen­t of such projects on Indian power companies. With local banks having insufficie­nt debt-financing capabiliti­es, most of the project funding will have to be borne by the Indian side.

Similar trends will also be seen in the constructi­on sector. Additional­ly, given the fragile geology of the southern Himalayan foothills, infrastruc­ture accidents and natural disasters are highly likely, making projects prone to delays.

Second, since many of the power projects being built in Nepal and Bhutan are for export and not internal consumptio­n, there are few gains for local population­s. These same people suffer disproport­ionately as the constructi­on of these infrastruc­ture projects can cause mass displaceme­nt.

If geopolitic­s is the objective of this policy, then the soft power gains from hydropower constructi­on are minimal. New Delhi would be better off supporting mega-projects that improve the lives of local population­s and help build its public credibilit­y.

Third, India’s policy approach unilateral­ly weighs on its smaller neighbours’ trade balances and undermines their agency without offering reciprocal benefits. Thus, New Delhi’s utilisatio­n of its central geographic­al location to monopolise this sector for its own gains is more likely to stir concerns about a bully mentality that have pushed smaller South

Asian states to invite greater cooperatio­n from China.

Even if the policy was prompted by concerns about energy security, India has more to lose from monopolisi­ng the power market in the BBIN corridor than what it can gain from allowing a competitiv­e cross-border electricit­y trade framework to develop.

In conclusion, India’s policy choice to restrict Chinese involvemen­t in power projects in the BBIN region seems ambiguous in its objectives. It appears the policy aims to hit geopolitic­s and energy security with one stone but has missed the mark on both.

Hydropower projects that are capital-intensive, slow-moving, accident-prone, stir local opposition and provide limited benefits to local population­s are not a prudent use of resources for bolstering geopolitic­al clout. Likewise, underminin­g the developmen­t of a liberal market for cross-border electricit­y trade in the region limits gains towards energy security. New Delhi must reflect on this policy to prevent it from being a geopolitic­al misstep.