Supreme Court Upholds Electricity Trade Agreement with India, Clarifies No External Monopoly

Kathmandu. The Supreme Court has upheld the long-term electricity trade agreement between Nepal and India, clarifying that there will be no external monopoly in the electricity trade agreement. A long-term electricity trade agreement was signed between Nepal and India for 25 years on January 19, 2024. In the writ filed by former Chief Commissioner of the Commission for Investigation of Abuse of Authority, Suryanath Upadhyay, against the agreement, the court has ruled that parliamentary approval is not required to enter into an electricity trade agreement.

The court has defined the agreement as a document of a 'commercial and contractual' nature between the two countries. It has been mentioned in the verdict that since this agreement is a continuation of the 2014 electricity trade agreement, it does not need to be presented to the parliament as a separate treaty.

Furthermore, it has been explained that the commitment to purchase 10,000 megawatts of electricity in 10 years is only a 'target' and that no legal or financial liability will be created if Nepal cannot supply it.

The full text of the verdict, made by a full bench comprising former Chief Justice Prakashman Singh Raut, Justice Sapana Pradhan Malla, and Justice Mahesh Sharma Paudel on November 6, 2024, was recently made public. The court has also determined that the agreement is for the purchase and sale of electricity, creating contractual consequences between the two countries regarding hydropower development and utilization.

The petitioner, Upadhyay, had argued that this agreement, being related to 'natural resources and their utilization and sharing' as per Article 279(2) of the Constitution, should be ratified by a two-thirds majority of the parliament. While dismissing the writ, the Supreme Court stated, 'Electricity is a product generated from a natural resource in the form of water. It is not a natural resource in itself.'

According to the court, selling the produced electricity is a commercial activity, similar to selling agricultural produce. The court has concluded that since the right to water remains with Nepal and only electricity is sold, it cannot be considered a sharing of natural resources.

The Supreme Court has presented precedents in its verdict. In the writ petition of Gorakh Bahadur BC et al. v. Prime Minister and Council of Ministers et al., it was explained, 'Electricity is a product generated from a natural resource in the form of water, which is not a natural resource in itself. If electricity itself is considered a natural resource, then agricultural produce from land would also have to be considered a natural resource, and its export would have to be stopped.'

Similarly, in the case of Ramchandra Chataut v. Prime Minister and Council of Ministers et al., the Supreme Court stated, 'Electricity itself is not a natural resource but should be considered a product or service generated from a natural resource in the form of water resources. Even after electricity is produced from the project operated in West Seti, the water resource used for electricity generation remains in Nepal, and the right to operate or not operate the electricity generation project also remains with Nepal. No external condition is seen to be created on the water resources used in the project or on the project-related rights due to the sale of the produced electricity.'

For this reason, the court determined that the situation of sharing water resources used for electricity generation would not arise. The Supreme Court explained that the commercial purchase and sale of electricity does not involve the sharing of natural resources.

The Supreme Court also stated that in the writ filed by advocate Madhav Kumar Basnet, a precedent was established that 'electricity is not a natural resource in itself but a product generated from the natural resource of water, hence it is a tradable and exportable commodity like other goods.' Furthermore, it has been established as a precedent that if an agreement related to the sharing of natural resources and their utilization is not made between two countries or international intergovernmental organizations regarding hydropower projects, but only permission is granted for a specific period with certain conditions to manage the electricity produced from water, which is a natural resource, by using that water, then it cannot be said to be a sharing of natural resources, the Supreme Court stated in its verdict.

Citing its own previous precedents, the Supreme Court determined in its full verdict that the utilization of water resources and the utilization of hydropower cannot be considered the same type of issue. 'Since the present disputed agreement is not an agreement related to the sharing of natural resources and their utilization and hydropower trade as per Article 279, Sub-section (2), Clause (d) of the Constitution, but is an agreement related to the purchase and sale of electricity creating contractual consequences regarding hydropower utilization,' the verdict stated, 'it is not necessary to ratify the LTPA-2024 under Article 279, Sub-section (2) or the restrictive clause of that sub-section, or Sections 4 and 5 of the Nepal Treaty Act, 2047.'

• No Long-Term Negative Impact Seen

The Supreme Court also reminded that there is a provision to submit a written notice for termination six months prior to the renewal of the electricity agreement with India. 'It is seen that a written notice for termination can be submitted six months before the renewal of the agreement. If either party does not wish to sell or trade electricity, the agreement can be easily terminated by giving notice,' the full verdict stated. Although concluded for a long-term period, since the agreement can be terminated with the consent of the parties, the Supreme Court stated in its verdict that it cannot be considered an agreement that has a long-term negative impact on the nation as per the petitioner's request.

Although the Supreme Court dismissed Upadhyay's writ on the grounds that the electricity agreement is contractual in nature, it has issued a directive order to the government. The verdict stated, 'A directive order is issued in the name of the government to implement the agreement in accordance with the principles of international relations and coordination, ensuring that the electricity trade, grid connection, and transmission infrastructure expansion under the agreement are not against national interests.'

Furthermore, the Supreme Court has issued a directive order to ensure that the implementation of the long-term electricity purchase agreement and the sale and distribution of electricity are carried out only after ensuring that there is no reduction or adverse impact on domestic consumption.

The Supreme Court has also given a directive order to complete and ensure the process as per the Constitution of Nepal and prevailing laws, by making arrangements that are not against Nepal's national interest and do not establish discrimination or monopoly of any other country, if further agreements related to water resource sharing or utilization need to be concluded during the implementation of the agreement, or if a situation arises for the sharing of natural resources.

The Supreme Court has also urged for the trade of renewable energy (hydropower) with neighboring countries in accordance with the principles of environmental justice, keeping in mind international obligations and commitments.

This Supreme Court verdict has legally opened the way for ensuring a foreign market for Nepal's hydropower development, but the directive order given by the court has cautioned the government not to forget national needs, transparency, and accountability to parliament while trading electricity.

• Why was the writ filed in the Supreme Court?

An agreement was signed between Nepal and India on January 4, 2024, under which India would purchase 10,000 megawatts of electricity within 10 years. During the visit of then Prime Minister Pushpa Kamal Dahal 'Prachanda' to India, a draft of a long-term PPA for an electricity agreement was presented to India.

Suryanath Upadhyay filed a writ in the Supreme Court, alleging that the agreement would create a monopoly for the neighboring country over Nepal's water resources, be against national interests, and was done in secrecy.