Nepal and India signed a landmark preliminary Power Trade Agreement (PTA) on 4 September 2014, around two weeks ahead of the deadline set by India Prime Minister Narendra Modi. This PTA paves the way for bilateral trade of electricity between the two countries, and is foreseen to boost their energy security, as well as bring in added revenues to Nepal's economy.

Nepal has abundant hydropower potential but faces chronic power shortages and low grid access to electricity. On the other hand, India faces rising energy demand amidst declining domestic supply of conventional fuels, increasing its reliance on expensive imports of coal and liquefied natural gas.

Last August 2014, Prime Minister Modi conducted a state visit to Nepal, where he told Parliament that India desires to import power—highlighting that power trade with India could help Nepal reach its goal of becoming a developed country. Prime Minister Modi, along with Nepal Prime Minister Sushil Koirala, gave Nepal and India energy authorities 45 days to finalize negotiations on existing hydropower projects and conclude the Nepal-India Power Trade Agreement.

The signed PTA allows both sides to import and export electricity, without affecting Nepal’s existing agreements with other countries. The signing took place in New Delhi, India, with energy authorities from India and a seven-member Nepali team led by Energy Secretary Rajendra Kishore Chettri. The agreement is now awaiting ratification by Cabinets of the two countries.

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