The surplus electricity that India will send to its northeastern neighbor can't be delivered to power-hungry areas of India because of deficiencies in its grid. Bangladesh Prime Minister Sheikh Hasina, who faces elections next January, will be able to use the project to justify pro-India policies that haven't gone down well with some of the electorate. India will receive small but much-needed export earnings and be able to offset some of the criticism leveled at it for diverting water from the Teesta river, which flows from Indian West Bengal into Bangladesh, where it feeds a large irrigation network.
"We are quite excited at this opportunity of working together. It would go a long way in furthering relations between the two countries," said Chowdhury Alamgir Hossain, managing director of Power Grid Co. of Bangladesh, which is building the grid connection on its side of the border.
The 25-year government-to-government deal between Indian state utility, NTPC 532555.BY +0.82% Vidyut Vyapar Nigam, the power-trading arm of India's largest power producer NTPC Ltd. and Bangladesh Power Development Board, involves providing 250 megawatts of coal-fired electricity from India's eastern grid to Western Bangladesh. Final testing is under way.
A commercial agreement for an additional 250 megawatts by the end of this year will be finalized once bids from Indian suppliers have been assessed, and there are plans to increase the electricity transmitted to 1,000 megawatts within five years.
"Exporting power to Bangladesh would be a landmark achievement, which would go a big way in improving relations between India and Bangladesh," said Amol Kotwal, associate director of energy and power at consultancy Frost & Sullivan. India could earn $350 million a year from the exports, he said.
India's army helped Bangladesh, then led by Sheikh Mujibur Rahman, father of the current premier, in its war of independence from Pakistan in 1971. After Ms. Hasina's Awami League party won elections in 2008, she cracked down on Indian militant groups who had set up bases in Bangladesh during the rule of the previous government.
She has since faced domestic criticism over a failure to get reciprocal concessions from India on the Teesta water row, which flared up two years ago when New Delhi backed out of a water-sharing pact.
While the diplomatic gains from the power project may not be substantial, it will help New Delhi gain some traction with Ms. Hasina's government, though it might not affect the Bangladesh election result, said Sanjay Bhardwaj, an assistant professor at the Centre for South Asian Studies at Jawaharlal Nehru University. "The people of Bangladesh would remember Teesta…but not a small electricity grid," he said.
New Delhi is also in political debt to Bangladesh for allowing it to deliver equipment through its territory to a big power project in India's state of Tripura. That state, like several other states in the remote northeastern region, is linked to the rest of India by a single highway running through a corridor known as the "Chicken's Neck," a hilly area where separatist militant groups are active.
The electricity deliveries will have only a slight impact on India's ability to meet domestic demand given the relatively tiny amounts involved and a lack of grid connections to areas with shortages.
India, stung by massive power outages that blacked out large areas of the country in August 2012, is pursuing a five-year program ending in 2017 to raise national electricity generation capacity by 44%, to 288 gigawatts, and help bridge a supply deficit of up to 10% of peak demand.
The project is a win-win for both countries, as it would alleviate Bangladesh's power shortages and India would gain commercially, said Yongping Zhai, director of South Asian energy division at the Asian Development Bank, which is partially financing the project.
It could be the precursor to a South Asia electricity grid that would link India, Bhutan, Nepal, Bangladesh, Sri Lanka and Pakistan by 2020, Mr. Zhai said, adding that preliminary talks have been held on India-Sri-Lanka power cooperation.
India is already working on a major buildup of transmission capacity from Bhutan, and it is investing heavily in hydropower in the Himalayan country that is sandwiched between it and China. It has also long had similar plans with Nepal to the north.
To the west, Pakistan is eager to import power to offset local shortages, but talks with India for annual supplies of 500 megawatts have gone slowly because of recent clashes in Kashmir.
