Thursday, March 1, 2012


“Water, water everywhere but not a drop to drink”
The Rime of the Ancient Mariner

According to Food and Agriculture Organization (FAO) data water availability per person per year (Appendix 2) in Nepal was 9,122 m3 in 2002. Whereas it was quite low in the neighboring countries; 2,961 m3 in Pakistan, 2,642 m3 in Sri Lanka, 2,259 m3 in China and1,880 m3 in India. Even compared to other affluent Asian countries water availability in Nepal is quite high (ranging from 3,383 m3 in Japan to 149 m3 in Singapore). However, Nepal is suffering from water poverty; water scarcity is rampant. Only a pampered few have access to piped water (the taps are dry most of the time) and rest are dependent upon the conventional sources like unsafe wells, lake, river, spring, etc. Generally, piped water is deemed safe and clean, contrasted with conventional sources. However, this is untrue in Nepal and, consequently, deaths due to water and sanitation-related diseases are also widespread; advertisements exhorting people to drink only boiled water has become a dependable source of revenue for electronic as well as print media.

The contradiction inherent in Nepal being known as rich in water resources while people are water-poor is due to the fact that about 80% of Nepal's annual rainfall takes place during monsoon season, approximately from June through to September, and the remainder of the year is pretty dry. In other words, Nepal suffers from flood during 4 months of wet season and the drought rest of the year; manifestation of the temporal problem. Additionally Nepal also has spatial problem; water not available even during wet seasons where needed and available where not needed. A real life tragicomic situation of “water, water everywhere but not a drop to drink!”

The situation obtaining in Nepal forces one to ponder why she is deemed rich in water resources! Nepal is not rich because of the water flowing in the rivers in hugely different quantities in the wet season and the dry season (a difference of a huge magnitude) but she is rich in water resources potentially due to her terrain and topography: (a) due to water falling from higher elevation affording “head” for electricity generation along with the “flow,” (b) narrow gorges affording ideal and cost effective locations to build reservoirs to store water in the wet season for use in dry season (solving temporal problem) to increase cropping intensity and to generate peak-in energy and (c) such reservoirs affording flood control facility in the lower riparian areas. This is corroborated by the fact that, although all the water flowing in Nepal drains into River Ganga in Indian states of UP, Bihar and West Bengal, these areas are not famous for being rich in water resources as the terrain and topography there does not afford opportunity to add temporal and spatial value to the flowing water; neither to control flood nor to generate electricity cost effectively.
The main natural resource with potential to chart Nepal’s destiny is the water resources, in the backdrop of depleting forest, non-existent minerals (except for good quality limestone which is raw material for energy intensive cement industry – capable of consuming hydropower in substantial quantum which in turn requires exploitation of water resources). Section 7 (1) of Water Resources Act, 1992 has fixed following “priority order” for the utilization of water resources:
i. drinking water & sanitation
ii. irrigation
iii. agricultural uses including animal husbandry and fisheries
iv. hydropower
v. cottage industry, industrial enterprise, and mining uses
vi. navigation (water transportation)
vii. recreational uses
viii. others

The case of irrigation too isn’t different from water and sanitation situation described above. Of 3.97 million hectares of cultivated area in Nepal there is some irrigation only in 0.5 million hectares (Appendix 3), that too mostly during wet season. Similar is the case of other agricultural uses of water, including for animal husbandry and fisheries. Out of the theoretical potential of 83,000 MW hydropower, merely 644.136 MW has been developed, according to Nepal Electricity Authority (NEA 2010) so far. Industrial use of water is very limited. The only water transportation facility exists in the reservoir of Kali Gandaki A project and some water sport based tourism (mainly rafting and canoeing), existing on some rivers is the only recreational uses of Nepal’s water resource.

The last priority of “others” includes customary, cultural and spiritual uses which deserve to be accorded higher priority. In Nepal custom and culture, including festivals, of all ethno-cultural-religious-linguistic (ethnocentric) groups are woven around water body (river, well, spring, lake/pond, fountain, water-fall, etc.). Even traditional fairs are held/organized in and/or around water bodies. Water from various rivers is required for rituals ranging from enthronement/coronation of kings (prior to abolition of monarchy) to cremation of the indigent subsequent to death. Famous ancient architecture can be seen on the embankments of rivers and ponds/lake and terraced structures of stone spouts have carvings and even carved idols on stone and metals in abundance.

A proper context needs to be established by taking a cursory look at the history and major events related to Nepal’s water resources in general and hydropower in particular, including trans-boundary conflicts and cooperation within the country.

Koshi Agreement was signed in April 1954 (and amended in 1966) between Nepal and India to “construct a barrage, head-works and other appurtenant work[s]” called Koshi Project “for the purpose of flood control, irrigation, generation of hydroelectric power.” The treaty was silent with regard to quantum of land to be irrigated and electricity generated. However, according to SK Malla, 969,110 hectares is irrigated in India and only 24,480 hectares in Nepal (Malla 1995). Similarly, Nepal was supposed to receive half of electricity from a 20 MW power plant. But the installed capacity of the power plant built at Kataiya in India got scaled down to 13.6 MW and Nepal’s entitlement got reduced to 6.8 MW (Pun 2004). Due to which the treaty gets roundly condemned all the time in Nepal.

Plans are afoot to build a 269-meter high Koshi High Dam, with gross reservoir volume of 13,450 million m3, to generate 3,000 MW power and to build 3 power houses of 100 MW each on each of the three canal power houses, thereby generating 18,239 giga-watt-hours (GWh) energy in total. There is also plan to irrigate 0.546 million ha in Nepal and 0.976 ha in India (JPO 2002). Besides, this project also will result in power benefit, flood control benefit and navigation benefit. However, Nepal will have to internalize all the cost of inundation of 80 villages in 11 districts and displacement of 0.4 million people (including indigenous and tribal people). In this backdrop, prima facie India is likely to benefit disproportionately with Nepal bearing all non-cash costs.
Therefore, the benefit sharing of this project needs to be structured on the lines of Columbia Treaty between Governments of Canada and the United States of America, executed in January, 1964. Under Clause 1 of Article V, Canada is entitled to one half the downstream power benefits and specific payment for flood control. Clause 1 of Article VII defines “power benefits” as “the difference in the hydroelectric power capable of being generated in the United States of America with and without the use of Canadian storage.” Additionally Canada also receives “Payment for Flood Control” of substantial amount from USA under Article VI.

It is laudable that India has accepted “absolute territorial sovereignty” of Nepal on the water of this river pursuant to the stipulation in Article 4 (i) which states that “HMG shall have every right to withdraw for irrigation and for any other purpose in Nepal water from the Kosi river and from the Sun-Kosi river or within the Kosi basin from any other tributaries of the Kosi river as may be required from time to time.” This is a very important provision of this treaty which is in Nepal’s favor. While India has “the right to regulate all the balance of supplies in the Kosi river at the barrage site thus available from time to time and to generate power in the Eastern Canal” thereby limiting Indian entitlement to water from this river.
Gandak Agreement “on the Gandak Irrigation and Power Project” was executed in December 1959 (and amended in 1964). Unlike Koshi treaty, Article 7 of this treaty spells out the quantum of land to be irrigated in Nepal. It stipulates that 40,000 acres (16,187 ha) shall be irrigated through Western Nepal Canal and 103,500 acres (41,884 ha) through Eastern Nepal Canal in Nepal. Article 8 of this treaty also envisaged construction of a 15 MW power plant of which 10 MW power was earmarked for Nepal. Interestingly though, there is no mention of the quantum of land that will be irrigated in India. But according to Government of Bihar publication (GoB 1960), in total 3.9 million acres (1.6 million ha) land is irrigated in UP and Bihar. Whereas, only 39,000 ha is actually irrigated in Nepal (UN 2000). This kind of unequal benefit sharing has upset people in Nepal forcing them to demand abrogation of such an unequal treaty.

In this treaty too there is a silver lining in as much as the provision of Article 9 is concerned. India has accepted Nepal’s absolute territorial sovereignty over Gandak River with a restriction on inter-basin transfer of water from this river during dry months. It stipulates that “His Majesty’s Government will continue to have the right to withdraw for irrigation or any other purpose from the river or its tributaries in Nepal such supplies of water as may be required by them from time to time in the Valley. For the trans-Valley uses of Gandak waters, separate agreements between His Majesty’s Government and the Government of India will be entered into for the uses of waters in the months of February to April only.”

Mahakali treaty was executed in April 1995 in the wake of GoN’s failure to get Tanakpur agreement (chosen to be called an “understanding” by the then government which was made public through a joint communiqué of October 1992) ratified by the parliament. Under of Article 1 Clause 1 this treaty Nepal is to “have the right to a supply of 28.35m3/s (1000 cusecs) of water from the Sarada Barrage in the wet season (i.e. from 15th May to 15th October) and 4.25m3/s (150 cusecs) in the dry season”. This treaty too is deafeningly silent as regards the total quantum of water available in the river and the area of land to be irrigated in India.

Prior to execution of this treaty India was allowed to use 2.9 hectares of Nepali land for the construction of eastern afflux bund of Tanakpur power station, 120 megawatt (MW), and in return India agreed to supply 70 GWh electricity free of cost to Nepal, pursuant to Clause 2 of Article 2 of the treaty.

Article 3 stipulates that both parties “have equal entitlement in the utilization of the waters of the Mahakali River” in conformity with principle of equal sharing (rather than equitable sharing) agreed in the run up to signing of this treaty. However, a qualifying clause on “without prejudice to their respective existing consumptive uses of the waters” ended up with Nepal getting short changed. Because India was already using 93% of water illegitimately and upon execution of this treaty Nepal’s share shrank to 3.5% (instead of 50%) with India getting the rest.

Clause 2 of Article 3 envisages constructing Pancheshwar Multipurpose Project with “power station of equal capacity on each side of the River” while clause 3 stipulated that “the cost of the project shall be borne by the parties in proportion to the benefits accruing to them”; not equally. But there is no mention of basis or quantum of water that will be shared by each party from this project for the purposes of irrigation (using water stored in the reservoir during dry season). However, Ajaya Dixit has mentioned that 93,000 ha will be irrigated in Nepal and 1.61 million ha in India upon completion of this project, which is supposed to generate 6,840 MW (Dixit 2004), thereby contradicting the understanding that both water and electricity will be shared equally. This treaty is also silent with regard to flood control benefit accruing to India as a result of construction of the reservoir which will submerge 8,650 ha land in Nepal (43% of the land required for the reservoir) thereby displacing 65,000 people.

GoN formulated Hydropower Development Policy in 1992 and proclaimed Electricity Act, 1992 and Water Resources Act 1992 to implement the policy after which 404.518 MW was added to the integrated national power system (INPS); bringing the cumulative total to 697.846 MW (including 53.41 thermal). Prior to this, hydropower was in the domain of public sector, being a part of the infrastructure. Till this point in time the total installed hydropower capacity in INPS was 239.918 MW only; cumulative total of the projects built in 80 years since 1911 when the first one was built in Pharping (500 kW). Compared to first 80 years, Nepal accomplished remarkably well in less than 2 decades. But this period was a turbulent one too; marked by a number of milestones.
Cancellation of Arun III, by the World Bank on August 1, 1995, is a significant milestone which paved the path for private sector investment in the hydropower sector, both domestic and foreign. As the World Bank had imposed restriction on construction of projects of more than 10 MW installed capacity while Arun III was under implementation; NEA wouldn’t have been in a position to build projects like Modi (14 MW), Kali Gandaki A (144 MW) and Middle Marshyangdi (70 MW). Similarly private sector wouldn’t have been allowed to construct Khimti (60 MW), Bhote Koshi (36 MW) and Chilime (20 MW) projects. Additionally, there won’t have been necessary financing for Kali Gandaki A, as ADB used fund earmarked for Arun III for this project. Similarly, both Khimti and Bhote Koshi wouldn’t have been possible as the World Bank would never have agreed to breach its own covenant. Moreover, if Arun III was built, Kreditanstalt fur Weideraufbau (KfW – German development bank) wouldn’t have been in a position to help Nepal build Middle Marshyangdi project, as it diverted funding earmarked for Arun III, to Middle Marshyangdi. Therefore, post aborted Arun III, Nepal succeeded to increase generation capacity by 293.68 MW in total, with a total average annual generation of 1,793.36 GWh at the total cost of $ 729.81 million which works out to the average cost of $ 2,485 per kilowatt (kW), completed in 4.05 years in an average by the time Arun III was supposed to be commissioned, as can be seen from the table in Appendix 4 (Shrestha 2009). Contrasted with this, the anticipated achievement, had Nepal taken Arun III route, would have been addition of only 220 MW in the decade ending in 2005, including Arun III, with an average annual generation of 1,845.86 GWh at the total cost of $ 1,130.77 million, with the average cost working out to $ 5,143 per kW, to be completed in 5.17 years in an average. Due to this it does indeed come as a relief that the World Bank was right in cancelling Arun III. Additionally, it is also obvious that liberalization of hydropower subsector would not have been this successful but for cancellation of Arun III, which resulted in a breakthrough for first two hydropower projects with foreign direct investment (Khimti and Bhote Koshi).
GoN has signed agreements with private sector for the development of export-oriented hydropower projects (Arun III, Upper Karnali and West Seti). A Memorandum of Understanding (MoU) for Arun III project, 402 MW, (201 MW project at the same site was cancelled in the previous decade by the World Bank) was signed in March 2008, the proponent of which has agreed to provide 21.9% electricity free of cost to Nepal. The capacity of this project has been, reportedly, optimized at 900 MW. Similarly, MoU for Upper Karnali, 300 MW, was signed in January 2008 with a provision for 12% free energy to GoN and 27% free equity to NEA. This project too, reportedly, has been optimized at 900 MW. Further, GoN signed project agreement for West Seti project, 750 MW, in June 1997 under which GoN is to receive 10% free energy.

Export of power by these projects entails sharing of output (electricity) by using water resources and this activity attracts the provision of article 156 of the Constitution that requires parliamentary ratification of agreements signed by the government for sharing of use of water resources (electricity generation being deemed use of water resource). Signing of these agreements hasn’t gone down too well with the harried electricity consumers too, who have stoically suffered the load shedding of up to 18 hours a day. These agreements have also failed to find favor in Nepal as these projects will be exporting good quality power to India at less than US 5 ¢ while Nepal is importing power from India at tariff ranging from US 11 ¢ to US 15 ¢.

West Seti project is a storage project and it not only generates 3,636 GWh of peak-in power and but also augments dry season flow of the river by 90 m3/s (Thapa 1995). Because of failure to conceptualize and develop this project as a multipurpose project, the dry season augmented/regulated flow generated by this project will fall in Indian lap (free of cost) which makes this project subject to parliamentary ratification for one more reason. Moreover, this quantum of augmented flow during the dry season (8 months) is worth $ 83 million (equivalent to Rs 6 billion approximately) annually (Shrestha 2009) based on the principle set forth by the treaty between Lesotho and South Africa. South Africa pays to Lesotho $25 million (in 1991 prices) each year to Lesotho for the supply of 18 m3/s of water (both for the purpose of irrigation and water supply) from Lesotho Highlands Water Project (Wallis 1992).

Execution of agreement for Upper Karnali project too has generated controversy as the particular location is a site for 4,180 MW storage project (HPC 1989) and development of it as a run-of-the-river project (that will generate 1.91 GWh) is mutually exclusive with storage project which will not only generate 17 GWh peak-in energy but will also generate augmented/regulated flow of about 500 m3/s, capable to irrigate 1.5 million hectares of land during the dry season in the lower riparian area. If Nepal is to make the water available to India (instead of using it for irrigation purposes in Nepal), Nepal could potentially earn Rs 52 billion annually (Shrestha 2010) if the rate agreed between Lesotho and South Africa is to be used as the reference price. However, no arrangement for this has been made.

All three agreement and MoUs are executed to export power from Nepal to India; the importer in India is PTC India Ltd., an Indian government enterprise. If agreements are to be signed at the State level for this purpose, parliamentary ratification of the agreements, explained above, will become mandatory. Therefore, there is a cross section of people who opine that GoN and Government of India (GoI) have resorted to this arrangement (signing back to back agreement with an intermediary) to avoid the process of parliamentary approval.
There are provisions related to water and hydropower in the bodies of law ranging from constitution to various Acts and Regulations. Similarly, International Labor Organization (ILO) Convention C 169 constitutes international law and there is provisions related to natural resources with respect to indigenous and tribal peoples.

Nepal’s Interim Constitution, 2007 has reposed the State with the responsibility “to use existing natural resources including water resources of the country for the interest of the nation” in Clause (o) of Article 33. Similarly, Article 35 (4) stipulates that “the State shall, while mobilizing the natural resources and heritage of the country that might be useful and beneficial to the interest of the nation, pursue a policy of giving priority to the local community” under State policies.
Moreover, Article 156 (2) requires “the ratification of, accession to, acceptance of or approval of treaty or agreements on” division of natural resources and their use “by a two-thirds majority of the total number of members of the Legislature-Parliament.” The proviso clause thereunder specifies that if the treaty or agreement referred to “is of ordinary nature which does not affect the nation extensively, seriously or in the long-term, the ratification of, accession to, acceptance of or approval of such treaty or agreement may be done at a meeting of the Legislature-Parliament by a simple majority of the members present.” One school of thought is of the opinion that even export of power is division of use of natural resource and agreement for the purpose attracts this provision while others deem it merely international trade in electron.

GoN promulgated Electricity Act 1992, along with Water Resources Act 1992 to herald economic liberalization in the power sector envisaged by Electricity Development Policy 1992. The former was enacted “to develop electric power by regulating the survey, generation, transmission and distribution of electricity and to standardize and safeguard the electricity services.” While the latter legislation was aimed “to make arrangements for the rational utilization, conservation, management and development of the water resources and to make timely legal arrangements for determining beneficial uses of water resources, preventing environmental and other hazardous effects thereof and also for keeping water resources free from pollution.”

GoN tabled Electricity Bill 2009 last year, to improve upon and to incorporate lessons learnt during implementation of the previous Act and also to implement provisions of Hydropower Development Policy 2001. GoN has also table Nepal Electricity Regulation Commission Bill 2009 in the parliament. However, these have yet to be passed by as parliamentarians have proposed 142 amendments to the bill which have not been deliberated upon. The important amendments proposed are related to energy security and relieving the country from dependency on imported fossil fuel, to ensuring optimum exploitation, to making legal provision for parliamentary ratification envisaged by Article 156 (1), to setting up a GoN enterprise to engage in international trade in power/energy, to facilitate local participation in investment in hydropower project, as well as to ensure integrated water resource management.

ILO has specified that this convention “may be cited as the Indigenous and Tribal Peoples Convention, 1989”. It is a legally binding international instrument which deals specifically with the rights of indigenous and tribal peoples. It has already been ratified by Nepal. Clause 1 of Article 15 stipulates that “The rights of the peoples concerned to the natural resources pertaining to their lands shall be specially safeguarded. These rights include the right of these peoples to participate in the use, management and conservation of these resources.” It is silent with regard to investment in hydropower projects by the indigenous and tribal peoples.

Nepal didn’t have a written policy related to water and hydropower till 1992 when a policy was formally formulated to herald economic liberalization in this sector. This was supplanted by a new policy in 2001. Although, hydropower is the subsector of water resources, Nepal still lacks policy for water resource and it is referred to only in passing in this policy. Water and Energy Commission Secretariat (WECS) of GoN has prepared a draft water resource policy which was unveiled in April this year. In the meantime water resource strategy and national water plan have already been approved by GoN.

To introduce economic liberalization in the hydropower subsector in particular and water resource sector in general, Hydropower Development Policy was formulated in 1992 as it was deemed “necessary to make alternative arrangement to meet the interim demand of the country till the above projects.” By the above in this sentence reference was made to Arun III (402 MW) and Kaligandaki (110 MW ) projects which were expected to “come into operation after their completion”, within a period of 7-12 years. It was also felt “necessary to construct new small hydro electric projects to meet the demand to those hilly and remote Himalayan regions where the national electricity system has not been extended in the near future. Apart from this, it is utmost necessary to extend proper distribution system in the rural areas where electrification has not been done and also to develop hydro-power of the country by motivating national and foreign private investors in the electricity sector.” As mentioned above Electricity Act and Water Resources Act were promulgated to implement this policy.

Stating that: “In the course of implementation of Hydropower Development Policy 1992 it has been experienced that the policies and legal framework needs to be refined and retuned in line with new concepts seen in world market and its impact on technological developments, export of electric energy, possibility of promotion of foreign investment and commitment to environment conservation” the new policy was formulated in October 2001. However, in the absence of necessary legislation to implement this policy (as Electricity Bill 2009 is still languishing in the parliament), the policy of 1992 already supplanted by this policy is still getting implemented.

GoN formulated Water Resource Strategy (WRS) in 2002 “to identify effective, scientific, sustainable and consensus-based mechanisms to facilitate the implementation of action-oriented initiatives and programs and in doing so, successfully bring about this reconciliation.” Nepal’s national goal was identified as “living conditions of Nepali people are significantly improved in a sustainable manner” by this document aiming to achieve short-, medium- and long-term purposes and ten strategic outputs have been described in it. Following indicators were laid down for hydropower subsector:

• by 2007, 820 MW hydropower capacity developed to meet projected demand, including 70 MW for export;

• by 2007, laws making national contractors/consultants participation mandatory in all types of projects promulgated;

• by 2007, 25% of households supplied with electricity;

• by 2017, 2230 MW hydropower developed to meet projected demand of 2230 MW, including 400 MW for export;

• by 2017, 38% of household supplied with electricity;

• by 2027, 60% of households have access to electricity; and

• by 2027, Nepal is exporting substantial amounts of electricity to earn national revenue.

Merely the status of hydropower generation by mid-July 2010 of 644.436 MW would suffice to indicate how well the strategy is faring.

GoN developed National Water Plan (NWP) in 2005 which was said to be “prepared to encompass program in all strategically-identified output” in WRS “so that tangible benefits can be delivered to all the people in line with the basic needs.” Specifically, the NWP was developed “to operationalize the output objectives” of the WRS, described above. Integrated Water Resources Management (IWRM) was “adopted as one of the principal themes” of it. Following targets were set for hydropower subsector:

By 2007

• Hydropower generating capacity is developed up to 700 MW to meet the projected domestic demand at base case scenario without export;

• Legislation making participation of national contractors/consultants mandatory in all types of projects is enacted;

• Thirty-five per cent of the households are supplied with INPS electricity, 8% with isolated (micro and small) hydro systems and 2% with alternative energy sources;

• Per capita electricity consumption of 100 KWh is achieved.

By 2017

• 2,100 MW hydropower electricity is developed to meet the projected domestic demand at base case scenario, excluding export;

• Fifty per cent of the households are supplied with INPS electricity, 12% with isolated (micro and small) hydro system and 3% with alternative energy;

• Per capita electricity consumption of 160 KWh is achieved; and

• NEA is corporatized.

By 2027

• Up to 4,000 MW hydropower is developed to meet the projected domestic demand at base case scenario, excluding export;

• Seventy-five per cent of the households are supplied with INPS electricity, 20% with isolated (micro and small) hydro system and 5% with alternative energy sources;

• Per capita electricity consumption of over 400 KWh is achieved;

• Nepal exports substantial amounts of electricity to earn national revenue; and

• NEA is unbundled and privatized.

Interestingly, the target for electricity generation by 2007 has been set at 700 MW in it, reducing it from the indicator fixed by the strategy of 820 MW. Unfortunately, even by 2010 the generation capacity is only 644.436 MW. From this it becomes rather easy to infer whether the plan implementation is on track or not.

In the context of the efforts made for the planned development of the country, so far ten periodic plans have been implemented and eleventh one is under implementation. All of the plans up to tenth plan were of 5-year duration, except for the second one which was only for three years (1962-65), introduced after a 1-year plan holiday in 1961/62. Planned development began in Nepal in 1956 and the last one (10th five year plan) ended in July 2007, following which a 3-year Interim Plan was implemented through till July 2010 which aimed to increase the hydropower installed capacity from 560 MW to 704 MW. National Planning Commission (NPC) is yet to make public the status of achievement of this plan. However, according to NEA, cumulative total installed capacity has reached 697.846 MW by the close of interim plan; a 99 percent achievement of the target which became possible due to completion of projects slated to be completed in the previous plan periods like Middle Marshyangdi (70 MW).

Chapter 2 of the report submitted to Forum of Federations, part of which was published by FoF

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