NEPAL'S WATER AGREEMENTS WITH INDIA

UNCLAS KATHMANDU 001251


DEPT FOR OES/PCI, SCA/INS, SCA/RA
BANGKOK FOR USAID PASCH
USAID FOR ANE/SAA
EPA FOR OIA FREEMAN

E.O. 12958: N/A
TAGS: SENV EAID ENRG XD NP
SUBJECT: NEPAL'S WATER AGREEMENTS WITH INDIA

REF: A) KATHMANDU 1182
B) KATHMANDU 1054
C) KATHMANDU 997
D) KATHMANDU 963
E) KATHMANDU 833

SUMMARY
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1. Nepal has bilateral water agreements with India
that cover three of the four major trans-boundary
rivers. The complex, politically charged agreements
are a source of concern and resentment among Nepalis
and the recent Koshi River floods have led to calls to
renegotiate them. Although Nepal is the upstream water
source, it feels manipulated by its much larger
downstream neighbor, India, outmaneuvered by India's
tough negotiating tactics, and constrained by
agreements negotiated initially over 50 years ago.
Nepal's new government has set an objective of
creating 10,000 new megawatts of hydro-power over 10
years. It will be hard to achieve, but it sets a
positive tone for developing the country's vast
hydropower potential, estimated at 83,000 megawatts.

WHETHER TO RENEGOTIATE
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2. South Asia is a region of both water abundance and
scarcity. The summer monsoon causes annual flooding
in the Gangetic Plain, but in India where the demand
is greatest per capita water consumption has dwindled
by a factor of five since 1950. According to a study
quoted in the June 2008 IPCC Technical Paper on
Climate Change and Water, India could be on the brink
of a water crisis by 2025. Demographic and climatic
causes are responsible for the increasing stress on
India's water resources.


3. By some estimates, Nepal provides India's Ganges
River system with 71 percent of its dry season water
from glacial melting and 41 percent of its monsoon
season water. Nepal is able to capture and use only a
small fraction of its water, 90 percent of which falls
in just 15 days per year. Nepal's hydropower
potential is estimated at 83,000 megawatts, but it
exploits less than one percent of its potential. As a
result, most of the country's rainwater flows into
India through over 200 trans-boundary rivers and is
lost to productive use in Nepal.


4. The conventional thinking is that future power
generating facilities on Nepal's rivers will sell
electricity to India's thriving economy, while
providing Nepal a share of the electricity produced
cost-free. However, both nations' interests are
broader than electricity. India's primary need is for
water for irrigation and flood control from dams
located upstream in Nepal. Nepal also needs water for
irrigation and flood control, particularly in the
fertile lowland Terai. If large water storage
facilities are to be built, Nepal will need to take
into account social and environmental concerns. In
some cases, if agricultural lands are flooded by
reservoirs, entire communities may have to be
relocated and alternative livelihoods provided for.



5. The breach in the Koshi River embankment that
caused widespread and destructive flooding in southern
Nepal's Sunsari District and the Indian state of Bihar
has led to calls to renegotiate India and Nepal's
bilateral water management agreements. Senior
officials of the Ministry of Water Resources have told
the Kathmandu-based Regional Environmental Officer
(REO) that the current agreements are working pretty
well and that corrective measures could be made under
the existing agreements. But, several retired
officials from the same ministry, who are now
associated with non-government organizations in the
water sector and can speak more freely, are convinced
that the agreements are outdated and detrimental to
Nepal's interests. While the ministry is weighing how
to proceed, it is both timely and appropriate to
review the three existing bilateral water treaties.
Note: There is no bilateral agreement covering use of
the fourth major river, the Karnali, which flows to
India from western Nepal.

KOSHI RIVER
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6. These same former Nepali ministry officials believe
that the Koshi River Agreement cedes too much
authority to India over water which originates in
Nepal. They contend that India has not lived up to its
obligation to maintain and repair water management
infrastructure, including embankments, roads, and the
barrage built wholly on Nepali soil, and that Nepal's
benefits from the treaty are (quote) miniscule
(unquote). According to one former Water Ministry
secretary, the only utility that Nepal derives from
the Koshi River Barrage is use of the East-west
Highway, which was washed out by the August flooding
and, at one location, cut to avoid the floods
spreading to nearby villages.


7. Under the 1954 Koshi River Agreement, India has the
right to regulate the water level at the barrage,
which spans the Koshi River within Nepali territory,
and to generate hydropower from an associated canal.
Initially, there was no provision for Nepal to use the
river water, but after Nepali complaints, a 1966
amendment to the agreement specifically gave Nepal the
right to withdraw water from the river for irrigation
and other purposes. Under the agreement, India
receives water to irrigate 960,000 hectares in Bihar,
India. Most of the water comes via a 35-kilometer
canal, which India built on Nepali territory. Nepal
receives water to irrigate about 25,000 hectares. The
agreement locks Nepal into this water distribution
arrangement for 199 years.


8. As a result of the August 18 breach in the Koshi
River embankment, the river has been diverted
southward, flooding Sunsari District in Nepal and
affecting 3 million people in downstream communities
in the Indian State of Bihar. The breach was
attributed to poor maintenance. Indian authorities,
who are obligated to maintain the embankments under
the bilateral treaty, have told Nepal that they will
excavate a new channel through the riverbed to
redirect the flow of the river back under the barrage.
Indian contractors plan to complete the channel by
mid-December. If successful, the new channel will
allow them to build a temporary coffer dam and repair
the breach before the start of the monsoon in June

2009. If the river is not diverted back to its
original course in time, repairs to the breach will
have to be put off until next year's dry season,
leaving Sunsari District and Bihar State exposed to
renewed monsoon flooding from the Koshi River.


9. An additional initiative to tame the Koshi River is
a proposal for a high dam to provide flood control,
irrigation, and navigation services. The two national
governments signed a MOU in 1997 to study a possible
Koshi River High dam, located in the mid-hills 40
kilometers upstream of the barrage in Nepal. A
bilateral feasibility study of the project, begun in
2000, is still not yet complete. If the project
proceeds, a future reservoir could force 75,000 Nepali
citizens from their homes.

GANDAK RIVER
--------------


10. The 1954 Gandak River Agreement also provided for
the construction of a barrage - which straddles the
Nepal-India border - as well as embankments and
irrigation canals on both sides of the river. Under
the agreement, India paid for, managed the
construction, and is obligated to maintain the project
infrastructure. The canals irrigate 1.8 million
hectares of land in India and 48,000 hectares in
Nepal. A 1964 revision of the agreement ensured
Nepal's right to consumptive use of the Gandak's
upstream water, which the earlier agreement had not
provided. However, under the agreement Nepal does not
have the right to transfer water from one basin to
another within its territory without India's consent.


11. Local Nepali residents of the nearby District of
Nawalparsi have a litany of complaints about poor
maintenance of the Gandak project. They blockaded the
project's western canal for 34 days during the summer
of 2008 to press their demands for better canal
maintenance, access bridges over the canals,
protection for their farmland from erosion, and
compensation for waterlogged farmland. Their
complaints are currently on hold after local officials
from Nepal and India promised to meet and resolve the
issues.

MAHAKALI RIVER
--------------


12. The Mahakali River Agreement has been a continual
source of frustration and mistrust for both Nepal and
India. The agreement was concluded in 1996 to develop
the Mahakali River, but it has yet to be fully
implemented. Senior Nepal Ministry of Water Resources
officials say that both sides want the project, but
they have not found the right balance of costs and
benefits to meet their concerns. Technical experts at
the Ministry of Water Resources state that only a
political-level decision is lacking.


13. The treaty contemplates the integrated development
of the Mahakali River, which forms Nepal's western
border with India. It gives Nepal the right to a
supply of water from the pre-existing Sarada Barrage
and requires India to maintain a substantial flow of
water downstream of the barrage and to preserve the
river's ecosystem. The treaty also grants India the
use of a few hectares of Nepali territory for an
extension of the Tanakpur Barrage. In exchange, Nepal
receives water for irrigation and 70 megawatts of
electricity free of charge from the Tanakpur power
station.


14. Most importantly, the agreement lays the
foundation for the Pancheswar Project, a joint Indo-
Nepali hydroelectric project on the Mahakali River
that would benefit both countries evenly. The planned
capacity for the Pancheswar hydroelectric station is
approximately 5,600 megawatts, which would increase
Nepal's current electricity generating capacity nine
times. However, in the subsequent 12 years the joint
commission that is studying the Pancheswar Project has
been deadlocked over differing interpretations of the
agreement and what rights each party has to the water
of the Mahakhali River. The joint commission has not
reported its findings to the public, but it appears
that Nepal wants to share the river waters on a 50-50
basis. India, which expects to pay for most of the
dam costs, wants the benefits to be shared in
proportion to the costs each party bears. The
agreement is ambiguous on this point. However, in a
hopeful development officials from India and Nepal
agreed to form a new Pancheswar Development Authority
to expedite the project during a meeting of the Nepal-
India Joint Committee on Water Resources in early
October.

RIVER LINKING
--------------


15. An additional source of concern to Nepalis is
widespread reports of a grand plan under development
in India to provide water for India's water deficit
western and southern states. The plan reportedly
involves the construction of an interlinking canal
network in India to move water thousands of miles from
high dams located on Nepali soil. According to Water
Ministry officials, India has not shared this water
plan with Nepal. Lack of official information has
added to Nepali mistrust of India's intentions.

BHUTAN MODEL
--------------


16. The least palatable strategy for Nepali officials
is the Bhutan model. In neighboring Bhutan, India has
financed through a combination of grants and soft
loans, engineered, and constructed two major run-of-
the-river hydropower projects that produce
approximately 1,460 megawatts of electricity. The
vast majority of this power is transferred directly to
India at favorable prices. Receipts from this sale
provide about 40 percent of Bhutan's gross domestic
product. From the perspective of past and present
Nepali Water Ministry officials, not only is the price
Bhutan receives for the electricity too low, but also
the social and environmental costs to Bhutan are
unacceptably high. It receives little or no direct
compensation for these costs, a situation that Nepal
officials feel compelled to avoid studiously.
Bhutan's terrain also lacks a lowland Terai region
similar to Nepal. If Nepal were to pursue the Bhutan
model, it would require irrigation and flood control
on the lowland Terai section of Nepali territory and
expect compensation for extending these services to
India. When asked about the Bhutan model, Nepali
Water Ministry officials react negatively, citing
Bhutan's human rights record and specifically its
expulsion of 100,000 ethnic Nepalis starting in 1990.
In their view, this offence makes duplicating the
Bhutan model a political dead letter.

COMMENT
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17. Although the three major Indo-Nepal water treaties
remain the cause of ongoing disputes and mistrust,
linking Nepal's water and hydropower potential with
downstream markets remains the key to the nation's
economic development. The newly empowered Maoist-led
government wants to attract foreign investment in the
hydropower sector. The World Bank has shown renewed
interest in developing Nepal's hydropower potential.
Senior Nepal government officials would like American
investors to participate in major hydropower projects.
American participation could reassure Nepal that it is
receiving fair treatment from India while American
technical expertise could provide an unbiased cost-
benefit analysis of the many options for development
of country's rivers. Nepal's new government leaders
have repeatedly stated their objective of creating
10,000 new megawatts of hydropower through public-
private partnerships in the next 10 years. This
objective may be overly ambitious, but it sets the
right tone for developing the country's vast
potential.

POWELL