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Nepal and India had decided to build a mega-dam across the Mahakali River 25 years ago to utilise the water resource for hydroelectricity and irrigation. But the bi-national project is yet to enter the construction phase with various contentious issues holding back the project which, even after a quarter of a century, still serves as a test case for Nepal-India hydropower cooperation.

The Pancheshwar Multipurpose Project (PMP) is a project proposed under the treaty between Nepal and India on Integrated Development of Mahakali barrage to reap the benefits through the generation of hydroelectricity, control of floods, and to share water for irrigation by building a 315-metre high dam across the Mahakali River that serves as a boundary between Nepal’s Sudur Paschim province and India’s Uttarakhand state. The project has been dubbed as a landmark development project in Nepal-India hydropower cooperation.

However, the treaty has not been free from controversy. Nepal and India signed the Mahakali Treaty in 1996 which not only stirred fierce opposition in the country but also triggered a split in the CPN (UML) party in 1998.

The Mahakali Treaty is said to have mainly five features. First, it is based on the principle of equality. Second, both countries agreed on equal entitlement in the utilisation of the water from the Mahakali River. Third, the two parties also agreed to build power stations of equal capacity on each side of the Mahakali River. Fourth, costs would be bourne by the parties in proportion to the benefits. Fifth, the price of electricity was agreed upon on an avoided cost basis. Although it has been over 25 years since the treaty was ratified, the fate of PMP is still uncertain.

As planned, a 315-metre high dam would be built to store 12.26 billion cubic metres of water in the reservoir which would help generate 3,240 MW of electricity for each country. The project, once completed, would also irrigate 259,000 hectares of land in India and 170,000 hectares on the Nepal side. Since the project, estimated to cost a total of Rs 500 billion, will block the flow of the river during the rainy season, it is expected that it will also help control land erosion downstream.

Principally, both countries are positive about building the project which has huge benefits for Nepal as well as India. The project gained traction after the state visit of Indian Prime Minister Narendra Modi to Nepal in 2014. Both governments started work on PMP by forming the Pancheshwar Development Authority. Indian Prime Minister Modi’s visit to Nepal again in 2018 gave further impetus to the project. Though both countries have shown interest in implementing the project, some of the preliminary crucial work still remains incomplete. The detailed project report of PMP has not been finalised even after two and a half decades. While Nepal has been claiming that 6,480 MW of capacity will be built under the project, the Indian side has been insisting on 4,040 MW.

There are some thorny issues that need to be settled for the implementation of the project. The major issue plaguing the project is the sharing of water. While Nepal has been laying a claim on equal supply of water flowing through the proposed dam, the Indian side stands against such a demand citing that it holds the rights to solely use the water of the Lower Sharda dam and there cannot be a sharing of water. The Lower Sharda dam does not fall on the Nepal-India border but lies on the Indian side.

Another dispute centres on the assessment of benefits from the project. As Nepal has fewer irrigable lands, it is going to benefit less from the supply of water compared to India. Similarly, India is going to benefit more from the control of the erosion of land. In a recent article, a former project chief claimed that both sides have already made an informal agreement based on an assessment of gaining a 75 percent benefit from hydroelectricity generation and 25 percent from irrigation and control of land erosion. Both sides are going to equally benefit from the hydroelectricity generation from the dam and, therefore, will share costs equally. However, as India is likely to reap more benefits from irrigation and control of land erosion, Nepal has been pressing India to bear higher costs.

Though it is said that India and Nepal have informally agreed to bear 62.5 percent and 37.55 percent of costs respectively, such a cost-sharing agreement has not been formalised yet, according to sources at Nepal’s Ministry of Energy, Water Resources and Irrigation. The meeting of a team of experts on PMP held in February 2019 could not iron out the contentious issues. Without a formal agreement on crucial issues like the capacity of the project, sharing of water, benefit assessment, and cost-sharing, there is very little chance for the project to make any headway. Though it’s India’s turn to convene the meeting of the team of experts from both countries, there has not been any initiative to hold the fourth meeting.

Big development projects also pose bigger environmental and social challenges. This project is set to displace 22,765 people from 2,926 families. The dam is expected to submerge nearly 6,000 hectares of arable land which could lead to an annual loss in the agricultural output worth Rs 140 million. While small or micro hydropower projects in Nepal have been facing various problems or obstacles, experts say that it would not be easy for the mega project to be developed jointly by two countries. Moving ahead, the project is likely to impact many locals, encounter various challenges as well as complications during its implementation.

It is a complicated exercise for any country to jointly work with its neighbour to build a project on a river that lies on the border. Nepal has long been complaining about the unfair deal it receives when proposing to build a dam on the border with India. As soon as the agenda of water resource utilisation enters any bilateral talks between Nepal and India, it becomes politicised in Nepal. Against this backdrop, there is little possibility for project design, construction, and operation of a project based on a cost-benefit analysis carried out from the financial and technical point of view.

Furthermore, the recent territorial dispute between Nepal and India has strained relations between the two countries. The Nepal-India border dispute is also said to have dealt a major setback to the project which was already facing heavy delays. But as tension between the two countries over the territorial dispute subsides, it is hoped that the project will gather momentum again. For that to happen, both sides have to resolve some of the contentious issues that have stalled the progress of the project.

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