Former PM Madhav Nepal trumpeted in 2009 that Nepalwouldearn Rs53.4 billion/yearfromPancheshwar; includingRs35 billion from electricitysale. Reduction by a magnitude compared to proclaimed income of Rs120 billion/year at the time of signing/ratification of Mahakali Treaty. However, even Rs35 billion is a mythical number which is sales revenue of 6,116 GWhelectricity at Rs 5.6/kWh and profit/income for Nepal may or may not materializedepending on profit margin and how efficaciously the project is implemented and operated/managed (NEA’s sales in 2012/13 was Rs 24.6 billion but it was in red by Rs 4.5 billion!).

Positive Externalities

Storage/reservoir projects result in positive externalities like (1) flood control and (2) augmented flow in lower riparian areasduring dry season, whichprovides ample water in dry season for (a) drinking water and sanitation, (b) irrigation, (c) fisheries and animal husbandry, (d) generation of peak-in power, (e) recreation, (f) navigation, etc.

India is planning to irrigate 1.6 million ha and Nepal only 93,000 ha. In total 564m³/s of the water stored in the reservoir will be used jointly by Nepal and India.

Negative externalities

Similarly, storage projects also result in negative externalities: (1) submergence of land, (2) involuntary displacement and (3) restriction on use of water for consumptive purposes in upstream reaches.Under 1929 Nile Water Agreement, “Egypt has right to inspect upstream Nile-related water projects, e.g. in Sudan, with potential to compromiseriver flow.” Similar situation could arise in Nepal if the concept of right to “existing prior consumptive use” is to be asserted by the lower riparian country. In South American countries, there is restriction even on rainwater harvesting.

Further, submergence coupled with involuntary displacement entails “loss” of land twice: in submergence and for resettlement/relocation of the displacees.86.5 square km of Nepal’s territory will be submerged and 22,765 persons (2,926 households) will suffer from involuntary displacement if Pancheshwar is built.

Beneficiary of positives and incidence of negatives

In this backdrop, if the positives accrue to Nepal, benefitting larger section of the population, impact of negatives on a smaller populaceis for Nepal to internalize(after proper resettlement/rehabilitation of displacees), especially since the storage project will result in temporal transfer of water from wet season (4 months a year) – also resulting in flood control – to dry season (8 months a year) due to Nepal’s hydrological cycle of flood during 4 months and drought rest of the time.

However, if the positives accrue to downstream country/countries, it is not possible for Nepal, where project is to be built, to bear the impact of negatives. The downstream country/countries enjoying positives will have to share the benefits with Nepal and also recompense for suffering negatives.

Recompense for downstream benefit

Nepal and India are entitled to equal share of waterunder Mahakali Treaty, but Indiairrigating 1.6 million ha will be using 251.17 m³/s in excess of her entitlement, which calls for Indiato recompenseNepal.

Since it is difficult to assess the value of positives accruing to Indiaand also since India is reluctant to share any data/informationrelated to it, in order to compute downstream benefits it will be expedient to follow precedents set by Columbia Treaty or Lesotho Highlands Water ProjectTreaty. For the sake of simplicity, Nepal and India could replicate the formula enshrined in the latter: payment of $25 million/year to Lesotho for 18 m³/s of water by South Africa. At that rate,Indiawill have to pay $233 million/year (for augmented flow during 8 months of lean season from Pancheshwar), equivalent to Rs 22 billion/year.

Financing modality, Nepal

As total estimated cost of implementation is $ 2,980 million (according to DPR 1995), Nepal’s half share is $1,490 million, equivalent to Rs 141 billion.Nepal willborrow $1,118 million (Rs 106 billion) and invest equity of $372 million (Rs 35 billion); at 3:1 debt to equity ratio. India will have to “advance” recompense amount payable in future for the requisite period to enable Nepal to invest equity for project implementation, which would be deducted from recompense amountspayable by India after completion/commissioning.

Electricity

Maximum of Nepal’share of annual average electricity generation of 6,161 GWhfor internal purposes to take far western and mid western development regions to a higher plane of economic prosperityand “export” rest at commercial rate or avoided cost of peak-in power.

Ownership structure

Nepal government will fully own the half of the project to be built on its side and also will operate/manage it including security. It must be remembered that implementation of export oriented multipurpose Karnali Chisapani project(10,800 MW) was aborted at the penultimate hour as, according to Jagat Mehta former foreign secretary of India,India indicated that she would have to deploy her security forces to ensure the project’s security since the project would be of vital security interest to India (security of Koshi barrage in Bhim Nagar in Nepal is in Indiancontrol). Firm commitment will have to be secured from India in this respect to ensure that India again doesn’t try to deploy her security forces to “secure” Pancheshwar project on Nepal’s territory again.

“Bhutan Model”

Bhutan model also is acceptable; India providing 60% of the project cost as grant and 40% soft loan to Nepal and project to be owned/operated by Nepal (including security).Nepal also will have prior right over electricity and will “export” remaining electricityat commercial rate or avoided cost of peak-in power.

Alternative model

If India “refuses” to recompense for negatives and to share positives as well as “import” power at commercial rate or avoided cost of peak-in power, there is no point in implementing it. In which case the installed capacity should be lowered based on requirement of water for consumptive purposes during dry season of Nepal and, thus, lower dam height resulting in reduction in the magnitude of negatives.

Nepal’s best interest

It is obvious that Nepali people who wish the project to be built in Nepal’s interest will agree with this scribe and people of Nepal who wish the project to be built in Indian interest, who are present day traitors, should be ignored.

Obviously, there is no point in implementing projects in Nepal onKoshi and Gandak modalities under which India builds project on Nepal’s sovereign territory and operates it (keeping the project under its full control including security) and “give” nominal/token water and electricity to Nepal and expect her to be grateful. Present generation of Nepali people, having learnt bitter lessons from past blunders committed under Koshi and Gandak treaties, aren’t agreeable to replication of that modality in this age and time. There are many patriotic Nepali people who would rather shed their blood by sacrificing theirs lives, rather than allowing repetition of past blunders.