Supreme Court Verdict – Nepal’s Misfortune

(Courtesy: Ratna Sansar Shrestha)

I did an in-depth economic analysis of West Seti project, using it as a model to ascertain whether the concept of “small is beautiful” versus “big is bountiful” is grounded to the reality or not. This was posted early this week under the title: “Irrelevant Debate of Small vs. Big.” The readers will recall that this project received an aggregate of 13.66 marks out of 300 marks from which the magnitude of positive impact (extremely limited) of this project on the macro economy of Nepal becomes clear.

Now, it’s time to examine adverse impacts of this project, which has received green signal from the Supreme Court. There are a couple of important ways this project adversely impacts Nepal:

1. Arun III is a Run-of-River project and it neither inundate/submerge any land nor displaces any inhabitant of the area. You must be aware that Sutlej Bidyut Nigam of India has agreed to provide 21.9% free energy to Nepal after implementing this project over and above the royalty of 7.5%. On the contrary, West Seti inundates 2,750 hectares of land and displaces 18,289 people. But SMEC, the proponent of this project, is providing only 10% as free energy to Nepal (on top of royalty of about 2.89% as royalties and export tax. This is rather highly unfair.

2. I have quoted the above data with regard to inundation and displacement from the EIA report of this project. But these numbers do not depict the whole truth. You must be aware that India has built embankments almost all along and very close to, the border of Nepal in the South, in contravention of international law. The Laxmanpur embankment and Girjapur barrage currently inundates 5 VDCs in Bank district and displaces 15,174 people each rainy reason – about 4 months in a year. With the implementation of West Seti project these 5 VDCs will be inundated around the year due to the augmented flow – by about 90 m3/s – and 15,174 inhabitants will be permanently displaced (instead of just 4 months in a year). EIA prepared for this project, therefore, is truncated and incomplete. Due to this reason 1,630 hectare will become permanently inundated and 645 hectares partially. This fact has been brought to the light by Dr Anand Bahadur Thapa, a water resource expert of repute, by publishing an article on the subject in Spotlight on 28th March 2008.

3. This project, being a reservoir project, generates peak-in electricity which is highly valuable (I am sure people are aware of this). NEA is buying electricity from Chilime project – a run of the river project – at Rs 6.47 (equivalent to US 9.24 ¢ at Rs 70/USD) per kWh and it costs NEA Rs 31 (US 44 ¢) per kWh to generate peak-in electricity from its thermal power plants in Duhabi and Hetauda. Moreover, when Bangladesh wanted to buy electricity from the Indian state of Tripura, the Indians quoted INR 7 (US 16 ¢)) per kWh. In this backdrop the negotiated/agreed rate of US 4.86 ¢ for peak-in electricity generated from a reservoir project is literally taking Nepal for a ride. It needs to be remembered here that the meager energy royalty of 2% Nepal gets will be based on the revenue stream – higher tariff means higher volume of revenue stream and, therefore, higher amount of royalty revenue to the government treasury and vice versa.

4. As this is a reservoir project it generates downstream benefit in terms of flood control in the rainy season, augmented flow during dry season and additional electricity generation capacity. Under the paper work done for this project Nepal is deprived of any recompense for these. Under Columbia Treaty signed between Canada and USA, the former is entitled to such benefits. Specifically under Article V of the treaty, Canada is entitled to one half the downstream power benefits. Applying this principal to West Seti project, the installed capacity of which without a reservoir is only 100 MW, Nepal is entitled to power benefit of 325 MW, as this project’s installed capacity increases to 750 MW due to construction of the reservoir.

Similarly, in the Columbia Treaty there is also provision for (a) compensation to Canada for flood control benefit in USA – due to storage of water during rainy season, and (b) augmented flow in USA during the dry season. USA paid a lump sum to Canada for flood control as well as for the economic loss to Canada arising directly from Canada foregoing alternative uses of the storage used to provide the flood control. Nepal is getting nothing for these downstream benefits that India will enjoy with the completion of this project. From this project India stands to receive 90 m3/s during the dry season which works out to 7.77 billion liters per day. In Nepal 170 million liters per day of water is planned to be diverted from Melamchi River at the cost of $ 310 million. Looked at the issue from this perspective India is going to receive such a huge volume of water absolutely free of cost. This does seem to be fair or justifiable, rather it is unconscionable.

To use another example, Lesotho receives US $ 25 million annually for 18 m3s water it supplies to South Africa. At this rate Nepal becomes entitled to US $ 125 million per annum for the augmented flow of 90 m3s which has been sacrificed.

5. The proponents of this project are going around trumpeting about the benefit to Nepal that will accrue to it after handover of this project in 30 years and don’t forget to add that Nepal will receive this project with a value of $ 1.2 billion. What they gloss over is the fact that this project will not be worth this much due to wear and tear after its use for 30 years. In this manner they also gloss over another serious issue. As the mountains of Nepal is rather young, the silt load in all rivers of Nepal is very high and within a short span of time dead storage in the reservoirs tend to increase (the dead storage of Kulekhani – whose sources are small rivulets with very little silt load – has already reached 25% and is increasing). Once the reservoir gets filled up with silt, India will start clamoring for the decommissioning of the dam. But the proponents of this project have not made any budgetary provision for this purpose. Meaning Nepal will have to foot this bill too in the near future. This will amount to a big set back for Nepal.