Marsyangdi River Basin

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State of Conflict on Water Resources and

Benefit Sharing in Marsyangdi River Basin

Jalsrot Vikas Sanstha (JVS)/ GWP Nepal


January, 2019
Disclaimer
The findings, interpretations and conclusions expressed
herein are those of the author (s) and do not necessarily
reflect the views of the institutions

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Foreword

This research was part of Water and Climate Resilience Program


(WACREP) activity of Jalsrot Vikas Sanstha (JVS)/GWP Nepal.
JVS/GWP Nepal highly appreciates the contribution of the study team
Mr. Surya Nath Upadhyay, Mr. Prakash Gaudel and Ms. Monica
Maharjan. JVS/GWP Nepal also acknowledges the contribution from
Mr. Tejendra G.C and Ms. Neha Basnet during the preparation of this
publication.

Jalsrot Vikas Sanstha/GWP Nepal

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Executive Summary

The link between water and conflict is complex and real. Water with its property as a common
pool resources and economic good has been the ground for the disputes arising in terms of its
accessibility and uses. There has been a case where water dispute has stimulated civil defiance,
various acts of sabotage, and even violent protest. Water has no substitute. For that reason, the
tension arises with the increasing economic growth and urbanization. The conflict regarding the
use of water has materialized over different industries and communities at the National and Sub-
national level. In this backdrop, study was carried out by JVS/ GWP Nepal to access the state of
conflict on water resources and benefit sharing in Marsyangdi River Basin. It has also attempted
to evaluate cooperative relationship between developers and local communities in relation to
benefit sharing.

To carry out the study, primary information was collected mainly through the stakeholder
consultations and the site observation. Secondary data collection method included the desk study
of the different publications and water related legal documents. It was found from the study that
the water from Marsyangdi River have not been directly used for the drinking purpose so, at the
recent time conflict related with the drinking water and irrigation was not observed. However,
there are a number of hydropower development projects in pipeline along the Marsyangdi River
Basin that when coupled with the impacts of sedimentation and climate change might create
conflict in the future days. The grievance of the people is associated with the benefit sharing of
the hydropower projects. Lack of proper information on royalty sharing and transparency is the
concern of the people over there. Similarly, there have also been issues of the mitigation of the
impacts from the construction of the dams and its location at the seismically active zone.

In context of the rolling out of the federal system to the provincial and local one, there are many
confusions regarding the jurisdiction of state and local level in sharing the benefit in a just
manner. This calls for the proper establishment of the guideline at the institutional level. In
addition to these, lack of awareness among the people regarding the financial risk of investing in
hydropower project, demanding of shares at public owned or privately owned hydropower
project is also problem there. So, the information dissemination and awareness campaign is
crucial for the people.

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Table of Contents

EXECUTIVE SUMMARY .......................................................................................................... 4

CHAPTER 1 .................................................................................................................................. 6

INTRODUCTION......................................................................................................................... 7

1.1 Background ........................................................................................................................ 7

1.2 Objective .................................................................................................................................. 8

CHAPTER 2 .................................................................................................................................. 9

METHODOLOGY ....................................................................................................................... 9

2.1 Data Collection ........................................................................................................................ 9

CHAPTER 3 ................................................................................................................................ 13

FINDINGS AND DISCUSSION ................................................................................................ 13

3.2Existing conflicts .................................................................................................................... 14

3.2.1 Water uses........................................................................................................................... 14

3.2.2 Project versus Project ........................................................................................................ 14

3.2.3 Project versus Development .............................................................................................. 15

3.2.4 Project versus Public ......................................................................................................... 15

3.3 Benefit Sharing ...................................................................................................................... 16

3.4 Project versus Environment................................................................................................. 26

CHAPTER 4 ................................................................................................................................ 27

CONCLUSION ........................................................................................................................... 27

REFERENCES ............................................................................................................................ 29

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List of Tables

Table 2. 1 : Projects under operation ............................................................................................ 10


Table 2. 2: Planned projects.......................................................................................................... 10
Table 3. 1 : Royalty received from the HPPs in different fiscal years for different districts ....... 17
Table 3. 2 : Legal provisions relevant to royalty sharing ............................................................. 20
Table 3. 3 : Major benefits provided by hydropower projects in Marsyangdi River.................... 23
Table 3. 4: Local employment provided by hydropower projects ................................................ 23
Table 3. 5: Issues with benefit sharing.......................................................................................... 24

List of Figures

Figure 2. 1: Map showing Marsyangdi River basin (Source: Khadka & Pathak 2016) ................. 9
Figure 3. 1: Distribution of royalty revenue by the Government of Nepal………………………19

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Chapter 1
INTRODUCTION

1.1 Background

Access to natural resources such as water, oils, minerals, forests, fish etc. is the economic
backbone for many states. The conflicts resulting from the scarcity of such resources are
becoming more evident, especially water because of its nature. Many studies suggest that water
is a potential source of conflict (Wolf 2005; Hensel & Brochman 2007; Evans 2010). According
to Wolf (2005), water disputes can stimulate civil defiance, various acts of sabotage, and even
violent protest. Water has no substitute. For that reason, the tension arises with the increasing
economic growth and urbanization. Water has numerous uses and thus, the conflict can arise
between different users such as industry, hydropower and agriculture, or between rural and urban
communities or even between states, provinces, districts and tribes (Wolf 1998). Water is also a
stress multiplier, especially in poor nations like Nepal with institutional and political weaknesses.
Its scarcity can deprive farmers, fishermen and other disadvantaged groups from accessing the
resources and affects their livelihood. Upreti (2004) finds natural resources in Nepal vulnerable
to conflicts as they are politicized.

In the last five decades, Nepal’s population and urban population had increased by 2.8 and 16
times respectively (Sharma 2014, p. 382). These have resulted in increase in demand for energy
and a competition between domestic and industrial uses leading to conflicts. Hydropower
development in Nepal is taking fast pace in recent times in order to meet the energy requirements
of the country. Nevertheless, mega hydropower projects have certain costs on society and
environment which give rise to disputes of various sorts. For instance, the inequitable
distribution of its costs and benefits has become a burning issue in this context. A recent study by
Shrestha et al. (2016) on benefit sharing mechanism in hydropower sector of Nepal has pointed
out the issues that spark local conflicts and has underscored the need to improve benefit sharing
policies and practices in the country. Among other sources of water conflict, Tandukar (2012)
points out confusions and inconsistencies in policies.

In this premises, this study on “Assessing the State of Conflict on Water Resources in
Marsyangdi River Basin” analyzes different dimensions of conflicts surrounding water, its use
and sharing of benefits. There are multiple users of water at the basin. Moreover, existing large
hydropower projects and more under construction are likely to develop disputes among various
stakeholders due to their conflict of interests and priorities. Water, which has not only economic

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but also environmental and social values, needs an integrated management for a sustainable
development. Discovering the water-related contentious issues and their sources is deemed
necessary to protect the shared environment of the basin. It will also help to gain lessons
for policy improvement. The study also sees through the lens of benefit sharing while
analyzing the upstream and downstream conflicts and hence, it is relevant for the
upcoming large dam projects.

1.2 Objective

The major objective of this study is to find out the dynamics of water use related conflicts in
Marsyangdi basin. It also aims to evaluate relationship between developers and local
communities in relation to benefit sharing. By identifying the existing as well as potential areas
of conflicts on Marsyangdi River and its water, this research aims to indicate the conflict
resolution measures and/or required precautions for avoiding the future conflicts.

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Chapter 2
METHODOLOGY

2.1 Data Collection

Both primary and secondary data have been used for the study. Secondary sources include the
Environmental Impact Assessment (EIA) reports of hydropower projects developed in the basin,
past literatures and other journal articles while stakeholder consultation was held to gather
primary data. The stakeholders include local government officials, hydropower project officials,
politicians, farmers, fishermen and other local people.

2.1 Locale
Marsyangdi River is a snow-fed river that flows along round Annapurna Trek in the Annapurna
Conservation Area receiving additional flow from seven major tributaries, namely Khangsar,
Jharsang, Dordi, Pauli, Chapa, Chundi and Daraudi. The 150 km long Marsyangdi River is an
important tributary of Sapta Gandaki River with a drainage area of 4787 km2 lying between
27°50’42”N to 28°54’11”N latitudes and 83°47’24”E to 84°48’04”E longitudes(Khadka &
Pathak 2016). About 45% of it is above 4,000 msl (ibid). The Marsyangdi basin covers four
districts of Western Nepal, viz. Manang, Lamjung, Tanahu and Gorkha.

Figure 2. 1: Map showing Marsyangdi River basin (Source: Khadka & Pathak 2016)

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Hydropower Potential

Gandaki River Basin has an economic potential of producing 5.27 GW of hydropower (IPPAN
2006). Most of the mega-hydropower projects of Nepal have been developed in this basin,
particularly in Marsyangdi. Marsyangdi basin is largely being utilized for hydropower generation
due to its high potential relief energy attributed to its steep slope, which on an average is 29.42O
(Parajuli et al. 2015). Marsyangdi hydropower project with installed capacity of 69 MW is the
first megahydropower project constructed in the basin, which was commissioned in 1989.
Information on hydropower projects in the Marsyangdi basin are given in the following tables.

Table 2. 1 : Projects under operation

S.N. Name Capacity District Promoter Location Remarks


(MW)
1 Marsyangdi 69 Tanahu NEA 27O52’25”N Commercial
(Also called to Operation
Lower 27O56’53”N/ Date (COD):
Marsyangdi) 84O25’40”E 1989-11-5
to
84O32’42”E

2 Madhya 70 Lamjung NEA 28O08’20”N COD:


Marsyangdi to 2008-11-1
28O11’50”N/
84O24’18”E
to
84O26’51”E

3 Upper 50 Bhulbhule, Sinohydro- 28O17’07”N


Marsyangdi A Bahundanda, Sagarmatha to COD:
Khudi Power 28O19’28”N/ 2012-03-30
(Lamjung) Company 84O21’55”E
Pvt. Ltd. to
84O24’10”E

Total 189
Source: Department of Electricity Development (DoED), GoN (2017)

Table 2. 2: Planned projects

S.N Project Capacity Promoter District/VDC Lat/Long Remark


. (MW) s
Applications for survey license

10
1 Upper 600 Himtal Manang 28O22’04”N
Marsyangdi Hydropower to
2 Company Pvt. 28O30’00”N/
Ltd 84O21’30”E
to
84O25’03”E

2 Manang 282 Manang Manang 28O31’27”N Survey


Marsyangdi Marsyangdi to license
Hydropower 28O33’37”N/ Date:
Company Pvt. 84O15’38”E 2065-
Ltd. to 03-19
84O20’00”E
3 Upper 138 Upper Lamjung 28O18’50”N 2065-
Marsyangdi Marsyangdi to 04-15
1 Hydropower 28O22’47”N/
Company Pvt. 84O23’30”E
Ltd. to
84O25’00”E

5 Lower 140 Butwal Power Manang 28O30’00”N 2066-


Manang Company to 02-11
O
Marsyangdi 28 32’30”N/
84O20’00”E
to
84O21’55”E

Issued survey license


1 Marsyangdi 54 Himal Energy Chame, Pisng 28O32’33”N 2074-
7 Venture Pvt. (Manang) to 05-09
Ltd 28O36’31”N/
84O10’26”E
to
84O16’00”E

Issued construction license


2 Marsyangdi 50 Divyajyoti Besisahar, 28O12’00”N 2074-
Besi Hydropower Chandisthan, to 06-01
Pvt.. Ltd. Bhulbhule, 28O16’00”N/
Gaunsahar, 84O21’15”E
Bajhakhet, to
Hiletaxar 84O24’40”E
(Lamjung)
Government Reserved Projects
1 Marsyangdi 42 Dhamilikuwa, 28O05’27”N
3 Tarkughat to

11
(Lamjung) 28O08’09”N/
84O25’39”E
to
84O27’30”E

Total
Source: DoED, GoN (2017)

For this study, that area is selected where three mega-hydropower projects, Upper Marsyangdi
(50 MW), Middle Marsyangdi (70 MW) and Lower Marsyangdi (69 MW) have been
constructed. Projects under construction generally have some issues or conflicts that are short
termed in nature. Hence, instead of such projects, the ones which are already under operation,
have been considered to encompass a greater range of conflicts. Relevant stakeholders from
those areas were invited during the stakeholders’ consultation. The Upper Marsyangdi HPP is
promoted by a private organization while Nepal Electricity Authority (NEA) owns the rest two.
This allows the research to explore if the conflicts vary according to project ownership
modalities (Public or Private).

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Chapter 3
FINDINGS AND DISCUSSION

Hydropower generation is the primary use of the Marsyangdi River. Water from the River has
not yet been directly tapped for drinking water or irrigation schemes. The tributaries of the River
are utilized for those purposes. Basically, the current major use of the River is hydropower
production and it is likely to continue in future as well due to its immense potential. Three mega
hydropower projects of Nepal have already come to operation (See Table 2.1). Hence, most of
the issues that involve conflicts or that are likely to invite one are around existing and future
hydropower projects. The identified issues are described below:

3.1 Geographical risks


An area of about 508 km2 is under the glacier cover in the basin (Parajuli et al. 2015). There are
more than 20 glaciers in the basin of which, Thulagi glacier, located in Upper Marsyangdi Basin,
has been identified as one of the potentially dangerous lake. According to the Environmental
Impact Assessment (EIA) reports of the HPPs in the basin, the entire Marsyangdi basin is
undergoing through a phase of tectonic movement while glacier and ice erosion is active in
addition to monsoon-enhanced erosion. Erosion in river basin is many times higher than
transport of sediment. The EIA report of Middle Marsyangdi HPP has mentioned that the
watershed above its dam includes Tibetan marginal ranges and high Himalayan mountains with
only a small portion lying in Midland Mountain region. The natural factors along with human
activities such as topographic steepness, high intensity rainfall and declining vegetation cover
etc. have been accelerating land degradation. On top of that, the construction activities of
numerous planned projects are likely to enhance the process of erosion in future.

Local stakeholders stated that landslides in Dumre-Besisahar area are frequent due to both
geology as well as rural road construction. It is getting problematic but no measures have been
taken. There is growing sedimentation in the tributaries of Marsyangdi. Initiatives from the local
government to manage the sedimentation in the tributaries and landslides are required. Locals
believe that the deposited soil/silt can be harvested and utilized in some economic activities. But
their question is who will decide what is to be done with the silt.

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3.2Existing conflicts

3.2.1 Water uses

Some existing and potential areas of conflict related to the use of water from Marsyangdi River
as described hereunder.

Drinking: Marsyangdi River is not used for drinking water. The tributaries of Marsyangdi are
serving the purpose. Thus, there is no visible conflict regarding drinking water. Nevertheless,
some people reported that the damming of river for hydropower production has led to drying of
some sources. Locals have noticed drying of water sources where the blasting was done during
construction phase of the projects. Although the EIA reports mention that tunneling might affect
the spring sources or ground water but the assessment of impacts of such activities has not been
carried out. Middle Marsyangdi Basin has rocky mountains where many blasting activities were
carried out. Dudh Pokhari VDC is one of the examples where a spring source dried as a result of
blasting. With numerous planned projects, there is room for potential conflict if water has to be
diverted from the River for the population in future.

Irrigation: Water from the tributaries of Marsyangdi is being diverted to irrigation canals. There
is Dordi Dudh Khola Small Hydropower project (20.8 MW) in one of the tributaries called
Dordi. Irrigation system downstream of that project has been suffering since the project does not
release sufficient water. One of the farmers complained that the project only considers the
capacity of adjacent irrigation canal while estimating the water but ignores other systems and
canals downstream.

Tourism: Rafting was once a popular tourism business in Marsyangdi River. The river stretch
from Ngadi to Bimalnagar is best suited for rafting. But nowadays, there are no rafting activities.
The locals accused HPPs for plummeting the business.

3.2.2 Project versus Project

There are several hydropower projects being constructed in the basin. Issuance of license for
construction lacks good planning. For instance, Middle Marsyangdi HPP was commissioned
(2008) before Upper Marsyangdi HPP (2012).

The dumping of soil and other debris by Upper Marsyangdi HPP during construction had caused
sedimentation problem to the Middle Marsyangdi HPP, which is located downstream. Similarly,
there are other smaller projects being planned in the area between these megaprojects, which

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represent the potential areas of conflict. Hence, the proper plan to mitigate the soil erosion
should be in place.

3.2.3 Project versus Development

Hydropower projects have brought development activities in the project area. According to
locals, they would not have seen the bridge in Bhulbhule and the road to Nyadi if there were no
Upper Marsyangdi HPP (Shrestha et al. 2016). Similarly the locals also acknowledge the projects
for construction of health posts , opening track of road (Upper and Middle Marsyangdi HPPs),
acquisition of ambulance (Middle Marsyangdi HPP), maintenance of school building (Upper
Marsyangdi HPP), construction of cremation sites, One-house One–tap programme (Upper
Marsyangdi HPP) and construction of water supply lines (Upper, Middle and Lower
Marsyangdi). However, there is a concern about how the development activities are being carried
out. It is the fact that until the roads are constructed, local people will be less bothered about
conservation activities in the watershed. Hence, road construction has been getting the priority
over other developmental activities. Unfortunately, the heavy equipment such as bulldozer is
used during the construction, which triggers erosion in the project areas. This might not be
desirable for the project. The communities feel that tributaries of Marsyangdi require check dams
or other watershed conservation measures for reducing erosion and sedimentation. This is
essential in order to balance both project and local development.

3.2.4 Project versus Public

Cultural practice: There are cemetery grounds of local people on the River banks. Some locals
who practice last rituals there had a couple of instances of either too much water which washes
away the cemetery ground (during monsoon) or lack of adequate water to perform the rituals
(sometimes in lean season). However, those people have not taken this as serious issue because it
does not happen every time. Also, not all communities depend on river banks for the last rituals.
Apparently, these cultural practices have not been affected much by water diversion for
existing HPPs.

Livelihood: The existing fishing communities in the downstream areas have been negatively
affected by the projects, especially during dry season when the projects do not release water
downstream. This has halted the economic activities of fishermen leaving them unemployed.
Although the Water Resources Act, 1992 has prioritized irrigation over hydropower, the project
related people are obliged to retain the water to meet the demand of electricity for the nation.

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Struggle with outsiders: Many local people seem to be annoyed by the behavior of outsiders,
especially Chinese laborers in Upper Marsyangdi HPP. The laborers turn deaf ear to the locals if
they complain about anything. They think that Chinese are not cooperative. Locals wish that the
Chinese use local agricultural produce and help to boost the local economy but they arrange food
for themselves. This is one of the reasons which have created grudges between these two. Lack
of cooperation is evident in other instances too. Shrestha et al. (2016) has stated that the project
had to stop for several days due to disagreement between local and Chinese laborers. Locals find
it difficult to work with the Chinese contractors who are high demanding about the working
schedules and performance (ibid). This forced them to leave the work.

3.3 Benefit Sharing

Hydropower is unanimous solution for the growing energy demand of the country. Despite an
enormous potential for hydropower generation, Nepal has been able to produce only 973.3 MW
through the HPPs under operation (As of 5 January 2018, DoED). In recent times, hydropower
development is picking up some pace spreading some rays of hope for energy security.
Hydropower development is known for a cleaner solution for energy demand but its impacts on
environment and society cannot be overlooked. Dam construction for power generation has
never been undisputed around the world and Nepal is not an exception. Benefit sharing has
become a burning discourse in the context of hydropower development. One of the emerging
issues in this regard is inequitable distribution of its benefits. Disputes arise at the local level
where local people have to bear the brunt of dam construction.

Both monetary and non-monetary benefits sharing mechanisms across multiple stakeholders are
currently being used in Nepal. A recent study by Shrestha et al. (2016) points out the issues that
trigger local conflicts such as lack of transparency in royalty flow, uninformed locals, political
exploitation by local elites and so on (p. 39). The study also acknowledges the need to improve
the benefit sharing policies and practices in the country so that an appropriate mechanism to
balance the competing interests of various stakeholders can be devised (p. 43).

Local peoples’ perception and understanding of benefit sharing of hydropower is important for
local acceptance of the project and necessary cooperation. If they do not perceive benefits from
the projects for local development or their livelihood improvement, the project might not receive
support from them.

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Forms of benefit sharing

i) Royalty sharing

In Lamjung, the monetary benefit sharing mechanism exists. The royalty is paid by Marsyangdi
and Middle Marsyangdi HPPs to the Government of Nepal as per the law (shown in Figure 3.1).
Department of Electricity Development has made the information on royalty money received by
the GoN from HPPs through its Royalty Management and Distribution System (RMS) in its
website. Information on royalty received from Marsyangdi HPP and Middle Marsyangdi HPP is
given in Table 3.1below. However, no information on royalty sharing of Upper Marsyangdi is
available.

Table 3. 1 : Royalty received from the HPPs in different fiscal years for different districts

District: Lamjung
38% (Regional
Year 12% (district share) share) Total
2071/72 Marsyangdi HPP 0 9590927.79 9590927.79
Middle Marsyangdi HPP 6978673.8 1675114.33 8653788.13

2070/71 Marsyangdi HPP 0 9078493.31 9078493.31


Middle Marsyangdi HPP 6433284.48 1544202.72 7977487.2

2069/70 Marsyangdi HPP 0 9978489.67 9978489.67


Middle Marsyangdi HPP 7476410.04 1794587.62 9270997.66

2068/69 Marsyangdi HPP 0 22045382.98 22045383


Middle Marsyangdi HPP 21041303.52 5050614.22 22091917.7

District: Tanahu
Year 12% (district share) 38% (Regional share) Total
2071/72 Marsyangdi HPP 19978324.80 2935481.86 22913806.7
Middle Marsyangdi HPP 0 512699.9 512699.9

2070/71 Marsyangdi HPP 18910901.2 2778641.75 21689542.97


Middle Marsyangdi HPP 0 472631.92 472631.92

2069/70 Marsyangdi HPP 20785633.3 3054102.38 23839753.6


Middle Marsyangdi HPP 0 549266.92 549266.92

2068/69 Marsyangdi HPP 45921503.2 6747399.54 52668902.8

17
Middle Marsyangdi HPP District: Gorkha 0 1545834.43 1545834.43
Year 12% (district share) 38% (Regional share) Total
2071/72 Marsyangdi HPP 19978324.8 14272515.2 34250840.04
Middle Marsyangdi HPP 0 2492582.28 2492582.28

2070/71 Marsyangdi HPP 18910901.22 13509947.8 32420849.05


Middle Marsyangdi HPP 0 2297969.22 2297969.22

2069/70 Marsyangdi HPP 20785633.26 14849256.4 35634889.66


Middle Marsyangdi HPP 0 2670573.67 2670573.67

2068/69 Marsyangdi HPP 45921503.22 32806321.9 78727825.12


Middle Marsyangdi HPP 0 7515953.62 7515953.62

The distribution of royalty money was based on the Hydropower Development Policy, 2001 and
Local Self Governance Act (LSGA) and its Regulations 1999 until Nepal enters Federalism in
2015. The aim of the Policy, 2001 is to facilitate development of hydropower projects while that
of LSGA is to boost the local development. This shows the contradiction of the outlook of these
two legal documents. The regional royalty share comprises a big share of royalty (38%), which is
distributed among all districts of the development region where the project is located. This is
conflicting with the aspiration of Hydropower Development Policy while on the other hand, the
Policy itself has not been translated into the legislation and hence, its compliance is not
guaranteed (JVS 2013).

When the project affected districts are two or more, royalty distribution is not consistent. Gorkha
and Tanahu districts where Marsyangdi hydropower project is located gets 12% of the royalties
distributed equally among themselves, regardless of the location of powerhouse whereas in some
other projects such as Khimti, 12% is divided between Dolakha and Ramechhap districts in 3:1
ratio based on mutual consent (Shrestha et al., 2016). Similarly, the regional royalty share is
divided equally among districts in Eastern and Mid-Western Development Region while
unequally in Western and Central Regions (ibid). People in Lamjung had stated during the
consultation that the most affected district deserves more share of royalty. Such non-uniform
practices of royalty sharing in the country will provoke the conflicts among the affected districts
and communities.

18
Adopted from: Shrestha et al. 2016

Figure 3. 1: Distribution of royalty revenue by the Government of Nepal

19
Revenue sharing in Federal Nepal

Currently, Nepal is governed by the Constitution of Nepal, 2015 that had declared the country as
a “Federal Democratic Republic” where the federal, province and local government share the
powers. Article 60 of the constitution mentions that the Government of Nepal shall make
necessary arrangements to equitably distribute the revenue generated from its sources and the
amount of fiscal transfer receivable by the State and Local level shall be as recommended by the
National Natural Resources and Fiscal Commission (NNRFC).

National Natural Resources and Fiscal Commission Act 2017has been formulated to provide
necessary arrangements regarding the functions, duties and powers of the Commission as per the
provisions of Article 250 and 251 of the Constitution. One of the duties of NNRFC as in Article
251 of the Constitution is “to set bases for the determination of shares of the Government of
Nepal, State Government and Local level in investments and returns, in the mobilization of
natural resources”. Similarly, facilitating and assisting for resolving the dispute that arises during
the distribution of revenues among the Government of Nepal, State and Local level as necessary
is one of the stated duties of the Commission further described in the NNRFC Act, 2017.

Intergovernmental Fiscal Management Act 2017 has been endorsed and implemented to manage
the issues related to, inter-alia, revenue rights, revenue sharing and budget management among
three tiers of government. The Commission puts all the royalty money collected from the
revenue generating sectors such as hydropower generation, mountaineering, forests, mine and
minerals, water and other natural resources in 'Federal Divisible Fund' and allocates the amount
to three tiers of the government based on a formula which takes location and affected community
as key factors. As per the Act,the federal, state and local governments receive 50%, 25% and
25% royalties respectively in their corresponding Consolidated Funds following the principle of
equitable distribution of benefits derived from natural resources, including hydropower.

Table 3. 2 : Legal provisions relevant to royalty sharing

Constitution Article 251 Recommends the natural resources


of Nepal, distribution, identifies the share of
2015 investment and benefits for natural resource
utilization
Develops the dispute resolution mechanism
NNRFC Act, Clause 14 Provides the criteria for investment and
2017 benefits sharing

20
Clause 7 and subsequent Identifies the percentage of royalties
Schedule 4

Criteria for benefit sharing as per NNRFC Act, 2017


- Location of natural resources
- Affected areas from natural resources mobilization
- Dependency on natural resources
- Population to be benefitted
- Dependent population
- Participation in protection and sustainable management of resources

Main points:
Natural resources are distributed unequally among the seven provinces.According to the report
entitled Federal Nepal: The Provinces – Comparative Analysis of Economic and Administrative
Data and Challenges published by The Governance Facility (GF), Provinces 1, 3, 4, 5 and 7 are
endowed with rich water resources while Province 2 lacks hydropower potential (Nepali et. al.
2018).Besides having abundant natural resources, socio-economic development in Provinces 6
and 7 is still lagging behind other provinces. Local levels and provinces rich in natural resources
are likely to get bigger share of revenue collected from the use of natural resources. This is
against the principle of equitable distribution of benefits derived from natural resources.

1. People can get really confused with the jurisdiction of the three levels of government
demarcated by the Constitution of Nepal, 2015, Intergovernmental Fiscal Transfer Act, 2017
and Local Government Operations Act, 2017 as there are many inconsistencies, ambiguities
and uncertainties. For instance, Schedules 7 the constitution contains the list of Concurrent
Powers of Federation and State and while 9 gives the list of Concurrent Powers of
Federation, State and Local Level. This concurrency and interdependence in the jurisdiction
has led to duplication and confusion.

2. Non-tax revenues are expected to increase because of royalties from new hydropower
projects.The overlapping jurisdiction of the three levels of government and lack of
structure and expertise at the local level is likely to create the tax disputes which in turn
makes the collection and distribution of hydropower royalty a messy business.

3. The Commission is still at its infancy with severe capacity constraint. It poses challenges to
carry out necessary tasks/preparations required for the developing the bases for benefit

21
sharing of the natural resource utilization such as preparation of natural resources
inventories, determination of affected communities, studies on possible disputes and
conflicting matters and so on.

i) Corporate Social Responsibility

Marsyangdi and Middle Marsyangdi HPPs owned by NEA have dedicated CSR programmes but
the Upper Marsyangdi which is owned by a private company does not have such arrangement.
The HPPs need to have CSR irrespective of government or private owned. As mentioned above,
the royalty is being paid by Marsyangdi and Middle Marsyangdi HPPs to the Government of
Nepal. Although every HPP above 1 MW capacity is obliged to pay royalty to the government,
there is no information/record on royalty payment by Upper Marsyangdi HPP in the RMS of
Department of Electricity Development. The Corporate Social Responsibility (CSR) in Nepal
seems to be limited to compensation and mitigation measures particularly during the construction
phase of hydropower projects (Shrestha et al., 2016). In Marsyangdi River, the activities which
directly benefit the local communities’ livelihood in project district would represent the CSR of
the developers.

ii) Other forms of benefits for local communities

Other than royalty sharing, the projects in Marsyangdi River are also benefitting the local and
affected communities through other activities as shown in Table 3.1 and Table 3.2. Local
communities in Lamjung were disappointed because no shares have been issued. The local seem
to be unaware about the fact that there is no provision for public share from the
government/NEA owned HPP. Their trust on the projects is diminishing as the projects have
carried out local development activities and environmental protection measures as committed in
the EIA. They also complained about the lack of monitoring of the implementation of the
measures from relevant agencies.

Local job opportunities from the project is a tangible form of benefit sharing according to the
communities. All three projects have provided employment to the locals, prioritizing the most
affected ones during the construction. However, employment after the construction have not
been ensured. Some have got the job on contractual basis after following the NEA recruitment
process. As mentioned in above, locals did not feel comfortable working with Chinese
contractors which might have discouraged them to ask for jobs later on. Similarly, the projects
have provided livelihood related trainings but some training seem to be unplanned. For instance,
Middle Marsyangdi HPP trained people on herb identification but without a refinery centre in the
local area, they have not utilized the skills they developed through training.

22
Table 3. 3 : Major benefits provided by hydropower projects in Marsyangdi River

S.N Project Royalt Local Community Local Electricity Water and


. y projec Developme livelihoods support environme
t nt Fund programm nt benefits
shares e
1 Marsyang Pays N/A Yes Local jobs, Access Drinking,
di trainings through Irrigation
regular NEA
connection
2 Middle Pays N/A No Local jobs, Infrastructure Drinking,
Marsyang trainings support Cultural,
di provided Environmen
through t
neighborhood
development
programme,
complementin
g
electrification
policy of
Lamjung
District
3 Upper N/A N/A No Provided N/A Drinking
Marsyang
di
Source: Shrestha et al. 2016

Table 3. 4: Local employment provided by hydropower projects

S.N. Hydropower Local jobs Employment during Employment after


Projects construction construction
1 Marsyangdi Yes Preference to people who Some locals in contract
lost more than 70% of land later NEA recruiting
process
2 Middle Yes Priority to locals NEA recruiting process
Marsyangdi
3 Upper Yes About 800 locals from TBD
Marsyangdi affected district
S.N. Hydropower Trainings Types Remarks

23
1 Marsyangdi Yes House wiring and plumbing
2 Middle Yes Agriculture training (bee Herb training has not been
Marsyangdi keeping and herb of much help as there is not
identification) refinery centre in the local
area.
3 Upper Yes Construction works
Marsyangdi (carpentry and bar bending)
at Technical Campus
Source: Shrestha et al. 2016

Although the hydropower projects have benefitted locals in some ways but the process of benefit
sharing is prickly. Major issues with regards to benefit sharing is summarized on Table 3.4.

Table 3. 5: Issues with benefit sharing

Issues Description
Lack of policies Nepal still lacks formal laws with regards to benefit sharing of
hydropower projects. Royalty sharing is based on Hydropower
Development Policy while its distribution to the locals is based on Local
Self Governance Act and Regulations.
Delineation of Generally, the affected populations are categorized according to village
affected areas and development committees (now called gaunpalika) and districts.
population However, there is no scientific way or procedures for defining the
affected areas and population and found to differ from project to project.
There are instances of villages claiming to be affected to enjoy the
benefits. In Upper Marsyangdi HPP, one village which was not
mentioned in EIA later claimed to be affected and received the
community development budget (Shrestha et al. 2016). Such issues
related to entitlements of impacted areas and population may bring
conflicts among the communities.
Inadequate The EIA reports show that the region does not have adequate number of
developmental healthcare services, transportation and communication facilities. The
activities royalty distributed in the districts is mainly used for local electrification
and road construction. Many locals demand that the money should be
spent in other infrastructure development too.
Transparency of Lack of transparency of royalty sharing has not only dissatisfied the
royalty communities but also local government. The local government officials
are not communicated well about the details of royalty calculations and
distribution. Hence, the information is even less with the public.

24
Difficulty in The royalty money is generally scattered across various gaunpalika
assessing the benefits
(Rural Municipality) and municipalities in a given district. There is no
of royalty money clear indication or guidelines for utilizing the money. (In Kulekhani
hydropower project, Royalty Distribution and Utilization Procedures
have been developed but it has not been followed as directed).For this
reason, it is difficult to assess the benefits received by the people.
Moreover, the benefits are not discernible to the locals which give them
impression that the royalty money is not being utilized for the upliftment
of their living standard.
Compliance with EIA One of the resentments that people have is the non-compliance of
developers with mitigation measures stated in EIA reports. Panday
(2005) has stated that the Environmental Management Action Plan
(EMAP) of Middle Marsyangdi was not followed as effectively as
expected. The efforts to minimize the impacts caused during
construction should be visible to the public which is lacking as evident
through their complaints against the projects.
Shares for local Generally the hydropower companies allocate 10%share to locals in
ownership Nepal as per Securities Board of Nepal (SEBON) Rules 2064. There was
a demand of local shares during construction phase of Middle
Marsyangdi HPP but locals feel aggrieved as no shares have been issued
till date. They are still expectant about the shares. However, Middle
Marsyangdi HPP is owned by NEA and thus, there will be no provisions
of public shares.

Transmission line: The public were dissatisfied about the low compensation they receive for
letting their land go for transmission lines. The market price of land near the transmission lines
plummets easily and they have to suffer because of this. The locals think that the government
should consider the long term repercussions of this and provides alternative livelihood options
for those whose land is grabbed for the purpose.

Monitoring: During EIA, the locals were consulted on many environmental and socio-economic
issues to prepare the EMAP. The developers also committed various activities for environmental
impact mitigation and project affected communities but locals said that all agreed activities are
confined to the reports. They have not seen any governmental agencies monitoring the
implementation status of EIA. Most of the locals unanimously voiced that if the developers stick
with their commitment and plans as stated in EIA and if the government monitors their activities,
there will be no conflicts between public and developers.

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3.4 Project versus Environment

Environmental Flow (E-flow): The national policies such as Hydropower Development Policy
2001 and Irrigation Policy 2014 as well as National Water Plan 2005 have emphasized the need
of maintaining a minimum river flow downstream of a hydro-project for minimizing of impacts
on natural environment. The Hydropower Development Policy in particular has specified the
quantum of water to be released which is at least 10% of the minimum monthly average
discharge of the river/stream or the minimum required quantum as identified in the EIA study
report. All hydropower projects which are licensed after 2001 are abided by this policy
provision (Gaudel 2016).

Since there are series of projects being planned in the basin, the issue of environmental flow is
likely to come forefront. Both the public and project officials agree that there is virtually no
environmental flow downstream of hydropower projects. The only water available as E-flow is
the flushed out water from de-silting basin. So, apparently there is some water but no one has
measured it. Till date, there is no complaints made by locals regarding E-flow. The aquatic life is
however affected due to inadequate water. On the other hand, the developers stated that they are
forced to hold back water in order to meet the energy demand of the country, especially in lean
season. Water Resources Act 1992 of Nepal has set the priority order of water utilization but
Nepal lacks water allocation authority that allocates feasible amount of water for a use based on
the character of water availability in the basin and priority identified. Other use level conflict
may follow this fundamental level conflict.

River morphology and Hydrology: Diversion of water by dams has implications on river
morphology and hydrology that not only impacts the livelihood and health of downstream
communities (fishing communities) but also impacts aquatic ecology. Similarly, groundwater is
also affected by damming of river. The locals speculate that there could be alteration in the
quantity of groundwater in reservoir area and dewatered area. However, no quantitative data is
available as there is no measurement or monitoring of groundwater quantity by the relevant
agencies.

Water quality: No reports were found regarding the deteriorating quality of water in the River.
Some locals stated that the erosion and sedimentation might alter the quality of water in the
reservoir and in between dam and tailrace.

26
Chapter 4
CONCLUSION

Hydropower generation is a dominating use of Marsyangdi River. There are several large
hydropower projects, already constructed and many on the pipeline. Mega hydropower projects
are usually problematic to local communities because they affect a large number of people
during construction of dams, access road, power-house and transmission lines. The effect is not
only limited to people and their livelihood but also the environment. Therefore, it takes
cooperation of all stakeholders, from government and developers to local people to mitigate the
socio-economic and environmental issues and to resolve associated conflicts.

The hydropower projects in Marsyangdi River are also not free of issues, some of which are
minor while some are major and require attention. Since the water from Marsyangdi is not
directly used for drinking and irrigation, no significant conflicts were present in the basin.
However, water from the tributaries are important for local livelihood. There is already some
complaints about holding the water in dam when the farmers downstream need water. The
growing trend of developing hydropower projects in Marsyangdi and its tributaries might pose
some problems for drinking water and irrigation schemes in future.

The geography related seismic risks and erosion prone areas have been found in Marsyangdi
Basin. Therefore, careful examination of the site before developing large projects is important.
Managing the eroded soil in the River and its tributaries is desirable, particularly for the projects
as it could be problematic for equipment such as turbines. Even the locals are interested in
creating monetary value of the deposited silt. Initiatives from the local government to manage
the sedimentation in the tributaries and landslides are required.

One of the biggest issues identified was related to benefit sharing of the projects. Locals were
very concerned about the amount of money being paid by the projects and other impact
mitigation as well as developmental activities committed by projects. One can obtain information
on royalty amount received by different districts from different hydropower through RMS in the
website of DoED. However, local people and even some governmental officials seem unaware
about it which makes them hold grudges against the government for not being transparent
enough. However, local people and even some governmental officials seem unaware about it
which makes them hold grudges against the government for not being transparent enough.

27
Benefit sharing of hydropower projects is still evolving in Nepal. Nepal lacks legal
arrangement/mechanism which clearly states the process of benefit sharing among the local
stakeholders. Hence, the hydropower projects had to rely on Hydropower Development Policy
and Local Self Governance Act and Regulations, the objectives of which differ from each other.
Such contradictions in the objectives had been triggering the conflicts.
Based on these two laws, Marsyangdi and Middle Marsyangdi were paying royalty to the
government of Nepal. Locals were in the view that more money should be diverted to their
district as they bear the impacts of the projects. They believed that the royalty money must bring
positive changes to their livelihood. Similarly, they demanded the immediate implementation of
the environmental conservation activities written in EIAs of the projects as it has not happened.
For that, a strong monitoring and evaluation mechanism should be in place from the government
sector.

In the present context of federalism, royalty sharing is in the domain of NNRFC and the legal
arrangements such as Constitution of Nepal, 2015, Intergovernmental Fiscal Transfer Act, 2017
and Local Government Operations Act, 2017 are expected to help in sharing the benefit in a just
manner. However, challenges arise as there are many confusions regarding the jurisdiction of
federation, state and local level. On one hand, the Commission itself is constrained by the human
resource while on the other hand, the communities at the local level have not been enabled to
understand the changes in the governance system and still expect the benefit sharing would be
done as it had been practiced in the past. Hence, changing the mindset of the people poses a great
challenge for the developers as well as Government of Nepal.

Shareholder model of benefit sharing is slowly gaining popularity in Nepalese context. Local
shares create local ownership of the projects which is clearly visible in Chilime hydropower.
Issuing shares therehad helped the project to develop its subsidiary projects such as Sanjen,
Upper Sanjen and Rasuwagadhi in an uninterrupted manner (Shrestha et al. 2016). Share offer to
local is an investment opportunity for locals while a tool to gain the trust for developers. So, it is
a win-win situation for both. In Marsyangdi basin, local expectations for shares has gone high
but financial awareness on risks and benefits of purchasing shares seems to be lacking with
general community. Issuing local shares is mandatory only to public limited companies and not
the private ones according to the current laws in Nepal. Locals do not have knowledge about this
and expects shares from all hydropower developers, be it privately or publicly owned. This calls
for education and awareness campaigns for local people to understand both benefits and risks in
order to promote the informed decision making for the local people.

28
References

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development report 2011, Background paper, Centre on international cooperation, New York
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Modi Khola, Jalsrot Vikas Sanstha (JVS)/GWP Nepal, Kathmandu,
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militarization of river claims,
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sustainable hydropower: lessons from Nepal, ICIMOD Research Report 2016/2, Kathmandu,
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29
Wolf, AT, Kramer, A, Carius, A & Dabelko, GD 2005, Managing water conflict and cooperation,
State of the world 2005, The Worldwatch Institute.
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30
Annex

Annex 1. Participants of Stakeholders’ Consultation


S.N. Name Organization
1 Monika Gurung Besisahar Municipality
2 Sabitri Poudel Marsyangdi Rural Municipality
3 Khagisara Regmi Sundarbazar Municipality
4 Hari Chandra Acharya Raines
5 Bishnu Prasad Neupane Drinking water Federation
6 Bhagwan Kumar Pandit Sundarbazar Municipality
7 Nirmala Poudel Sundarbazar Municipality
8 Dhan Kumari Dura Marsyangdi Municipality
9 Jivan Shrama Besisahar Municipality
10 Netra Bahadur Gurung Marsyangdi Municipality
11 Yubraj Mainali District Administration Office
12 Krishna Paudel DADO
13 Bhola Guragain Sundarbazar Municipality
14 Meghendra Pokharel DCC
15 Banshi Hari Krishna FDD
16 Shobha Kauta Pokhrel Taghring
17 Purna Bahadur Bholan Besishahar Municipality
18 Santosh Kumar Shah Besisahar Municipality
19 Bhesh Bahadur Poudel Hydro Coordination Committee
20 Shiba Regmi DEC (PO)
21 Shyam Lal Lamichhane Besisahar Municipality
22 Ramji Bhattarai CDO Office
23 Parameshwor Adhikari CDO Office
24 Rohit Shrestha DCC
25 Pashupati Raj Gautam Station Manager

31
26 Bal Ram Shrestha Besisahar Municipality
27 Bhavesh Sharma Seva Development
28 Ram Chandra Regmi FECOFUN
29 Bal Krishna Khanal District Forest Office
30 Djam Prasad Pokhrel Ward Secretary
31 Bamdev Paudel Water Supply Division Office
32 Rajan KC DWIDM
33 Sarita Bastola Besisahar Municipality

Annex 2. Some snaps from the Stakeholders’ Consultation

32

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