R 011049Z DEC 08
FM AMEMBASSY KATHMANDU
TO SECSTATE WASHDC 9500
INFO AMEMBASSY COLOMBO 
AMEMBASSY DHAKA 
AMEMBASSY ISLAMABAD 
AMEMBASSY NEW DELHI 
AMEMBASSY BANGKOK 
AMEMBASSY BEIJING 
AMEMBASSY ASTANA 
USEU BRUSSELS
USMISSION GENEVA 
USMISSION USUN NEW YORK 
AMCONSUL CHENNAI 
AMCONSUL KOLKATA 
AMCONSUL LAHORE 
AMCONSUL MUMBAI 
AMCONSUL LAHORE 
EPA WASHDC 0034

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 
------- 
 
¶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 
---------------------- 
 
¶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 
----------- 
 
¶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 
------- 
 
¶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