Benefit Sharing in Hydropower

-By Pramod Rijal

This article was originally published in The Himalayan Times on 2 August 2015.

The management of water resource requires cooperation of various stakeholders including that of the community living in the areas where the hydro resource occurs. It is natural that members of the public from that area would like to have some share in the benefits to be accrued from the development of the project. The successful benefit sharing in water basin can be a tool for poverty reduction, sustainable development and long-term political stability in the country.

After the promulgation of a new constitution, Nepal is going to be a federal state with local, provincial and a central government. Though the demarcation of federal provinces has not been done till now, the issue of benefit sharing in hydropower will be very contentious as there are no clear cut provision of sharing benefits in terms of revenue, royalties, fees, preferential electricity rates between states, and it is very likely that mega hydropower projects will lie in more than one state. It will become more cumbersome and time taking to develop infrastructural projects as it will be necessary to take permission from different states.


Water conflicts may arise over rivers with upstream hydropower use and downstream irrigation use. This could occur because upstream water release may not coincide with irrigation needs of the lower riparian areas. Additionally, if there is overgrazing and deforestation in the watershed area, it may bring floods in the downstream plain area. It is the potential cause of conflict between hydropower in an upstream and other economic interests in the downstream.


Furthermore, benefit sharing between developer and local people is also a very crucial issue in construction of hydropower projects in Nepal as local people feel that they have primary right over natural resources occurring in their surroundings. The ILO Convention No 169 has also given special rights to use natural resources for indigenous and tribal people, though; it has not been defined clearly. On the basis of this legally binding instrument, local people demand a higher stake in hydropower and other beneficial projects. It creates a conflict over right to natural capital which leads to increase in cost of production of hydroelectricity by extending the time period. There are a number of projects in which smooth operation has been disturbed by the issue of benefit sharing.

Upper Tamakoshi (456 MW), which is the largest hydropower project under construction, is being developed using domestic resources. The local people have demanded higher a percentage of share for people who are residing in Dolakha district given the past evidence of successful projects like Chilime, Butwal Power Company and so on. For ensuring investment in the project, this hydro electric project has also given shares to employees of institutions such as Provident Fund, Citizen Investment Trust, Rastriya Beema Sansthan, Nepal Telecom, and Nepal Electricity Authority (NEA) who have no direct link to the project.

Due to this reason as well as attractive rate of return of the project, the labourers who have been working in the project also demanded shares, which is very unique as there is no such practice in other parts of the world. As there is no certain principle to allocate share for workers, the board of directors of the company remained indecisive for several weeks, which led to the halt of regular work. Though the project was disturbed for a month or so due to this reason, the construction period has increased by almost a year because of difficulties in construction work in the rivers during monsoon.


Several other projects, namely Khimti (60 MW), Bhotekoshi (45 MW), Buddhigandaki (1200 MW), Upper Balefi (50 MW), have been facing problem associated with benefit sharing. The local residents have demanded shares in Khimti and Bhotekoshi, which are completed and have been operational for several years. People of affected village development committees (VDC) have not allowed the construction of transmission lines which were damaged by the Jure landslide for evacuating power from Bhotekoshi. The Upper Balefi project (50 MW) could not go into construction smoothly due to the the demand for benefit sharing by local villagers.

The first hydroelectric project which solved the issue of benefit sharing successfully in Nepal is Chilime, which has a total capacity of 22 MW. This is the first project developed with domestic investment and manpower and has faced a similar fate as the local people demanded 10 per cent share after the completion of the project. It means the local people who demanded the shares are free from sharing risk as the construction period was already over. In this scenario also, a 10 per cent share was given to the people of affected VDC and residents of Rasuwa district. The process of awarding local people with shares has helped to develop other subsidiary projects of Chilime namely Sanjen (42.5 MW), Upper Sanjen (14.8 MW) and Rasuwagadhi (111 MW) in a smooth way as the local people have taken ownership of the projects. It proves that the local level obstacles related to hydropower development can be minimised if some portion of ownership of the project is transferred to local residents in a way that they are getting benefits from their resources.


Despite successful resolution of conflict in small hydropower projects, it is still a disputable issue in case of a mega hydropower projects as a large number of people are affected by it while building dams, access road, power house and transmission lines. Moreover, the established system of providing 10 per cent share to local people is not pragmatic as this level of investment in large project is too huge. Therefore, government, developers, investors and other stakeholders, including local people should come with mutually agreeable solutions to hasten the pace of hydropower development in Nepal.

Pramod Rijal is Research Associate at Samriddhi, The Prosperity Foundation.