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Updated: 31 Mar 2019

Nepal-India Water Negotiations (Power Asymmetry)

Nepal-india Water Negotiations (Power Asymmetry)


Negotiations between India and Nepal on water resource projects are a good illustration of negotiation power asymmetry.

India is 40 times larger in land area than Nepal and India was hungry to meet its increasing electrical power needs. Nepal is one of the poorest nations in the world and is economically linked to India because of its geographic situation. However, Nepal’s water wealth is enormous. Several studies revealed that 89 sites within Nepal are potentially capable of producing 30 gigawatts of hydroelectric power to energy starved India. This case study provides a clear example of what happens when a negotiation team haven’t taken the best negotiation course to first attain internal alignment.

The multi billion capital investment required to develop these projects is well beyond Nepal’s capacity, and to a lesser extent, India’s as well. Previous negotiations on completed projects between the two countries in the mid 1960’s have resulted in India retaining control over the headwaters located in Nepal. Due to this imbalance of control, Nepal has deliberately forestalled the development of further major projects. Since then, four independent foreign studies of medium and large term hydroelectric projects were identified. At issue was the Karnali project which could produce a potential output of 10.8 GW.

The initial feasibility studies on the Karnali project failed to take into account the impact of this product on financial feasibility and its sociological impact on Nepal. Another issue of contention for Nepal was that during their negotiations, India denied or gave lip service to issues surrounding irrigation and flood control. Additionally, India demanded that they would only be prepared to pay for the cost of the energy and not for the cost of peaking power which meant most of the cost would be transferred to Nepal. Nepal demanded it wanted to link the cost of electricity to the cost of alternative thermal energy to enhance its profit.

Nepal politicians came under strong pressure to develop these water resources. Nepal’s stall tactics also came under the gun. In 1991, a newly elected government in Nepal proclaimed it had come to an “understanding” with India on a number of water resource issues. This understanding caused a great furore amongst the opposition parties and the general public. This resulted to a change In Nepal’s government which changed their absolute monarchy into a combined constitutional monarchy and parliamentary democracy. The new government amended their constitution. The government passed a new order, Article 126(2) which stated that any sharing of water resources would require an approval of a 2/3’s majority in parliament.

On water resource projects, Nepal did hold one other major negotiation card in that Nepal had the right to veto a proposed hydroelectric water project. India was now placed in a weaker negotiating position because any proposals would now have to please not only the incumbent government but also the opposition parties, or a majority segment of the population. This forced India to restructure its negotiating framework.

Negotiations were ongoing throughout the early 1990’s. In February of 1996, the prime ministers signed a major treaty that addressed several sub projects. In Nepal, parliament voted on ratifying the treaty. The opposition party was split due to a number of unresolved negotiation issues. It was not until the fall of 1996 when the opposition party was able to iron out their differences that a two thirds majority was attained and the Mahakali Treaty was ratified on September 20, 1996.

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