Soumya Balasubramanya ASIA 2014 Colombo, March 2014

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A water-secure world
Scale matters: can revenue-sharing
improve equity in hydropower
development in Nepal?
Soumya Balasubramanya
ASIA 2014
Colombo, March 2014

2. www.iwmi.org
A water-secure world
Why revenue-sharing?
• Decisions are centralized; opposition to dam development
(Goulet, 2005; WCD, 2000)
• Inequitable distribution of:
– benefits of dam development (Lin, 2001)
– costs of dam development (Wilmsen et al., 2011)
• Loss of access (Dore and Lebel 2010)
– land
– commons
• Revenues are a significant source of income; can be re-
distributed (Cernea, 2000)

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A water-secure world
The Nepal Case
• Opposition to dams
– mid 1990s
– maoist agitation (Dixit and Gyawali)
– IUCN coordinates engagement with stakeholders—
demand for equity
• Introduced revenue sharing in 2001: sharing of
hydropower royalties to improve equity in
distribution of fruits of development (LSGA, 1999)
– 10% of revenues from a project to hosting DDC
– 38% of revenues from a project to hosting
development region

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A water-secure world
Can revenue-sharing improve
equity?
• Depends on
– amount of revenue shared
– revenue sharing rule
– historical development patterns
– revenue spending rules
• For a given set of the above; the answer may change
with scale
– Center vs. periphery
– Between districts
– Within district

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A water-secure world
Methods
• Interviews
– DoED
– WECS, DoSEWM, MoSFC
– 4 DDCs
(Sindhupalchok, Kaski, Makhwanpur, Mustan
g)
– Experts (ICIMOD, Winrock International)
– IPPAN

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A water-secure world
Observations
• Rise in revenues collected by central
government
– Tariff on fixed capacity, esp. for older plans
(USD 5 in 1993-94 to USD 14 in 2009-10)
– Collection increased 3X (USD 858,000 in
1994-94 to USD 2,454,000 in 2009-10)

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A water-secure world
Hydro revenues not significant
share of districts’ income
Number of Hyd. Rev
Number revenue as share of
of generating budget
districts projects allocation
(no.) (no.) (%)
Eastern 16 2 0.02
Central 19 13 1.04
Western 16 12 1.08
Midwestern 15 1 0.12
Far Western 9 1 0.53
Source: DoeD, 2012
All prices in 2010 prices, expressed in USD

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A water-secure world
Between center and periphery:
equity improving
Collected Distributed Ratio of Project Non project
('000) ('000) distributed hosting hosting
Year (USD) (USD) to collected DDC DDC
1993-94 858 0 0.00 n.a n.a
1994-95 924 0 0.00 n.a n.a
1995-96 1009 0 0.00 n.a n.a
1996-97 1050 0 0.00 n.a n.a
1997-98 1168 0 0.00 n.a n.a
1998-99 1255 0 0.00 n.a n.a
1999-2000 1286 0 0.00 n.a n.a
2000-01 1320 401 0.30 √ Χ
2001-02 1360 424 0.31 √ Χ
2002-03 1438 555 0.39 √ Χ
2003-04 1479 1632 1.1* √ √
2004-05 1580 3895 2.47* √ √
2005-06 1699 850 0.50 √ √
2006-07 1803 901 0.50 √ √
2007-08 1999 1000 0.50 √ √
2008-09 2231 1116 0.50 √ √
2009-10 2454 1227 0.50 √ √
Source: Department of Energy Development, 2012

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A water-secure world
Between
districts:
Reinforcing
pre-existing
inequities
Share in Share in
hydrp budget Share Change
revenue allocated in Dev Dev in
dist. to DDCs pop. index index dev
(%) (%) (%) (2001) (2006) Index
Eastern
Mechi 0.20 5.55 5.4
Kosi 0.25 8.17 8.8
Sagarmatha 0.20 7.47 7.8
0.65 21.19 22 0.493 0.526 0.033
Central
Janakpur 16.48 9.25 10.7
Bagmati 22.24 11.38 14.6
Narayani 16.91 7.74 11.4
55.62 28.37 36.7 0.49 0.531 0.041
Western
Gandaki 17.48 6.98 5.8
Lumbini 12.92 8.41 10.6
Dhawalagiri 8.84 3.78 2.1
39.25 19.17 18.5 0.491 0.516 0.025
Midwestern
Rapti 2.20 5.68 5.4
Bheri 1.13 7.80 6.4
Karnali 1.15 5.73 1.5
4.49 19.21 13.3 0.402 0.452 0.05
Far western region
Seti - 7.52 5.9
Mahakali - 4.54 3.6
0.00 12.06 9.5 0.404 0.461 0.057
100.00 100.00 100

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A water-secure world
Within districts:
depends on revenue spending rules
• Districts have flexibility to determine how revenues
are spend (and what they’re spent on)
– Eg. Mustang DDC: 33% to electrification of Upper
Mustang
– Eg. Sindhupalchok DDC: prioritizes road construction
in remote areas
– Makhwanpur DDC: 50% to 12 (rel. developed)
villages; 50% for other 33 villages

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A water-secure world
Discussion:
Hydropower district gets relatively greater share of revenue
than non-hydropower district
Between center and hydrop-districts Improves equity
Between hydro-district and non-hydro Reinforces inequity. Hydropower revenue is concentrated in
district areas that have historically been beneficiaries of
broader development processes
Within hydro district Varies according to district's spending rules. Some districts
explicitly earmark revenues for less developed villages;
others don't.

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A water-secure world
Discussion
• Revenue-sharing has likely helped reduce opposition
– Recognition that water is a national resource
– Conflict over alternative uses is low
• Scope for revenue-sharing financing ES programs
– Comm. Forestry program is bottom up: improved equity between
center and periphery (Agarwal & Ostrom, 2001; Larson, 2002)
– Not very successful in improving equity within districts (Thoms,
2008)
– May compromise equity considerations
• Scale, history of development, pre-existing sociocultural
dynamics will determine ability to address equity at different
scales.