Baglihar threatens Indus deal

12 September 2006

Neil Ford reports on how India's Baglihar dam project could impact the 1960 Indus Water Treaty

Despite decades of rivalry and conflict, Pakistan and India have managed a relatively amicable division of their shared water resources. The 1960 Indus Water Treaty has provided a stable framework for dam construction in the region and the deal has held even during periods of armed conflict. The agreement appeared to be threatened by the development of the Baglihar dam by India, but both sides agreed to mediation by a World Bank selected mediator. However, although his verdict is expected in November, it remains to be seen whether both sides will abide by his decision and the region could be facing a period of water resource insecurity.

The Baglihar dispute has been something of an anomaly in recent Indo-Pakistani relations. The two governments have moved closer to each other on a number of issues since a ceasefire was declared in the disputed and heavily militarised territory of Kashmir at the end of 2003. The construction of a major pipeline to export natural gas from Iran to Pakistan and on to India has also become increasingly likely, as Delhi's fears about relying on Pakistan to maintain the security of the pipeline have been overcome.

At the same time, however, the Baglihar dispute has continued to have a negative impact on relations. India's decision to build the Baglihar dam on the Chenab provoked outrage in Pakistan and appeared to run directly counter to the Indus Water Treaty. Pakistan believes that the dam will reduce the flow of water in the River Indus, as the River Chenab is one of its main tributaries, by about 7,000 cubic feet of water per second. It is also argued that the dam will increase India's water storage capacity in the state of Jammu and Kashmir to well above the levels agreed in the Indus Water Treaty. The fact that the dam and reservoir will be developed in Kashmir has made the project an even more controversial scheme.

The Indian government insists that the project is necessary to generate electricity to improve living standards in the portion of Kashmir that it controls but Pakistan and Kashmiri groups opposed to Indian control fear that the dam will strengthen Indian control of the area. Apart from the production of electricity, India plans to use the reservoir for irrigation. The lion's share of rain in most of South Asia falls during the monsoon in July and August and so successive Indian governments have built new dams in order to capture this rainfall for use during the rest of the year.

The World Bank has been involved in the Baglihar dispute because it was the organisation that originally brokered the Indus Water Treaty, after nine years of negotiations, in 1960. All six of the main rivers in the region flow from India into Pakistan and so India effectively controlled the rivers from partition until 1960. However, under the agreement India retained control of the headwaters for the Beas, Ravi and Sutlej rivers, while all the resources of the Chenab, Indus and Jhelum rivers were allocated to Pakistan. Indian citizens were permitted to access water from all six rivers but are not allowed to alter the flow of the rivers allocated to Pakistan for irrigation or other needs.

The Indus Water Commission was set up to oversee the agreement and it has more or less successfully settled localised disagreements until the Baglihar dispute emerged. The Commission was unable reach a compromise agreement and so the case was referred to the World Bank, which appointed a Swiss academic and civil engineer, Raymond Lafitte, as a mediator in the dispute. According to a World Bank spokesperson: “Both India and Pakistan have found Professor Lafitte suitably qualified as a 'Neutral Expert'” and have agreed that his decision on the fate of the project will be “final and binding”.

Project details

Construction work on the Baglihar hydro power project (BHP) began in the mid-1990s but did not immediately provoke opposition from across the border. In 1999, the state government of Jammu and Kashmir signed a memorandum of understanding (MoU) with a consortium of Jai Prakash Industries Ltd, Siemens and Hydro Vevey Ltd for the development of a 450 MW power plant as part of the BHP. The dam itself will be 144m high, with a head race tunnel of 10m in diameter and 2km long, and is being developed in Doda, about 160km north of Jammu.

It was originally expected that the entire project would be completed by the end of 2004 but Pakistani opposition to the project held up construction work. In addition, flooding and landslides in 2005 affected the area and both of the water diversion tunnels at the dam site were blocked. It is estimated that it will take until early 2007 to clear the construction site of landslide debris. The third diversion tunnel will now also be built, probably in a location that is not as prone to landslides.

The project's development costs are estimated at 30.8 billion crore, which are mainly being provided by the central government in Delhi, although the state Jammu and Kashmir authorities have also raised some of the money. Delhi hopes to secure the rest of the funding from international financial institutions, although funding bodies may be loath to become involved if the security situation in the area could be put at risk. The power generation element of the BHP will probably be operated by the National Hydel Power Corporation (NHPC).

Jammu and Kashmir's demand for electricity is estimated at 1,350 MW and there is currently power rationing in the state, so the project could make a major contribution to economic development in the region. In the longer term, the provincial government hopes to double the project's generating capacity to 900 MW by installing additional turbines but without having to increase the scope of the dam and reservoir.

The entire state of Jammu and Kashmir is estimated to have hydroelectric power potential of 15,000MW - less than some other northern Indian states but still a substantial figure. Investment in the hydro sector in the state has increased but the state government has become frustrated at the restrictions imposed on its plans by the Indus Water Treaty. Indeed, the local authorities are keen to see the treaty altered, although there is little likelihood that Pakistan would agree to a new deal.

In negotiations to date, the Pakistani side has continued to stress the importance of abiding by the terms of the Indus Water Treaty, while the Indian government is keen to emphasize the improvement in relations with Pakistan and the possibility of reaching a compromise. There is one compromise solution, however. Article V of the Indus Water Treaty allows Pakistan to build canals to transport water into Pakistan as compensation for any Indian developments on the rivers allocated to Pakistan. India, on the other hand, argues that it has agreed with the World Bank to pay financial compensation of $100 million in lieu of the canals. It appears that Delhi could have hopes of challenging the Indus Water Treaty, particularly as the three rivers allocated to India have combined water flow about four times less than the three 'Pakistani' rivers.

Ahead of his November verdict, Lafitte held talks with both parties in London in May. The Pakistani federal secretary for water and power and the head of the Pakistani delegation, Ishfaq Mehmood, commented: “It gave us a good opportunity to effectively put across our viewpoint”. Both the Indian and Pakistani governments have now completed their oral and written submissions.

Economic and population growth

High levels of economic growth in both countries have both fuelled the conflict and could help to provide a solution. Current annual growth in India and Pakistan stands at around 8% and this has helped to increase demand for electricity. Both countries hope that hydro schemes can help to satisfy this demand and so competition for water resources is likely to increase. At the same time, however, rapid economic growth should make both governments feel more secure and give them more confidence in reaching a negotiated settlement.

Population increase in the region, however, appears to be having only a negative impact on relations. Increasing volumes of water are required both for residential use and to irrigate crops for an ever increasing population on both sides of the border. United Nations research indicates that water resource conflict is likely once the per capita availability of fresh water falls below 1,700m3 a year, yet the Indian government expects per capita availability in its country to fall to 1,500m3 by 2025. With water resources becoming stressed in politically sensitive areas like Kashmir, it is no wonder that both governments are eager to secure the best deal possible.

Even within Pakistan, the distribution of water resources is beginning to provoke disputes. The Kalabagh Dam is perceived by many people in Balochistan, North West Frontier and Sindh provinces as being developed for the benefit of the Punjab. It will provide irrigation water and electricity for Punjab Province but it is feared that it could stem the flow of silt to fertilise agricultural land in Sindh Province. The project, with its 3,600 MW generating capacity, has been given the go-ahead but some claim that it could even threaten the integrity of the Pakistani state.

The Baglihar Dam is just one element in India's overall hydro policy. High levels of economic growth and the rapid rise in electricity consumption are forcing a massive increase in national generating capacity. New coal and gas fired plants will account for part of this increase but the government hopes that new hydro schemes can also make a major contribution. The ministry of energy has detailed proposals for a host of new hydro projects that would provide an additional 50,560 MW in generating capacity if they are all developed. Many projects could be opposed by other neighbouring states, particularly Bangladesh, and also by local people on environmental grounds, but it seems likely that the Indian hydro sector is set for massive investment without or without Baglihar.

Despite the recent thaw in relations between the Indian and Pakistani governments, it is feared that the Baglihar dispute could heighten tensions in the region. It fate of the dam project has become intrinsically bound up in the Kashmiri conflict, which itself has been the main cause of enmity between the two neighbours. A negotiated settlement is vital, not only for regional security but also in order to secure stable water resource development in both countries.

Implications for regional cooperation

Apart from affecting relations in the hydro industry in the immediate vicinity, the Baglihar dispute could also hold back hydro development over the whole of South Asia. The main regional organisation for political and economic cooperation, South Asian Association for Regional Cooperation (Saarc), has had the ambition of creating a power pool since it was created in 1985. Cross-border jealousies, particularly between India and Pakistan, have held back progress, but rising demand for electricity has reinjected more enthusiasm for the project.
In particular, it is hoped that the hydro potential of Nepal, Bhutan, northern India and north-eastern Pakistan can be developed to help improve the power supply situation across the entire region. This will require the construction of new transmission lines and a series of international water resource deals. It had been hoped that the Indus Water Treaty could form the basis for other bilateral agreements given its previous track record of success but this now seems unlikely given pressure from within India to alter it.
At the 25th meeting of the Saarc Council of Ministers in Islamabad in July 2004, it was agreed that an 'Energy Ring' or transmission grid would be created and a joint statement concluded: “In the long term, transnational energy lines (electricity, gas and oil) could provide the basis for an integrated and prosperous economic future of South Asia.” An expert on South Asian energy cooperation, Dr Mahendra Lama, who is Professor of South Asian Economies at the School of International Studies, Jawaharlal Nehru University, was asked to assess the pros and cons of increased cross-border trade in electricity and the development of new hydro schemes for Saarc.
He argued: “The choice of a model to trade or exchange electric power and other energy varieties between countries is a crucial issue. Interconnection of power systems of contiguously located countries and their coordinated operation provide immense technical and economic benefits. All these interconnections allow each electrical utility to make savings on power plant investment and operating costs as a result of the improved use of the interconnected system. It also contributes to the quality of electricity supplied to customers as well as reducing environmental damage.”
His report almost entirely came down in favour of cross-border integration and concluded that there would be five main benefits from:
* effective utilisation of natural resources;
* an increase in the reliability of power supply;
* economies of operation and mutual support during contingencies;
* large scale transformation in the sectors contributing to economic growth;
* effective building measure through the participation of multiple stakeholders.
India's Power Grid Corporation has now completed a detailed feasibility study covering part of the planned grid, the South Asia Growth Quadrangle (SAGQ) region, which comprises Bangladesh, Bhutan, Nepal and the north-east of India. The other countries in the region, including Pakistan, have yet to agree to the creation of a regional power grid but economic and strategic pressures are increasingly pointing towards a far greater degree of cooperation and both the Indian and Pakistani governments believe that regional cooperation could help to avoid the kind of problems that have been unleashed by the Baglihar dispute.

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