Hydropower Projects in Nepal: Upper Marsyangdi 2, Upper Trishuli 1, and Upper Arun Site Visit: May/June 2014

Affirmative Investigations for Hydropower Projects in Nepal: Upper Marsyangdi 2, Upper Trishuli 1, and Upper Arun Site visit: May/June 2014

DISCLAIMER This report was prepared by the U.S. Agency for International Development’s Bureau for Economic Growth, Education and Environment (USAID/E3) technical staff. The recommendations proposed in this publication represent the views of USAID Washington, USAID/Nepal technical staff – with contributions from staff representing U.S. Department of State and U.S. Department of Treasury – who participated in the affirmative investigation and were involved in various stages of field work. As a technical assessment, the recommendations do not necessarily reflect the final policy views of USAID or the U. S. Government on these assistance proposals. All affirmative investigations are available online in the IFI/Title XIII Reports to Congress and Affirmative Investigation Reports Database at: http://gemini.info.usaid.gov/egat/envcomp/mdb.php

TABLE OF CONTENTS

Table of Contents ...... 2 List of Acronyms ...... 2 Executive Summary ...... 4 1. Purpose and Scope of Affirmative Investigation ...... 10 1.1. Anticipated Outcome ...... 10 2. Methodology Used for these Affirmative Investigations ...... 10 2.1. Document Review ...... 11 2.2. Field Consultations ...... 11 3. Background and Development Context on Nepal and Hydropower ...... 12 3.1. Development Objectives ...... 12 3.2. Country Background ...... 12 3.3. Background on Hydropower Development in Nepal ...... 13 3.3.1. Energy Sector in Nepal ...... 13 3.3.2. Hydropower Development in Nepal...... 15 3.3.3. Summary of Stakeholder Comments on Hydropower Development in Nepal ...... 17 3.3.4. USAID Recommendations for Hydropower Development in Nepal ...... 17 4. Evaluation of Hydropower Sustainability in Nepal ...... 18 4.1. Environment and Natural Resources ...... 18 4.1.1. Findings ...... 19 4.1.2. USAID Recommendations ...... 30 4.2. Social ...... 36 4.2.1. Findings ...... 36 4.2.2. USAID Recommendations ...... 38 5. Upper Marsyangdi 2 Hydropower Project ...... 40 6. Upper Trishuli 1 Hydropower Project ...... 46 7. Upper Arun Hydropower Project ...... 52 8. References ...... 59 Annex I: Brief Description of GoN Authorities in the Energy Sector ...... 65 Annex II: Brief Description of World Bank and Asian Development Bank Energy Projects ...... 67 Annex III: Stakeholder Comments ...... 71

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LIST OF ACRONYMS

ACA Annapurna Conservation Area ADB Asian Development Bank AEPC Alternative Energy Promotion Centre CHAL Chitwan-Annapurna Landscape CIA Cumulative Impact Assessment CITES Convention on International Trade in Endangered Species of Wild Fauna and Flora CSO Civil Society Organizations DFID U.K. Department for International Development DHM Department of Hydrology and Meteorology DNPWC Department of National Parks and Wildlife Conservation DoED Department of Electricity Development ETFC Electricity Tariff Fixation Commission ESIA Environmental and Social Impact Assessment FPIC Free, Prior and Informed Consent GAPHAZ Glacier and Permafrost Hazards in Mountains GCM General Circulation Models GHL Greater Himalayan Landscape GIS Geographic Information System GLOF Glacial Lake Outburst Flood GoN Government of Nepal Ha Hectare HPP Hydropower Project IBN Investment Board of Nepal ICIMOD International Centre for Integrated Mountain Development IEA International Energy Agency IFC International Finance Corporation IFIA International Financial Institutions Act ILO International Labour Organization INPS Integrated Nepal Power System IPCC Intergovernmental Panel on Climate Change IPP Independent Power Producers IUCN International Union for Conservation of Nature JICA Japan International Cooperation Agency

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Km Kilometer kV Kilo-volt kWh Kilowatt hour m Meter MDB Multilateral Development Bank MoE Ministry of Environment MOEST Ministry of Environment, Science and Technology Msl Mean sea level MW Megawatt NDC National Development Council NFDIN National Foundation for Development of Indigenous Nationalities NEA Nepal Electricity Authority NERC Nepal Electricity Regulatory Commission NPC National Planning Commission NRREP National Rural and Renewable Energy Program NWEDCPL Nepal Water and Energy Development Company Pvt. Ltd PDA Project Development Agreement PID Project Information Document PPA Power Purchase Agreement RERL Renewable Energy for Rural Livelihood ROR Run-of-River SEA Strategic Environmental Assessment SHL Sacred Himalayan Landscape TAR Tibet Autonomous Region TOR Terms of Reference UNDRIP UN Declaration on the Rights of Indigenous Peoples USAID United States Agency for International Development USAID E3 USAID’s Bureau for Economic Growth, Education, and Environment VDC Village Development Committee WECS Water and Energy Commission Secretariat WWF World Wildlife Fund

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EXECUTIVE SUMMARY

The International Financial Institutions Act (IFIA), Title XIII, Section 1303(a)(1), requires the United States Agency for International Development (USAID) to review multilateral development bank (MDB) project proposals to determine whether the proposals will contribute to sustainable development. Section 1303(a) (3) of the IFIA requires that assistance proposals that are particularly likely to have substantial adverse impacts undergo an affirmative investigation of such impacts. Projects subject to an affirmative investigation are identified based on reviews that look for potential impacts on the environment, natural resources, public health and indigenous peoples. USAID’s Bureau for Economic Growth, Education, and Environment (E3) leads the affirmative investigation process in consultation with the Secretary of the Treasury, the Secretary of State, and other relevant federal agencies. USAID’s intent is to conduct these site visits early in the process of project preparation for presentation and vote at the respective MDB Executive Board of Directors meetings to provide recommendations aimed at improving the environmental and social aspects of the project. If not classified, the information collected during the affirmative investigation is made available to the public. This report focuses on three hydropower projects in Nepal which were subjects of USAID affirmative investigations in May/June 2014. In addition to literature reviews, affirmative investigations consist of: 1) visiting the proposed project sites and surrounding areas; and 2) meetings with a broad range of stakeholders, including project-affected communities, project sponsors, MDB representatives, government officials, civil society organizations, and researchers. The three hydropower projects visited, with examples of issues raised by the villagers, are:  Upper Marsyangdi 2 Hydropower Project (proposed International Finance Corporation (IFC) financing) Meetings with villagers in eight villages along the Annapurna Circuit Historic Trekking Trail, below and at the proposed dam site, raised concerns over reduced river flows with subsequent impacts on agriculture and fisheries, the cumulative impacts of the multiple hydropower projects planned for the basin, and impacts of construction on tourism.

 Upper Trishuli 1 Hydropower Project (proposed IFC financing) Meetings with villagers from three project-affected villages downstream of the proposed dam site raised concerns over headrace tunnel construction, increased landslides, destruction of community forests and increased access to Langtang National Park, and inconsistent compensation payments.

 Upper Arun Hydropower Project (proposed World Bank (WB) financing of Technical Assistance for ESIA) Meetings with villagers in villages downstream of the proposed dam site and in close proximity to Arun 3 hydropower project raised concerns specific to Arun 3 over resettlement and lack of communication. Villagers in the proximity of the Upper Arun Hydropower Project transmission line were aware of the project, but had little information.

The objectives of these affirmative investigations and final report are to:  Provide project-specific recommendations for supplementary ESIA studies for Upper Marsyangdi 2 and Upper Trishuli 1 for addressing potentially significant environmental and social impacts, including mitigation measures or project alternatives;  Provide project-specific recommendations for the proposed World Bank Technical Assistance for Upper Arun Hydropower Project; and

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 Summarize information collected on the potential environmental and social impacts of these World Bank Group proposed projects in the hydropower sector and provide general recommendations for supporting environmentally and socially sustainable hydropower development in Nepal. This series of affirmative investigations is divided into the following sections: 1. Purpose and Scope of Affirmative Investigations 2. Methodology Used for these Affirmative Investigations 3. Project Background and Development Context 4. Evaluation of Projects’ Sustainability 5. Upper Marsyangdi 2 Hydropower Project 6. Upper Trishuli 1 Hydropower Project 7. Upper Arun Hydropower Project 8. References  Annex I: Brief Description of the Government of Nepal (GoN) Authorities in the Energy Sector  Annex II: Brief Description of World Bank and Asian Development Bank Energy Projects  Annex III: Stakeholder Comments SUMMARY OF RECOMMENDATIONS Based on the project area site visits, stakeholder discussions, and available documentation, USAID makes a number of environmental and social recommendations to support environmentally and socially sustainable hydropower development in Nepal. These recommendations are presented in the following four text boxes:  Text Box 1: Overarching Environmental and Social Recommendations. These recommendations are considered applicable throughout Nepal.  Text Box 2: Upper Marsyangdi 2 Hydropower Project (HPP) Environmental and Social Recommendations. These recommendations are based on the specific project area context, including project-affected villages, in addition to meetings with other stakeholder and available documentation.  Text Box 3: Upper Trishuli 1 HPP Environmental and Social Recommendations. These recommendations are based on the specific project area context, including project-affected villages, in addition to meetings with other stakeholder and available documentation.  Text Box 4: Upper Arun HPP Environmental and Social Recommendations. These recommendations are based on the specific project area context, including project- affected villages, in addition to meetings with other stakeholder and available documentation.

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Text Box 1: Overarching Recommendations Environment and Natural Resources Energy sector  Develop a National Strategic Energy and Electricity Plan incorporating a robust analysis of other renewables (solar, wind) and integrating climate change scenarios to diversify Nepal’s energy and technology sector.  Establish a timeframe and plan for addressing the high percentage of technical and commercial losses in transmission and distribution systems.  Establish an Independent Dam Safety Regulator. Climate Change  Ensure projects are informed by a forward-looking approach that considers qualitative climate change projections. Analyze and model how future predicted changes in the pattern of land use, water demand, and water availability will impact water resources and hydropower projects. River Basin Planning/Strategic Environmental Assessment (SEA)  Support the development of River Basin Watershed Management Authorities and River Basin Plans for all major watersheds and incorporation of SEA. Geology/Water-Induced Disasters  Protect infrastructure and communities from Glacial Lake Outburst Floods (GLOFs) through monitoring, improved design, establishment of an early warning system, and development of cooperative relationships with upstream neighbors. Biodiversity (Terrestrial and Aquatic)  Protect biodiversity by developing corridor systems, deterring illegal trafficking of wildlife, identifying critical habitat and assessing species status to ensure that important species and habitats are protected.  Undertake a comprehensive study to evaluate the impacts of development activities, including hydropower projects, on the country’s aquatic species to serve as a baseline for future assessments and benchmark for determining effectiveness of mitigation measures. Environmental Flows/Climate Change  Consider the potential impact of hydropower projects and climate change on the seasonal distribution of river flows and consider the possibility of adaptive management. Environmental and Social Impact Assessments (ESIA):  Conduct early engagement and appropriate scoping of the proposed project(s) to establish the foundation of an effective ESIA and cumulative impact assessment (CIA) process. Social and Indigenous Peoples Consultation Capacity  The government should develop, in cooperation with indigenous peoples, robust and meaningful consultation and community procedures and guidelines, in alignment with ILO Convention 169.  Provide analytical, technical, and financial support for communities to engage in river- basin and project planning to help ensure that infrastructure development will enable their livelihoods to be culturally and environmentally sustainable. Compensation  The government should develop, in consultation with civil society, consistent and fair guidelines for compensation including economic and physical relocation. Baseline demographic data  Collect demographic, social, and economic baseline data to fill in gaps on water users, cultural sites, health issues, landscape, and tourism uses for use in the ESIA and CIA.

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Text Box 2: Upper Marsyangdi 2 Hydropower Project Recommendations Environment and Natural Resources  Support the development of a Marsyangdi Basin Watershed Management Plan and associated Strategic Environmental Assessment.

 Establish a mechanism for the coordination of project design, construction and operation of hydropower projects and their associated facilities in the same watershed.

 Include the development of Chitwan-Annapurna Landscape corridor systems as part of the River Basin Planning process.  Incorporate the use of the Drawdown Hazard Index as a method to help verify and predict the impacts of head race tunnels as part of the ESIA.  Employ a forward-looking approach that considers qualitative climate change projections to inform project design. Analyze and model how future predicted changes in the pattern of land use, water demand, and water availability will impact water resources and hydropower projects.

 Protect infrastructure and communities from GLOF through monitoring, improving design, establishing an early warning system, developing cooperative relationships with upstream neighbors, and providing guidelines and capacity building.

 Conduct appropriate scoping of the proposed project(s) to inform the data needed by the supplementary ESIA to determine the geographical and temporal extent of the project, the communities likely to be affected, and the baseline data that needs to be collected.  Conduct a cumulative impact assessment (CIA) as part of the supplementary ESIA. The CIA will cover the spatial (geographic) and temporal (time) scope appropriate for the project utilizing data on the status of natural, cultural, social, or economic resources and systems.

Social and Indigenous Peoples  Provide independent advisors as many communities do not have the technical or legal capability to understand the intricacies of the project and are not able to negotiate with the project developer on a level playing field.

 Provide support to ensure that the integrity of the villages’ institutional and social structures remain intact, given the potential social impacts associated with the project.

 Provide training and skills development as a number of communities are expecting economic growth but do not have the skills to take advantage of the economic opportunities provided during project construction and operation.

 Provide financial and small- and medium-sized enterprise advisors to support financial management of compensation payments and alternative livelihood options.

 Conduct comprehensive consultations reflective of views of the entire community, including separate consultations with women.

 Distribute fact sheets to villagers with transparent and consistent project information.

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Text Box 3: Upper Trishuli 1 Hydropower Project Recommendations Environment and Natural Resources  Support the development of a Trishuli Basin Watershed Management Plan and associated Strategic Environmental Assessment.

 Establish a mechanism for the coordination of project design, construction and operation of hydropower projects and their associated facilities in the same watershed.

 Incorporate the use of the Drawdown Hazard Index as a method to help verify and predict the impacts of head race tunnels as part of the ESIA.

 Employ a forward-looking approach that considers qualitative climate change projections to inform project design. Analyze and model how future predicted changes in the pattern of land use, water demand, and water availability will impact water resources and hydropower projects.

 Establish a monitoring and early warning system for landslides. Social and Indigenous Peoples  Provide independent advisors as many communities do not have the technical or legal capability to understand the intricacies of the project and are not able to negotiate with the project developer on a level playing field.

 Provide support to ensure the integrity of the villages’ institutional and social structures remain intact, given the potential social impacts associated with project.

 Provide financial and small- and medium-sized enterprise advisors to support financial management of compensation payments and alternative livelihood options.

 Conduct comprehensive consultations reflective of views of the entire community, including separate consultations with women.

 Distribute fact sheets to villagers with transparent and consistent project information.

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Text Box 4: Upper Arun Hydropower Project Recommendations Environment and Natural Resources  Support the development of an Arun Basin Watershed Management Plan and associated Strategic Environmental Assessment.

 Establish a mechanism for the coordination of project design, construction and operation of hydropower projects and their associated facilities in the same watershed.

 Incorporate the use of the Drawdown Hazard Index as a method to help verify and predict the impacts of head race tunnels as part of the ESIA.

 Analyze and model how future predicted changes in the pattern of land use, water demand, and water availability will impact water resources and hydropower projects.

 Conduct a detailed glacial lake and GLOF risk assessment and mitigation survey for the entire Arun watershed in both Nepal and Tibet.

 Protect infrastructure and communities from GLOF through monitoring, improved design, and establishment of an early warning system.

 Develop a guidance and training manual for remote area glacial lake and natural hazards assessment, measurement, data analysis, and risk reduction.

 Strengthen in-country capacity in glacial lake, natural hazard, and environmental surveys.

 Develop community-based, low-tech (e.g., cell phone-based) early warning systems for floods, river damming landslides, and other natural disasters.

 Develop local and governmental capacity for designing and implementing disaster management plans. Social and Indigenous Peoples  Provide independent advisors as many communities do not have the technical or legal capability to understand the intricacies of the project and are not able to negotiate with the project developer on a level playing field.

 Provide support to ensure the integrity of the villages’ institutional and social structures, given the potential social impacts associated with project.

 Provide financial and small- and medium-sized enterprise advisors to support financial management of compensation payments and alternative livelihood options.

 Distribute fact sheets to villagers with transparent and consistent project information.

 Conduct comprehensive consultations reflective of views of the entire community.

 Provide the analytical, technical and financial support for communities to engage in river-basin planning and ensure that infrastructure development.

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1. PURPOSE AND SCOPE OF AFFIRMATIVE INVESTIGATION

The International Financial Institutions Act (IFIA), Title XIII, Section 1303(a)(1), requires USAID to review multilateral development bank (MDB) project proposals to determine whether the proposals will contribute to sustainable development. Section 1303(a)(3) of the IFIA requires that assistance proposals that are particularly likely to have substantial adverse impacts undergo an affirmative investigation of such impacts. USAID’s Bureau for Economic Growth, Education, and Environment (USAID/E3) leads the affirmative investigation in consultation with the Department of the Treasury, the Department of State, and other relevant federal agencies. If not classified, the information collected during the affirmative investigation is made available to the public. The objectives of these affirmative investigations and final report are to:  Provide project-specific recommendations for supplementary ESIA studies for Upper Marsyangdi 2 and Upper Trishuli 1 hydropower projects for addressing potentially significant environmental and social impacts, including mitigation measures or project alternatives;  Provide project-specific recommendations for the proposed World Bank Technical Assistance for Upper Arun Hydropower Project; and  Summarize information collected on the potential environmental and social impacts of these World Bank Group proposed projects in the hydropower sector and provide general recommendations for supporting environmentally and socially sustainable hydropower development in Nepal. These affirmative investigations, to the extent possible, focus on the potential adverse impacts on the environment, natural resources, public health, and indigenous peoples as identified in Section 1303(a)(2) of the IFIA. 1.1. ANTICIPATED OUTCOME At the time of these affirmative investigations, the GoN had approved the Upper Marsyangdi 2 Hydropower Project (HPP) and Upper Trishuli 1 HPP ESIAs, but drafts were not publicly available. Both project sponsors were undertaking a series of complementary assessments to bring the ESIAs up to international standards, prior to presentation to the World Bank Group (WBG) Executive Board of Directors for approval. The Terms of Reference (TOR) for the ESIA for Upper Arun and Ikhuwa Khola HPPs is available to the public. USAID anticipates that the final outcome of these affirmative investigations – including follow-on consultations with bank representatives and GoN to discuss the projects – will lead to improved knowledge about the projects and their adverse impacts and how these impacts may affect development outcomes. This information will serve as the basis for USAID-proposed recommendations to strengthen the ESIAs with the ultimate goal of minimizing environmental and social impacts.

2. METHODOLOGY USED FOR THESE AFFIRMATIVE INVESTIGATIONS

The methodology for these affirmative investigations is essentially a three-step process involving information collection and data gathering, analysis, and development of recommendations.

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In addressing the potential adverse environment and social impacts, USAID/E3 gathered information on data and informational needs to identify the potential direct, indirect, and cumulative adverse impacts of the project and its associated facilities, including data found in literature, observations made during a site visit, and semi-structured interviews with stakeholders and project-affected communities. USAID’s site visit focused primarily on the Upper Marsyangdi 2, Upper Trishuli 1, and Upper Arun hydropower projects. This report is not a comprehensive review of each project or technical subject and only includes information available through August 2014. Activities and circumstances may have changed since that time. 1 2.1. DOCUMENT REVIEW Documents related to the Upper Marsyangdi 2, Upper Trishuli 1, and Upper Arun hydropower projects and scientific articles were reviewed (see References section). 2.2. FIELD CONSULTATIONS As part of these affirmative investigations, USAID/E3 staff, accompanied by other U.S. Government agencies and USAID/Nepal staff, conducted visits to the proposed sites and surrounding areas of the Upper Marsyangdi 2, Upper Trishuli 1, and Upper Arun hydropower projects. The team met with project-affected stakeholders and representatives of all three projects, including Nepal Water and Energy Development Company Pvt. Ltd., GMR Energy Limited, Nepal Electricity Authority (NEA), the GoN, WBG, Asian Development Bank (ADB), civil society organizations (CSOs), and researchers. During the site visits, stakeholders were interviewed using a semi-structured format intended to allow stakeholders to provide additional information that naturally flowed from the discussion. The questions were based on the subject area expertise of the organizations and entities interviewed. Most of the meetings were conducted in mixed groups of men and women. The Mission delegation and official translators translated the meetings from Nepali to English. In some instances, translations occurred from local languages to Nepali to English. The comments in this report reflect the views of those interviewed. USAID has not substantiated these views. In all cases, the name and affiliation of stakeholders is withheld.

1 All projects have been impacted to a greater or lesser extent by the 2015 Earthquake and the India-Nepal border blockade which was in effect for over four months leading to fuel and supply shortages throughout Nepal. Upper Marsyangdi 2 – At the request of the GoN, the project sponsor has been primarily focused on obtaining financial support for the Upper Karnali Hydropower Project. Upper Trishuli 1 – This area was heavily impacted by the 2015 earthquake. Upper Arun - In September 2015, the World Bank approved a $20 million IDA Credit for the Power Sector Reform and Sustainable Hydropower Development Project1 which includes technical assistance (TA) for the preparation of the UAHP for financing, including detailed engineering designs and bid documents; the ESIA including a cumulative impact assessment and mitigation studies; the hiring of a dam safety panel of experts and an environmental and social panel of experts. The TA also provides for a feasibility study and the preparation of basic design, route survey, ESIA, and bid documents for the transmission line projects associated with UAHP and Ikhuwa Khola hydropower project. As of April 2016, NEA is in the process of selecting international consultants to conduct the various studies.

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3. BACKGROUND AND DEVELOPMENT CONTEXT ON NEPAL AND HYDROPOWER

3.1. DEVELOPMENT OBJECTIVES Despite Nepal’s rich water resources, it currently produces electricity far below its potential capacity. Meanwhile, peak demand for electricity continues to rise, leading to load shedding (power cuts) (Asia Foundation, 2014). These energy shortages – identified as a critical development constraint by the U.K. Department for International Development (DFID, 2009) – negatively impact all sectors, including industry, services and health care (Upreti, 2008). In 2008, the GoN declared a National Energy Crisis and identified a number of measures to address this problem. Hydropower is seen by the GoN as the key to increasing electricity production and access, closing the gap between supply and demand of grid electricity, and promoting development. Building a power exchange relationship with India is expected to help Nepal meet its energy needs. 3.2. COUNTRY BACKGROUND Nepal has a population of 30.98 million (2014). Nepal is the world’s 93rd largest country by land mass (56,827 sq mi) and the world’s 42nd most populous country. It is an ethnically and religiously diverse society, with 123 recognized spoken languages (CIA, 2014). In 2014, Nepal ranked 145 out of 187 countries in the 2013 United Nations Human Development Index and is one of the least developed nations in the world. Approximately 25 percent of the national population live below the poverty line of $1.25 per day (UNDP, 2014).

Figure 1. Map of Nepal and project locations. (Source of original map: Embassy of Nepal in London. http://www.nepembassy.org.uk/fact_file.php.)

Nepal’s economy is largely based on agriculture and tourism. Agriculture contributes about 40 percent of gross domestic product and provides employment to two-thirds of the population (WECS, 2011). Nepal’s tourism sector directly supported 504,000 jobs in 2013, or 3.2 percent of

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the total employment in the country. This is expected to rise by 6.4 percent in 2014, according to the World Travel and Tourism Council (Kantipur, 2014b).2 Political instability has been the defining feature of Nepal during the last two decades. Since the introduction of democracy in 1990, Nepal has had 20 governments. The country, considered a fragile state by the World Bank, continues to emerge from a 10 year civil war. The war ended in November 2006 with a comprehensive peace agreement between Nepal’s government and Maoist rebels, allowing for inclusion of the Maoists into mainstream politics and projecting a course toward elections for a Constituent Assembly. In May 2012, the Constituent Assembly failed to deliver the new constitution and the Parliament was terminated. New elections were held in November 2013, with the Nepal Congress Party winning the most seats. Drafting the constitution remains the major road block to stability. The constitution is supposed to lead to a major restructuring of Nepal into a federal state, but it is unclear what kind of constitution the parties will agree to after nearly a decade of discussions.3 The rise of strong ethnic identity movements further complicates these decisions (World Bank, 2014b). Recently, the three political parties agreed to form a High-Level Political Committee to draft the constitution and address other remaining elements of the peace process (Republica, 2014a). 3.3. BACKGROUND ON HYDROPOWER DEVELOPMENT IN NEPAL 3.3.1. Energy sector in Nepal The Ministry of Energy (MoE) has primary responsibility for the energy sector in Nepal. However, there are a number of additional GoN entities that have secondary responsibilities and roles in various aspects of project development and permitting. See Table 1 and Annex I for brief descriptions of GoN entities involved in the energy sector.

Table 1. Institutions involved in Nepal’s energy sector and their responsibilities. Institution Responsibility Ministry of Energy (MoE) Sector policy formulation and regulation as well as oversight of planning, investment, and development of the power sector, including issuing licenses for electricity generation, transmission, and distribution Department of Electricity Supports the MoE in above areas as well as in technical issues related to Development (DoED) hydropower and electricity Electricity Tariff Fixation Sets consumer electricity tariffs, under MoE Commission (ETFC)

Nepal Electricity Authority Vertically-integrated government-owned utility responsible for (NEA) generation, transmission, and distribution of electricity. Formulates policy recommendations to the government on power sector development, sector regulation, and tariffs.

2 Nepal received 796,000 visitors in 2013 and generated US$420 million (Rs 39.1 billion) in revenue, equivalent to 21.1 percent of total exports. 3 Nepal’s Constituent Assembly adopted a new constitution on September 20, 2015, that seeks to be broadly representative of the needs, interests, and aspirations of its people. The new constitution is the culmination of a protracted political transition – ongoing since the comprehensive peace accord of 2006 and attempts to address key issues facing the country, including marginalization and inclusion, federalism, gender equality and citizenship.

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The Investment Board Facilitates the development of large infrastructure projects including Nepal (IBN) hydropower projects above 500 megawatts (MW). Provides single-window access for large, national priority projects and is hoping to attract more than $6 billion in investments into such projects. Alternative Energy Promotes alternate energy technologies that include mini and micro- Promotion Centre (AEPC) hydropower, biogas, and solar energy technologies, under the Ministry of Environment, Science and Technology (MOEST) Water and Energy Provides policy advice on water and energy issues to the GoN Commission Secretariat (WECS) National Planning Advisory body for formulating development plans and policies of the Commission (NPC) country, under the directive of the National Development Council (NDC). Explores and allocates resources for economic development and works as a central agency for the implementation, monitoring, and evaluation of development plans, policies, and programs. Designed to serve as a platform for the exchange of ideas pertaining to economic development of the country, including finding solutions to the problems faced by civil societies, non-governmental organizations, and the private sector. Nepal Electricity Will be created under the draft Electricity Act of 2009, currently stalled Regulatory Commission from passage.4 (NERC) Mandate to regulate the electricity sector and will replace ETFC in setting electricity tariffs.

3.3.1.1. Installed Capacity and Generation Per the national census published in 2013, about 75 percent of Nepal’s total population has access to electricity (grid and off-grid), with a significant disparity between urban (90 percent) and rural Nepal (30 percent). Individual consumption remains very low at about 70 kWh per capita, compared to 733 kWh for India and 2,600 kWh for China (World Bank, 2013a). Nepal routinely faces chronic power shortages, particularly during the dry season, as a result of inadequate power generation. The peak power demand of the Integrated Nepal Power System (INPS) in Fiscal Year 2012-2013 was estimated to be 1,094.62 MW, of which only 719.6 MW could be supplied and 375 MW was shed. Of the 719.6 MW supplied: 433 MW was supplied from NEA hydropower, 10 MW by NEA thermal power, 174.1 MW by Independent Power Producers (IPP)s with hydropower, and 102.5 MW was imported from India (NEA, 2013). As of July 2013, Nepal’s installed hydropower generation capacity was 746 MW, of which 704 MW (94 percent) was grid-connected. Due to seasonal fluctuation of water flows, the available capacity was only 625 MW, including 472 MW of hydropower, 53 MW of thermal power and approximately 100 MW of imports from India. NEA’s Fiscal Year 2012-2013 Annual Report stated that load-

4 The draft Electricity Act and Nepal Electricity Regulatory Commission Act are yet to be revised and enacted by the Parliament. The parliamentary committee has asked to re-submit the new draft and the Ministry of Energy is in the process of revising the current drafts. (World Bank, Power Sector Reform And Sustainable Hydropower Development Project, September 2015)

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shedding hours were restricted to 12 hours per day per consumer during the driest months (NEA, 2013). The Interim Plan of Nepal defines the following key targets to be met by 2027: 1) increasing per capita consumption to 400 kWh; 2) commissioning 4,000 MW of generation capacity; 3) providing electricity to 75 percent of the population through the national grid and 25 percent through decentralized generation solutions; and 4) developing exportable power capacity (WECS, 2011). To achieve the 25 percent off-grid electrification target, the government has enacted policies and plans as well as targeted grants (subsidies) and funding mechanisms, tax and duty concessions, and exemption of renewable energy projects from certain licensing requirements. These activities are being coordinated and implemented under the National Rural and Renewable Energy Program (NRREP), a government-led single-window program which is supported by various development partners (ADB, 2014a). Similar to other countries that are increasing their use of renewable energy, it will become critical to invest in developing a smart grid5 to allow for the fluctuations in power (Miller and Beauvais, 2012). 3.3.1.2. Energy Sector Performance Nepal’s chronic underinvestment in the power sector has resulted in transmission and distribution systems with substantial technical and commercial losses due to outdated power lines, leaky cables, poor maintenance, poor metering, and electricity theft. Since 2002, few transmission lines have been built and only 92 MW of capacity have been added to the system. The NEA’s financial position has deteriorated in recent years as the result of high system losses (International Energy Agency (IEA) estimates 30 percent in 2012, while World Bank cites 26.4 percent in 2012), high costs, and insufficient increases in retail tariffs, among other factors (World Bank, 2014a; IEA, 2014). NEA is starting to address both technical and commercial losses6 through demand side management, installation of capacitor banks7 in many substations, and application of smart grid and geographic information system (GIS)-based automated distribution systems. NEA expects to restrict electricity loss, including commercial losses, to 23 percent by fiscal year 2013- 2014 (NEA, 2013). In addition, NEA is updating the transmission system master plan as well as outlining a distribution system and rural electrification master plan. Ongoing projects funded by the Asian Development Bank (ADB) and other donors are addressing some of the transmission and distribution system bottlenecks by developing cross-border transmission systems with India and transmission line subprojects in hydropower corridors (ADB, 2014a; NEA, 2013). In addition to supporting the transmission and distribution systems, both the ADB and the World Bank are financing hydropower generation projects throughout Nepal. Annex II provides a brief overview of these projects. 3.3.2. Hydropower Development in Nepal Nepal is rich in water resources with about 6,000 rivers and a drainage area of 191,000 km2. There are four main river systems in Nepal running from east to west: Koshi, Gandaki, Karnali and Mahakali, all originating from glacial and snow-fed lakes (WECS, 2011). The Arun River is part of the Koshi River system, while the Trishuli and Marsyangdi rivers are part of the Gandaki river system.

5 A smart grid is an evolved grid system that manages electricity demand in a sustainable, reliable and economic manner and can incorporate intermediate renewable energy into the system. 6 Technical losses include: 1) overloading of distribution transformers; 2) long distance and overloading of distribution feeder lines; 3) high voltage drop of the distribution system due to lack of reactive power compensations. Commercial losses include poor metering and electricity theft (World Bank, 2014a). 7 A capacitor bank is a grouping of several identical capacitors interconnected in parallel or in series with one another.

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Nepal has an estimated 83,000 MW of hydropower potential, of which 40,000 to 45,000 is considered economically viable (WECS, 2011). Yet, Nepal currently produces electricity far below its potential capacity, and its electrification rate is one of the lowest in the region.8 To meet Nepal’s domestic energy demand, the GoN has embarked on a fast-track hydropower development program. Six hydropower projects totalling 592 MW are under construction and 1,735 MW are planned in the near to medium term (ADB, 2014b).9 Most of the hydropower plants are of run-of-the-river (ROR)/River Diversion hydropower projects and thus the available generating capacity is low during dry seasons when the system demand is high A key component of Nepal’s energy plan involves developing ROR/River Diversion projects for export to India during India’s peak demand season, and importing from India during Nepal’s dry season. The only storage reservoirs in Nepal are the Kulekhani I (60 MW) and Kulekhani II (32 MW), which have been decreasing in power output due to sediment, stones and other materials that are reducing the water holding capacity of the reservoir. NEA views the development of hydropower storage projects as a long term solution to the gap between supply and demand during the dry season (NEA, 2013). A draft Master Plan Study of Storage Hydropower Projects conducted by the Japan International Cooperation Agency (JICA) identified 10 out of 67 possible storage projects in four river basins as candidates for development (JICA, 2013). Additionally, four major storage projects are proposed as Indo-Nepal cooperative initiatives that would, in total, provide 22,200 MW of installed capacity (WECS, 2011). With six new hydropower plants due to come on line over the next three to six years, the country expects to have a substantial wet season supply surplus for export by 2018 (Kantipur, 2014a). Nepal does not currently have a dam safety regulator, but the Department of Electricity Development has issued dam safety guidelines in the past. The MoE and the NEA support the idea of using the World Bank (WB) Kali Gandaki dam rehabilitation project, which will include work by a WB consultant on dam safety, to initiate the creation of a dam safety regulation and oversight body for Nepal (WB, 2013b). The MoE expressed its interest in building on this work to develop rules that could be used sector-wide, especially for the issuance of new licenses. Nepal is prone to destructive earthquakes due to its location between the Indian subcontinent and the Eurasia plate.10 The Indian subcontinent collided with the Eurasia plate 40 million to 50 million years ago forming the Himalayan mountain range. The India plate is pushing its way north toward Asia at a rate of about two inches a year. The dam safety regulator would be required to take into account Nepal’s high seismic risk when developing dam safety guidelines.11 Hydropower projects are increasingly expensive, and typically take five to seven years to build and 20 to 25 years to recover investments. A study looking at 245 dams built between 1934 and 2007 found systematic cost overruns for three out of four large dams and schedule overruns for every eight out of ten large dams (Ansar et al., 2014).

8 In 2005, Nepal had an electrification rate of 33 percent, the lowest in the region. The country is operating at one percent of its estimated national potential for installed generation, which means that the country could potentially meet all internal needs and also export to India (DFID, 2009). 9 Eleven hydropower projects totalling 1044 MW are under construction and another nine hydropower projects totalling 2,177 MW are planned and proposed (NEA 2015 Annual Report). 10Additional susceptibility to earthquakes is also due to the type of fault line the country sits on. Normal faults create space when the ground cracks and separates. Nepal lies on a so-called thrust fault, where one tectonic plate forces itself on top of another. 11 On April 25, 2015 a magnitude 7.8 earthquake struck Nepal, killing about 9,000 people and leaving many thousands more injured and homeless. Researchers believe that the underlying stress was only partially released during this event and some of the stress has shifted west, to an area stretching west from Pokhara (Nepal) to north of Delhi (India). It is estimated that at least 14 hydropower dams were damaged during the earthquake.

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Major constraints to hydropower development in Nepal are lack of storage and seasonality of hydropower, inability to mobilize foreign investment; weak governance, overlapping institutional roles of ministries and departments, political motives at the national and local levels, lack of a strategic coordinated approach in favor of ad-hoc actions, and institutional weaknesses and technical constraints. While many factors play into the weakness of the power sector, according to an analysis commissioned by the Asia Foundation, “these constraints are often more political than technical” (Niti Foundation and Asia Foundation, 2011). Understanding the interests of different actors and institutions, including government, civil society, private investors and donors, is therefore key to understanding this constraint and the challenges in overcoming it. Small-scale projects are more likely to help the poorest (DFID, 2009) and have the additional advantages of being more sustainable, manageable, quick, and effective (Upreti, 2008). Large projects may be more economically viable, but they face several challenges: they are potentially riskier; tend to be less directly helpful to communities in which they are located absent benefit sharing plans; and depend more heavily on exporting energy, which can increase potential economic benefits but have greater capacity constraints in transmission and distribution. Larger projects are also more vulnerable to corruption, and are often focused primarily on technical and economic interests as opposed to social needs, potentially driving conflict (Upreti, 2008). Large export-oriented projects tend to focus primarily on India, by far the largest potential customer for power generation. Nepal’s relationship with India is complicated by ongoing and historical tensions – for instance, multiple dams and barrages built in India near the border have flooded the lands of Nepalese villages, impacting thousands of people (Upreti, 2008). Ensuring equitable terms in power deals with India is an ongoing challenge, which will need to be addressed to make exporting energy a viable long-term option. The governments of India and Nepal are currently negotiating a comprehensive bilateral Power Trade Agreement.12 3.3.3. Summary of Stakeholder Comments on Hydropower Development in Nepal Stakeholder comments focused on issues of weak and poorly-structured governance, lack of adequate support and protection of project-affected communities, limited technical capacity for developing and implementing comprehensive ESIAs, and lack of comprehensive basin management and planning. Potential solutions discussed included restructuring government agencies, building financial and technical capacity of those agencies for ESIAs and comprehensive environmental planning, and creating clear and consistent guidelines for compensation and relocation of project- affected communities. Additional stakeholder comments are provided in Annex III. 3.3.4. USAID Recommendations for Hydropower Development in Nepal Recommendations  Develop a National Strategic Energy and Electricity Plan incorporating a robust analysis of other renewables (solar, wind) and integrating climate change scenarios to diversify Nepal’s energy and technology sector. This would include integration of both grid and off-grid (rural electrification) power planning, with these being set within, and framed by, the broader needs of integrated water resources management plans at the basin level.  Establish a timeframe and plan for reducing the high percentage of technical and commercial losses in NEA transmission and distribution systems.  Establish an Independent Dam Safety Regulator.

12 The bilateral Trade Agreement was signed in September 2014.

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4. EVALUATION OF HYDROPOWER SUSTAINABILITY IN NEPAL

4.1. ENVIRONMENT AND NATURAL RESOURCES During the affirmative investigations, USAID/E3 identified the following key findings and recommendations regarding the environment and natural resources that impact and are impacted by hydropower projects in Nepal, summarized in the textbox and described in detail below.

Environment and Natural Resources Findings include:  Climate Change: Nepal will likely experience increased frequency of heavy precipitation and extreme rainfall intensities, increased variability in rainfall patterns, increased likelihood of drought, loss of glacier volumes, earlier snow melt, and increased temperature, all variables potentially impacting hydropower.  River Basin Planning/Strategic Environmental Assessments (SEAs): River Basin Planning and SEAs, which are internationally recognized approaches to determine acceptable numbers and appropriate locations for ROR/River Diversion hydropower projects, are not being applied in Nepal.  Geology/Water-induced disasters: The geological activity of the Himalayas combined with seasonal and geographic variability of both rainfall and river flow makes the landscape vulnerable to water-induced disasters such as floods and slope failures. These risks are increased by development activities and in turn threaten infrastructure downstream. Project areas have experienced landslides and GLOFs  Environmental Flows: Naturally variable patterns of flow are essential for biodiversity and ecosystem services. Climate change and development activities will impact environmental flows.  Biodiversity (Terrestrial and Aquatic): Hydropower development in the key connecting rivers and tributaries within the Himalayan landscape are a serious threat to biodiversity. Projects border Conservation Areas and National Parks that contain threatened and endangered species and rivers contain important fisheries and indigenous species.  Headrace Tunnels: These tunnels may have significant impacts on the regional hydrological system in mountain regions (including impacts on groundwater and springs).

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Environment and Natural Resources Recommendations include:  Climate Change: Projects should be informed by a forward-looking approach that considers qualitative climate change projections. Analyze and model how future predicted changes in the pattern of land use, water demand, and water availability will impact water resources and hydropower design.  River Basin Planning/SEAs: Support the development of River Basin Watershed Management Authorities and River Basin Plans for all major watersheds to coordinate watershed development activities. Perform and incorporate SEAs into the decision making process to help prioritize the key areas and processes in the river system that need to be protected and maintained.  Geology/Water-induced Disasters: Protect infrastructure and communities from GLOFs through monitoring, improved design, establishment of an early warning system, development of cooperative relationships with upstream neighbors, and provide guidelines and capacity building  Environmental Flows: Consider the potential impact of hydropower projects and climate change on the seasonal distribution of river flows and consider the possibility of adaptive management  Biodiversity (Terrestrial and Aquatic): Protect biodiversity by developing corridor systems, deterring illegal trafficking of wildlife, identifying critical habitat, and assessing species status and habitat connectivity to ensure that important species and habitats are protected.  Headrace Tunnels: Incorporate the use of the Drawdown Hazard Index to help verify and predict the impacts of headrace tunnels as part of the ESIA.  Environmental and Social Impact Assessments (ESIA): Conduct early engagement and appropriate scoping of the proposed project to determine the area of influence and project-affected communities to identify baseline data to be collected using internationally recognized methodology to assess potential alternatives, impacts of associated facilities, and cumulative impact assessment. Data collected will inform assessment of ecosystem services, hydrological studies and environmental flow assessments, and identify avoidance and/or mitigation measures.

4.1.1. Findings USAID/E3 identified the following key findings from a literature search, and stakeholder and community comments during semi-structured interviews. 4.1.1.1. Findings (Literature‐based) Climate Change Himalayan climates show considerable geographical variation. Climate change impacts in Nepal will likely include increased frequency of heavy precipitation and extreme rainfall intensities, increased variability in rainfall patterns, increased likelihood of drought, loss of glacier volumes, earlier snow melt, and increased temperature. These climate trends are expected to have serious impacts on the water resources throughout the country and will impact livelihoods dependent on agriculture (ADB, 2010).13 At higher altitudes, these changes will also impact the frequency of landslides and blocking

13 Increase in irrigation demand may intensify pressure to increase minimum flows. Khimti 1 may have detrimental impacts on the adaptive capacity of the local population and surrounding ecosystems arising from changes in demands and increased competition for water from the Khimti Khola. Rising temperatures and changes in precipitation during the dry weather season may increase the need for additional irrigation. Additional flows may also be needed to maintain viable downstream fisheries and ecosystems.

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of upstream river flow. Analysis of temperature trends in the Himalayas indicates that temperature increases will be greater for high altitude regions than the lowland areas. Nepal’s rainfall is directly influenced by monsoons as well as the effects of varied topography. This combination makes precipitation projections highly uncertain (Steneck et al., 2011; Challinor et al., 2007). Both temperature and monsoon precipitation projections predict increased risks of glacial lake outburst floods (GLOF). Increased temperature contributes to expansion of both supra- and pro-glacial lakes, leading to favourable conditions for large scale damage (Richardson and Reynolds, 2000). Additionally, increased monsoon rainfall will accelerate glacier melt contribution to lakes and GLOF risk (Rathore et al., 2009). The majority of Nepal’s hydropower plants are ROR/River Diversions and designed for dry season flows (i.e., minimum flows). The installed capacities of these facilities are designed based on assumptions of 65 percent flow, based on several years of past records (WECS, 2011). The most severe projections for Nepal show that runoff, and thus river flows, could be reduced by 14 percent. A projection based on a climate model for dependable flow is even more severe (WECS, 2011). However, only one to two percent of Nepal’s hydropower potential is currently developed. Therefore, it is expected to be some time before the opportunities to expand hydropower are constrained by climate change. Initially, with the increased glacier melt resulting from the increase in temperature, hydropower potential increases, decreasing again in the medium term due to reduced glacier ice reserves. Overall, it is estimated there will be a six percent decrease in hydropower potential at the end of this century even without any further warming. Assuming a warming of 0.06oC/year and assuming that 32 percent of the total hydropower potential in Nepal will be sourced from snowmelt and the rest from rainwater, the theoretical hydropower potential of Nepal will rise by 5.7 percent by the year 2030. However, by the end of this century, it will decrease by 28 percent (WECS, 2011). The potential for greater unreliability of dry season flows poses potentially serious risks to water and energy supplies in the dry season (March to May) and can impact the financial viability of hydropower projects. Currently, there is a significant contribution of melt-water during the dry season. It contributes about 13 percent to total annual runoff and about 32 percent to dry season runoff. Additionally, a study has shown that with a warming of four degrees Celsius, the snow-to- rain ratio in the Langtang Watershed Basin would decrease from 1.6 to 0.5, the life of the ice reserves would decrease from 110 to 25 years, and the glacier mass balance would decrease from - 1.1 to -4.9 m.w.e.yr-1 (WECS, 2011). For the long-term planning and management of water resources, future predicted changes in the pattern of land use, water demand, and water availability should be analyzed well in advance to determine how the water resources system responds to changing trends and variability. Predicted increases in monsoon rainfall and rainfall extremes and the subsequent risk of severe erosion and landslides in the region are expected to increase river sediment load. The river sediment load is already high in Himalayan rivers, with potentially severe impacts on the operating life of hydropower plants (e.g., reduced live storage and turbine life) as well as access roads, operational structures, and bridges. The sediment-induced wear of the hydraulic machinery has been one of the major issues in the operation and maintenance of the ROR/River Diversion hydropower plants in the region.14 High sediment loads increase operation and maintenance costs, and cause generation losses due to down time and reduction in turbine efficiency. Sediment loads can be managed in some circumstances through project design, including designing and operating the headworks to remove excessive sediment, and designing and operating turbines to handle the sediment that passes through them.

14 In Himachal Pradesh, India the Naptha Jhakri hydropower project is closed during the rainy season, when sediment concentrations exceed 4,000 mg/l, to avoid damage to the turbines.

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The potential implications of not addressing existing climate vulnerabilities were studied for the Khimti Hydropower Project (IFC, 2011). Key messages of the study included:  The lack of adequate baseline data creates challenges for risk assessment and the design, appraisal, construction, and operation of infrastructure projects in Nepal. This illustrates the need for further monitoring and research on baseline conditions in countries like Nepal to enable informed decision making in the face of further climatic change.  Climate change will increase the social, economic, and environmental stress on local communities, such as increased demands on water, and lead to potential issues for the management of the hydropower scheme. These trends will complicate attempts by ROR/River Diversion hydropower developers to maintain electricity generation throughout the year and especially in the dry season. Consequently, the hydropower development scenario needs to be revisited to account for climate change (WECS, 2011). Geology/Water-Induced Disasters The geological activity of the Himalayas combined with seasonal and geographic variability of both rainfall and river flow make the landscape vulnerable to water-induced disasters such as floods, landslides, slope failures, river bed variation (resulting in subsequent shifting and degradation), and debris flow. Unsustainable development activities – including deforestation, cultivation of marginal land, inappropriate road construction in the hills and mountains, the encroachment of floodplains, and increasing population growth – have caused further vulnerability and destabilization of land resources. These forces have led to more frequent water-induced disasters in recent years. According to the Ministry of Population and Environment of Nepal, in the period 1983 to 2001 6,025 people lost their lives in floods and landslides and estimated economic losses from these disasters amounted to around NRs 11,860 million (or more than 122 million U.S. dollars) (WECS, 2011). The causes and triggers of large landslides are not fully understood, particularly the extent to which strengthened monsoonal precipitation may increase pore pressures sufficiently to trigger large landslides in the absence of an earthquake (Zech et al., 2009). Devastating floods are triggered by different mechanisms, of which GLOF is one. The conditions giving rise to GLOFs include the formation of glacial lakes dammed by either ice or rock debris, with the most common dams being glacial moraines.15 Both the lakes and their moraines are physically unstable and commonly are perched high above villages, roads, bridges, dams and reservoirs, and farmlands in the valleys below. As such, when sudden floods or mass movements occur, these flows carry high energy and can thus travel great distances and may be devastating. GLOFs occur at high altitudes where the harsh climatic conditions allow very slow growth of vegetation. Once the slope is disturbed by the GLOF, it remains unstable due to the highly erosive nature of rain, snow, and wind, and the remaining downstream infrastructure is continuously exposed to active landslides and erosion scars, making it a high risk area. Thus the damage caused by the GLOF is not a one-time occurrence, but it is followed by continuous erosion with the threat of land destabilization (ICIMOD, 2011). At least 21 GLOF events have been identified in Nepal, of which 13 occurred between 1964 and 1998 and nine originated in the Tibetan Autonomous Region of China (TAR). Transboundary rivers affected downstream in Nepal included the Sun Koshi, Arun and the Trishuli rivers. Past records show that at least one GLOF event occurs every three to 10 years in the Himalayan region, but the frequency of GLOFs is expected to increase due to rising temperatures and increased variability in the climate (Bajracharya and Mool, 2009; Bajracharya et al., 2008). The critical element determining the stability of moraine-dammed lakes is the strength and cohesion of the end moraine. A number

15 A moraine is a mass of rocks and sediment carried down and deposited by a glacier, typically as ridges at its edges or extremities.

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of triggers can compromise the stability of the moraine dam including the degree of consolidation as resistance to seepage of lake water through the dam; sheer increase in hydrostatic pressure as the lake enlarges; the melting of ice cores and permafrost within the end moraine; avalanche displacement waves; and any down-cutting of the outlet stream (Richardson and Reynolds, 2000). Most frequently, outbursts from ‘supra-glacial’16 lakes are initiated by the collapse of the moraine dam. Hydropower stations have been damaged in the past by GLOFs originating both outside and within Nepal’s border. In 1981, the Zhangzangbo GLOF damaged the diversion weir17 at the Sun Koshi hydropower project; it also destroyed two bridges and extensive sections of the Arniko Highway, resulting in approximately US $3.0 million in damages (Mool et al., 2001). In 1985, the Dig Tsho GLOF swept away three people and destroyed the Namche hydropower station, 14 bridges, and 35 houses along the Dudh Koshi River (ICIMOD, 2011). Approximately 26 glacial lakes have been identified as potentially dangerous, rendering much of the infrastructure along the rivers originating from these lakes at risk (ICIMOD, 2011; WECS, 2011). A recent study has revealed that three glacial lakes in Tibet pose serious threats to people living downstream on the banks of the Bhote Koshi River – which runs into the Trishuli River – with potential impacts on the Nepal side (Republica, 2014b). An article cited a report published by the Chinese Academy of Sciences’ Institute of Tibetan Plateau Research finding that the temperature in Tibet is at the warmest in 2,000 years. The article continued to state that the combination of climate change and human activity on the plateau was likely to cause an increase in floods and landslides, although specific geographic areas were not identified in the article (Reklev and Chen, 2014). In addition, an International Centre for Integrated Mountain Development (ICIMOD) 2011 study identified six lakes in Nepal as Category 1 (high priority lakes – requiring extensive field investigation and mapping) and of these, Tsho Rolpa, Imja Tsho and Thulagi Lake18, were selected for further study because they are dammed by a terminal moraine, have lateral moraines, are in direct contact with the associated glacier, and have expanded rapidly in the recent years. All three lakes began to form some 50 to 60 years ago as a series of supra-glacial meltwater ponds. As of the 2010 report, the lakes were more than two to three km long with maximum depths close to 100 m and storage capacities over 35 x 106 m3. All are upstream of considerable economic activity (ICIMOD, 2011). Of the three glacial lakes, considered by some to be the most hazardous in Nepal (Imja, Thulagi, and Tsho Rolpa), Tsho Rolpa, despite its water levels being lowered artificially, is probably the most unstable because of its 216 m high and narrow end-moraine dam. The project sponsor for the Khimti hydropower project undertook a series of studies and implemented mitigation measures to reduce the risk of a Tsho Rolpa GLOF. Tsho Rolpa forms the headwaters of the Rolwaling Khola, a tributary of the Tama Koshi River. During the late 1950s, the Tsho Rolpa existed only as a group of six small supra-glacial ponds encompassing an area of about 0.23 km2. Since that time, the lake continued to enlarge until, by the 1990s, it was considered to be on the verge of breeching its end moraine. Satellite images (MOS1 MESSR) showed that it had grown to 1.27 km2 by 1990 and 1.55 km2 by 1999. A fully functional automatic early warning system (EWS) was put in place in 1998, before mitigation work to reduce the lake level commenced (Reynolds, 1999; Bajracharya et al., 2007). By 2002, the early warning system was no longer operational. Although the mitigation measures reduced the lake level by three meters in 2000, Tsho Rolpa is still considered vulnerable to overtopping as hanging glaciers, debris flow, or slides on a small scale pose potential threats

16 A supra-glacial lake is any pond of liquid water on the top of a glacier. Although these pools are ephemeral, they may be several kilometers wide and several meters deep. 17 A weir is a barrier designed to alter the flow of a river and is generally smaller than a conventional dam. 18 Additional discussion on Thulagi Lake is covered in Section 5: Upper Marsyangdi 2 Hydropower Project.

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(Bajracharya et al., 2007). There are three hanging glaciers on Mt. Tsoboje, situated high above the right side of Tsho Rolpa. Monitoring of these hanging glaciers and the likelihood of them breaking off is one of the major practical challenges in the hazard assessment of Tsho Rolpa. Preliminary assessments suggest that a further lowering of 17 m of the lake is necessary for the permanent prevention of a GLOF event (Rana et al., 2000). Tsho Rolpa is considered one of the most dangerous lakes in Nepal, and is continuously monitored by the Department of Hydrology and Meteorology (DHM).19 Recommendations of the Glacier and Permafrost Hazards in Mountains (GAPHAZ) Working Group emphasize that hazard assessments need to take into account possible interaction of processes or chain reactions involving smaller, lower-risk lakes, as the implications can be complicated and far reaching (GAPHAZ, 2007). One of the many chain reactions that could take place in the Himalayas is that the outburst of a comparably smaller lake situated above another lake (or lakes) causes a flood and exceptionally large inflow into the other lake (or series of lakes), which subsequently burst. The total discharge of such a chain could be much larger than anticipated from analyzing individual lakes only. The triggering lake could be considered secure, but squeezed out by an avalanche. This is one of the reasons why smaller lakes can actually pose a large hazard. One example of this type of lake that has been identified is the Kabung Tshoding Lake. This lake is situated about 500 m above the left lateral moraine of Tsho Rolpa. After traversing very long and steep mountain slopes, it drains into the left side valley of Tsho Rolpa (ICIMOD, 2011). However, the overall indication is that none of the three lakes is at immediate risk of a breach (ICIMOD, 2011).20 All three lakes drain through their end-moraine dams along relatively stable channels, but all three are continuing to expand upstream into the retreating termini of their glaciers. The lake expansion itself is a major factor in the rapid retreat of the three glaciers, in addition to the direct impact of atmospheric warming. The potential for catastrophic outburst of these lakes depends on the stability of the end-moraine dams, and the effect of the slow melting of buried ice and permafrost within them. Seismic activity might also affect dam stability, but such activity is even more difficult to predict, and was not taken into account in the ICIMOD study (ICIMOD, 2011). Many factors cannot be assessed, and catastrophic changes cannot be predicted. Thus, there is a critical need for regular monitoring of glacial lakes and the establishment of early warning systems. Peru has had extensive experience with the impacts of GLOF and mitigation measures to either eliminate or reduce the risk of a GLOF, and could serve as a model for Nepal (USAID, 2014). The most common methods for reducing lake volume in Peru have been:  Cutting the downstream face of the moraine into a V shape. This measure is commonly implemented in glacial lakes with moraine dams. The cutting process will gradually lower the water level. After the opening has been cut, a reinforced concrete pipe is installed to maintain the reduced lake level. An earth dam with a stone façade is then built over the pipes, restoring much of the original V-shaped cut in the moraine. This dam protects against the hydrodynamic effects of big waves.  Construction of drainage tunnels. Drainage tunnels can be drilled into glacial lakes that have natural rock dams and, in some cases, also into lakes with loose moraine dams. Several procedures have been used to construct these tunnels, and the connection to the lake has varied from case to case.

19 The 2005 satellite image (Landsat ETM+ 2005) indicated an area of 1.535 km2 and the 2007satellite image (AVNIR-2) an area of 1.538 km2. 20 This risk assessment has changed as a result of the April 2015 earthquake, with Imja andTsho Rolpa having been elevated to “High” risk (Hi MAP 2015, https://docs.google.com/a/ccrdproject.com/viewer?a=v&pid=sites&srcid=Y2NyZHByb2plY3QuY29tfGNjcmR8 Z3g6MjM1MzU1MDBkMDI1MDA3NA).

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 Filtration. Filtration (seepage) has also been used in very permeable terminal moraine dams. It is a simple procedure to open a trench and allow water to leak through the porous material. Overview of stakeholder comments on climate change and geology/water-induced disasters Various stakeholders raised a number of general and specific issues during discussions. A summary of stakeholder comments is provided below, with more comments provided in Annex III. GoN comments focused on the fact that climate change was only an academic exercise at this point and that there is no unit within DoED that deals with climate change. Civil society/researcher comments focused on the need for a National Energy Strategy which includes not only hydropower but also solar and wind with discussions and integration of climate change scenarios. There is the need to recognize that hydropower projects are within the framework of a tranboundary landscape where climate change is the driver of change. Climate change is a leading contributor to the formation of glacial lakes; however, the linkage between GLOFs and climate change is complicated and remain mainly theoretical pending more assessments of statistics on GLOFs and their specific causes. River Basin Planning/Strategic Environmental Assessments: River basin planning is an internationally recognized approach to determine acceptable numbers and appropriate locations for ROR/River Diversion hydropower projects. Freshwater ecosystems provide a range of goods and services that underpin economic development. Maintaining freshwater ecosystems can be regarded as maintaining natural infrastructure, equivalent to constructing and maintaining the built infrastructure that provides technological services for society. River basin planning21 is the starting point for sustaining these ecosystems, balancing a range of competing economic, social, and ecological goals. As a precursor to developing river basin plans, it is important that there is a good understanding of the interactions and relationships between hydrological, ecological, social, and economic systems operating in a specific river basin. A key consequence of global climate change and variability will be changes to the hydrological cycle. Projected future changes include an increase in the frequency of floods and droughts; long-term changes to patterns of overall water resources availability; increased variability in water resource availability; increased temperatures driving increased risks of eutrophication; and changes to the seasonality of water, driven for example by shifts in precipitation from snow to rainfall. These changes have the potential to drive significant impacts, often negative, on both the social and economic activities dependent on water and freshwater ecosystems. In basins with significant hydropower development, important trade-offs can exist between the needs of the hydropower sector and the needs of other socio-economic interests such as agriculture and tourism. Poor and socially marginalized groups are often those most dependent on the functioning of river ecosystems and services and least able to adapt to changing circumstances and thus are more vulnerable. A key to successful river basin planning is the ability to identify the trade-offs that need to be made in the basin plan, and to undertake sufficient analysis so that the consequences of different options can be understood and lead to informed political decisions on basin objectives and priorities.

21 River basin planning has been developed over time in response to the changing demands placed on river systems and the changing conditions of river ecosystems. The Tennessee Valley Authority is an early example of where engineering and scientific knowledge was used not only to develop the water resources but also supported higher and broader development goals such as education, poverty alleviation, farming improvements, health and sanitation, and small enterprise development. It was the first example where river basin development expanded beyond water resource management to support an integrated social and economic development policy program.

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In 2002, the Johannesburg World Summit on Sustainable Development committed countries to develop Integrated Water Resources Management Plans by 2005. This commitment included the development and implementation of national/regional strategies, plans and programs with regard to integrated river basin, watershed, and groundwater management (United Nations, 2002). The World Wildlife Fund’s (WWF’s) Living Planet Index22 reported in 2010 that the index for tropical freshwater systems has declined by 70 percent between 1970 and 2007, the largest reduction in any biome on the planet. Also in 2010, the Convention on Biological Diversity published its Global Biodiversity Outlook 3, which concluded, “Rivers and their floodplains, lakes and wetlands have undergone more dramatic changes than any other type of ecosystem” (CBD, 2010). Biodiversity (Terrestrial and Aquatic) The Eastern Himalayan Ecoregion – consisting of diverse forest ecosystems of alpine, temperate and subtropical forests –includes three of WWF’s Global 200 Ecoregions: the Eastern Himalayan Alpine Meadows, the Eastern Himalayan Broadleaf and Conifer Forests, and Terai-Duar Savannas and Grasslands. The Eastern Himalaya, which extends eastwards from the gorge of the Kali Gandaki River to Myanmar, hosts part of the Himalaya Biodiversity Hotspot and harbors diverse ecosystems, species, and genetic resources of global significance (Mittermeier et al. 2004; Mittermeier et al., 2011). Biodiversity values are also reflected by a high level of endemism (Myers et al. 2000). The Greater Himalayan Landscape (GHL) of Nepal and India – conceived during a workshop organized for developing a biodiversity vision in Nepal in December 1999 – encompassed Terai grasslands, riverine forests, subtropical forests, and many National Parks and conservation areas, including the Annapurna Conservation Area (ACA). In 2006, the GHL was reformulated and the GoN adopted the Sacred Himalayan Landscape (SHL), encompassing 39,021km2, of which about 73.5 percent falls in Nepal and the rest in India and Bhutan (Gurung et al., 2006; WWF, 2011 and 2012). The SHL extends east of Langtang National Park (including all its area) and connects to the Kangchenjunga Conservation Area Landscape (Nepal) and overlaps with Sikkim and Darjeeling Hills in India and, in Bhutan, the Toorsa Strict Nature Reserve (Sharma 2010). The SHL represents significant areas of two globally important ecoregions: the Eastern Himalayan Alpine Meadow and the Eastern Himalayan.

With the revised SHL conservation designation, the Chitwan-Annapurna Landscape was excluded. The Chitwan-Annapurna Landscape (CHAL) is known for its biodiversity with Chitwan National Park harboring an exceptionally diverse wildlife population including tigers, rhinoceros, elephants, gaur, deer, and habitat to more than 540 species of birds (Baral and Upadhyaya, 2006). The ACA is home to more than 100 mammal species including the snow leopard; 478 species of birds including 38 species of birds at risk in Nepal; 41 species of reptiles; and 23 species of amphibians. Twenty- seven species of mammals found in the ACA are protected under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) appendices, while 13 species of mammals and three bird species are protected under Appendix I of the National Park and Wildlife Conservation Act 1973. Its landscape is drained by eight major rivers – Kali Gandaki, Seti, Madi, Marsyangdi, Daraundi, Budi Gandaki, Trishuli, Rapti – and their tributaries form the Kali Gandaki River system. The GoN considers the linkages of northern and southern landscapes of CHAL critical to providing a safe passage of river and forest corridors for wildlife, migratory birds, and aquatic animals (WWF, 2013). Hydropower development in the key connecting rivers and tributaries in the CHAL are a serious threat to freshwater biodiversity conservation. People dependent on local fish and other freshwater resources for their food supply as well as livelihoods are potentially impacted.

22 Living Planet Index is a statistical review that charts the status of populations of species across the world. The freshwater index tracks changes in 2,750 populations of species of fish, birds, reptiles, amphibians, and mammals found in freshwater ecosystems.

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In addition to the influx of migrant construction workers and camp followers for these projects, the sections of diverted water will reduce river flow and allow for increased access into protected areas for both the local and migrant populations. With inadequate policy to strategically locate these projects and factor in environmental and social factors in the decision-making process, the threat to biodiversity will rise. Nepal has a policy of restrictive use of waterways flowing within the protected areas for power generation, which stalls harmful development within the protected areas; however, it is uncertain for how long this policy will be followed given the pressures to pursue hydropower development (WWF, 2013). Approximately 218 fish species are listed for the entire Himalayan range, with greater diversity of coldwater fish in the eastern Himalayas than the western Himalayas (Sehgal, 1999). Hydropower development impacts fisheries in many ways including low environmental flows that affect habitat and depth, changes in sediment load that alter habitat, changes in water temperature, and dams that block migration to and from spawning waters. The fish species distribution depends on velocity of currents, fluctuation in water discharge, nature of substratum, water temperature, dissolved oxygen level, shelter from the current and availability of food. Six major habitat groups have been identified: 1) fish dwelling in shallow, clear, cold waters in the foothills; 2) fish inhabiting the bottom water layers in deep, fast currents (e.g., Schizothorax richardsonii); 3) fish sheltering among pebbles and stones as protection from strong currents; 4) fish that cling to exposed surfaces of bare rocks in slower currents; 5) fish sheltering among pebbles and shingles in shallows; and 6) fish that cling to the exposed surfaces of bare rocks in fast currents. Water temperature is an important limiting factor affecting geographical distribution and local occurrence within a water system. For example, Schizothorax sp. has an upper tolerance around 20˚C. This species migrates from headwaters to lower altitudes and starts its upstream migration with the rise in water temperature. During the upstream migration, due to the steady influx of snow-melt water, the waters maintain a low temperature. This induces the species to migrate to and spawn in side streams, which receive warmer ground water (Sehgal, 1999). There are 59 coldwater indigenous species in Nepal. Of these 59, Neolissocheilus haxagonolepis, Schizothoraichthys spp. Schizothorax spp.23 and Tor spp. are considered the most economically valuable based on their table fish and sport fish values (FAO, 1999). The capture fishery sector, including coldwater fishery, has been given lesser priority by the government fisheries administration. This focus has contributed to a gradual decline in fish stocks in some areas. Additionally, the presence of dams on many rivers and streams has stopped the migration of mahseers24 and schizothorax spp. Subsistence and commercial fisheries exploit the larger fish species such as Schizothorax richardsonii (snow trout). Climate change impacts on biodiversity Limited studies have been conducted to assess the impacts of climate change on biodiversity in southern Asia. River and forest corridors can provide suitable habitat for plant and animal and options for adaptation to climate change where species could move to avoid temperature rise and other environmental constraints (Eigenbrod et al., 2014). Researchers have reported that freshwater fish species could greatly change their present-day distribution in response to climate change, presenting a serious threat to freshwater diversity (Buisson et al., 2008; Chu et al., 2005). Researchers have observed a shrunken distribution range of

23 There are nine species of snow trout in Nepal, of which six fall under the genus Schizothorax and three under the genus Schizothoraichthys. This includes snow trout which has been reported from rivers and lakes at an altitude from 784 m to 3,323 m. 24 An IUCN Red Listed species.

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Schizothorax spp. (snow trout) toward upstream stretches. In addition, researchers observed a number of fish species in the Ganga that were gravid25 during winter months (November- December), which is uncommon, indicating a shift in maturity which could be due to changes in the hydrology of river systems due to numerous hydropower projects and increases in water temperature. Researchers also recorded a number of species that had never before been reported in the upper stretch of the river, and were predominantly reported in the lower and middle stretches in the 1950s, indicating a perceptible shift in the distribution pattern of fishes. Both of these findings could be due to changes in river hydrology, including increased water temperature. In the Ganga river basin, alterations in fish diversity and community structure are mainly due to hydrological alternations, dam construction, overfishing, rapid sedimentation, deforestation and changes in the climate (Sarkar, 2011). Overview of stakeholder comments on biodiversity A summary of stakeholder comments is provided below, with more details provided in Annex II. Civil society/researcher comments focused on the critical need to consider the landscape, ecology and species existing into perpetuity. Climate change and infrastructure are the biggest threats to maintaining biodiversity and ecosystem interconnection is often overlooked when developing infrastructure projects. Environmental Flows The term “environmental flow” is defined as the quantity, timing, and quality of water flows required to sustain freshwater and estuarine ecosystems and the human livelihoods and well-being that depend on these ecosystems (International Water Centre, 2007). Environmental flow science has progressed to the point where scientists warn that maintaining minimum low flows is necessary but insufficient to maintain healthy river ecosystems26 and that a naturally variable pattern of water flow is needed to sustain biodiversity and the ecosystem services provided by rivers (World Bank, 2009). A river’s flow regime exerts a major influence on nearly all the physical and biological processes within it and shapes the ecosystem. The flow regime affects the regeneration of riparian vegetation, recession agriculture, and aspects of water quality including temperature and concentration of nutrients and toxins. The rivers in Nepal are characterized by wide, seasonal fluctuation of flow (WECS, 2011). The hydrological seasons in Nepal can be categorized into three different flows:  Dry pre-monsoon season (March to May) with almost no rain.  Rainy monsoon season (June to September).  Post-monsoon season (October to February) with little rain. The monthly flows generally reach their maximum in July to August and decline to their minimum in February to March. About 80 percent of the total flow occurs during five months (June to October) and the rest during the remaining months. Each of the three different seasonal flows is associated with specific biological and physiological processes for maintaining/sustaining freshwater ecosystems and riparian habitats. These processes

25 Gravid means carrying eggs. 26 A healthy river ecosystem is one that has maintained its ecosystem integrity and capacity to maintain its structure and function and support biota and dependent communities, including human communities. River health assessments, often undertaken as part of routine, ongoing monitoring programs, measure the condition of a waterway using a series of predefined indicators and reference values. Indicators commonly used include physical and chemical parameters (e.g., dissolved oxygen, pH, conductivity), biota (e.g., number, richness or diversity of fish, macroinvertebrate or algal populations, as well as riparian vegetation), hydrology (often with reference to changes to the natural flow pattern) and physical form (measures relating to the structure and form of the river channel).

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include: reproduction of fish; reduced predation pressure on fish spawned during the dry season due to increased water volumes and decreased visibility; migratory fish patterns; increased tree germination during higher water tables; changes to channel features and material (e.g., sedimentation, organic matter, sand, gravel, trees); deposition of sediments into the lower areas of the flood plain; triggering of spawning activity; sediment transport and delivery to flood plains; sediment/detritus movement that creates/maintains a diversity of habitats and maintains a deep channel; and creation of floodplain topography. Any and all of these processes can be impacted by inadequate timing and provision of environmental flows. Dams are usually the most significant and direct modifiers of river flows. The ability to release environmental flows is strongly influenced by dam design. Therefore, it is important to determine environmental flow requirements and integrate these flow requirements into the water management plan to maintain economically and socially valuable ecosystem services and aquatic biodiversity. Different species thrive under a range of optimal conditions. Dam releases should be based on an established percentage of inflow to maintain inter- and intra-annual variability. While not always possible, a minimum 20-year continuous record should form the baseline since records of this length will more accurately reflect natural variation in annual, daily, and seasonal flow. This baseline data can enable new dams to be designed with physical provisions for adjusting releases and accommodating future changes in values for managing the river (Krchnak et al., 2009). There are a number of methods that have been developed, each with their own advantages and disadvantages, to guide collection of baseline data when determining ecological/environmental flows to incorporate into the ESIA analysis (Dyson et al., 2003; Richter et al., 2011). It is expected that hydrological information will be used to inform design considerations (e.g., multilevel intake/outlet structures, sediment bypasses, sluice gates) and facility operations to allow the river to retain inter- and intra-annual variability, which are essential aspects of a river ecosystem that facilitate the maintenance of ecosystem services and biodiversity. Climate change and environmental flows Changes in river flow due to climate change include changes in the volume, timing, and intensity of precipitation and snowmelt. Changes in temperature, solar radiation, atmospheric humidity, and wind speed also affect evaporation rates. Transpiration from plants can either slightly offset any increase in rainfall or further exaggerate the effect of decreased rainfall (IPCC Working Group II, 2007). Scientists commonly agree that precipitation is the most significant factor when considering stream-flow in steep catchments such as those founded in the Himalayas (Rees et al., 2002). Other factors include temperature, glacial and snow melt, hydrogeology, soil types, topography, land-use, and catchment size and slope (Rees et al., 2004). Based on the latest Intergovernmental Panel on Climate Change (IPCC) assessment, it can be expected (with high confidence) that climate change is likely to (IPCC Working Group II, 2007):  Induce a seasonal shift in river flow by increasing the ratio of winter to annual flows, on- setting earlier and faster snow melt in spring; and  Reduce the overall contribution of snow melt to river flow because of decreased snow water storage. Furthermore, as temperature continues to increase, the likelihood of precipitation falling as rain rather than as snow increases, in which case the runoff will be far quicker, with less attenuation and increased sediment loads. Already, analysis of monthly flow trend of some of Nepal’s rivers indicates that the contribution of snow melt in runoff is increasing, resulting in decreased dry season flows and increased wet season flows. Changes in river flows and water temperature could cause a change in the minimum river flow requirement to protect downstream fisheries and allow for irrigation. Environmental Elements of Run-of-River/River Diversion Hydropower Projects

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ROR/River Diversion hydropower projects are presented to be less detrimental than storage dams, mainly due to the smaller reservoir “headpond.” The “diversion reach”27 associated with reduced river flows can vary in length. Similar to storage dams, significant infrastructure is required for ROR/River Diversion projects including:  A dam to create a small reservoir (known as a headpond);  A pipeline or tunnel (headrace or penstock) that can be several kilometers long to deliver water from the headpond to the turbines;  A powerhouse building to house the generators;  A tailrace channel through which the diverted water is returned to the river;  Access roads to the headpond and powerhouse;  Transmission lines from the powerhouse to the nearest grid transmission line; and  In some cases, an electrical substation. There is an increasing trend to develop cascades of ROR/River Diversion hydropower projects within a river basin to capture as much energy potential as possible. The impacts of river diversion projects on terrestrial and aquatic habitats can be significant, although the focus of assessments is primarily on the aquatic impacts. Aquatic impacts can be separated into: 1) effects at and above the dam and 2) effects in the diversion reach and potentially below the tailrace channel. Potential impacts above the dam include:  Increasing water level variability and alterations to riparian vegetation28 and useable habitat for aquatic and terrestrial species;  Conversion of riffle29 habitat to run habitat;  Fish impingement30 and entrainment at the intake; and  Fish migration. Impacts below the dam will extend throughout the diversion reach and potentially further if sediment regimes, large woody debris movement, and food chains are affected. Usually the focus of the diversion reach is determining the environmental flow. Typical impacts below the dam include alterations to velocity, depth, temperature, flow variability, and sediment movement. These affect the quality, quantity, and type of habitat available, impacting many ecosystem components such as nutrient dynamics. Even in reaches where fish are not present, sufficient water is required to maintain the benthic invertebrate community ‘drift’ as potential food in the downstream reaches. The required access into a hydropower facility (e.g., roads, transmission line corridors) has been cited as a prime factor in ecosystem degradation, however; terrestrial impacts are often poorly addressed (Douglas, 2007). In many cases, available data are often inadequate to assess whether an International Union for Conservation of Nature (IUCN) red-listed or nationally-listed species is present, its use of the area, and potential impacts by the project.

27 A diversion reach is the section of river between the dam and the powerhouse from which water has been diverted. 28 Plant communities and species that are influenced and sustained by the presence of nearby water. Riparian vegetation stabilizes, shades, and provides structure and nutrients to the aquatic habitat it surrounds. It also supports wildlife diversity and serves as a corridor for wildlife movement. Riparian areas are known to be biodiverse and important features in a landscape. 29 A riffle is a short, relatively shallow and coarse-bedded length of stream over which the stream flows at slower velocity but a higher turbulence than it normally does in comparison to a pool. 30 Impingement is the entrapment of any life stages of fish and shellfish on the outer part of an intake structure or against a screening device during periods of intake water withdrawal.

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Headrace Tunnel Avoiding the impacts of storage, ROR/River Diversion projects require river flow to be diverted through headrace tunnels31 to the powerhouse, which is located downstream. The tunnels, which act as a drainage conduit, may have significant impacts on the regional hydrological system in mountain regions. This impact on the hydrogeology is complex and is further complicated by ongoing changes in the hydrology of the catchments due to rainfall changes, snowfall patterns, and glacier retreat – all of which also affect the groundwater and springs. Water drainage through a tunnel is likely to lower the hydrostatic water levels, with effects on the discharge to water points, springs, and river recharge. This drawdown can affect groundwater quantity and quality, in addition to changes in vegetation, slope stabilities, and changes of water chemistry. Blasting associated with tunnel construction can also disturb the rock and fissure systems, which can also affect water supplies for drinking and agriculture. These impacts can continue until the tunnels are made fully waterproof, although some permanent changes to the fissure systems may occur. The severity of the impacts depends on the hydrogeological conditions surrounding the tunnels. 4.1.2 USAID Recommendations USAID makes the following recommendations on environmental aspects with the goal of making project improvements and strengthening the ESIAs. Climate Change Recommendation Ensure projects are informed by a forward-looking approach that considers qualitative climate change projections. Analyze and model how future predicted changes in the pattern of land use, water demand, and water availability will impact water resources and hydropower projects. Recommendation Components  Model future impacts of climate change scenarios and hydropower development in the seasonal distribution of river flows.  Use modeling outputs to inform feasibility analysis of hydropower projects in the near and long-term.  Model and evaluate the project’s net contribution to climate change (i.e., identify if the project will be source or sink of greenhouse gases).

Recommendation Consider the potential impact of hydropower projects and climate change in the seasonal distribution of river flows and consider the possibility of adaptive management. Recommendation Components  Collect basin-wide environmental baseline data, including data for hydrological studies and flow assessments.  Model impacts of climate change and hydropower development on river flows.  Conduct a comprehensive environmental flows assessment to specify flow requirements needed to maintain ecosystem services and habitat connectivity prior to project design phase.

31 The water from reservoir (headponds) enters through the Intake into the Head Race Tunnel or Power Tunnel, which runs under pressure supplying water for generation of power to the power station.

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Projects need to consider the potential impact of climate change in the seasonal distribution of river flows and consider the possibility of adaptive management. Snow melt data in the project catchment area will enable inclusion of the potential impacts in the design of the model or in future flow projections. This coupled with improved monitoring of river flow would be beneficial for future flow projections. Scenario building exercises should be presented where, for any future flow regime, the predicted change in condition of the river ecosystem is described based on data collected. The difference in projections across climate change models and scenarios reflects the relatively high uncertainty characteristics of climate change projections for rainfall in the region. A focused modeling effort on improving understanding of monsoon processes would certainly be beneficial for combating divergent General Circulation Models (GCM) results in this part of the world. River Basin Planning/Strategic Environmental Assessments Recommendation Support the development of River Basin Watershed Management Authorities and River Basin Plans for all major watersheds, including the incorporation of Strategic Environmental Assessments (SEAs). Recommendation Components  Create River Basin Watershed Management Authorities and invest them with the power to coordinate watershed activities and develop river basin plans.  Collect appropriate basin data to conduct an SEA as part of the river basin planning process.

River Basin Watershed Management Authorities should be created to coordinate activities within a river basin and develop River Basin Plans for all major watersheds. These Authorities should have the power to coordinate hydropower developers operating in the same watershed. Basin planning will require understanding the manner in which a water resources system responds to changing trends and variability, as well as the ability to identify the trade-offs that need to be made in the basin plan. Sufficient analysis must be undertaken so that the consequences of different options can be understood by decision-makers. Given the number of hydropower projects planned in the watershed, it would be important to coordinate associated infrastructure such as roads and transmission line systems. SEAs should be carried out as part of the river basin planning process. SEAs integrate environmental (and social) considerations into the decision-making process and typically consider issues such as flow regulation, catchment protection, flood attenuation, sediment-geomorphology maintenance, water quality and freshwater goods such as fisheries and tourism.

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Geology/Water‐Induced Disasters Recommendation Protect infrastructure and communities from GLOF through monitoring, improving design, establishing an early warning system, developing cooperative relationships with upstream neighbors, and providing guidelines and capacity building. Recommendation Components  Develop a guidance document and provide capacity building for conducting high altitude surveys.  Systematically collect and monitor data.  Conduct periodic surveys of all lakes as well as routinely monitor critical lakes for key indicators of potential GLOF.  Establish an early warning system and incorporate local communities into operation and maintenance.  Develop guidance and methods on protecting infrastructure against GLOF by designing infrastructure to handle GLOF surges.  Pursue cooperative relationship with China to better understand upstream development plans and monitor potential GLOFs.

Proper methodology and capacity is required for Nepal to be able to adequately monitor and collect data on potential GLOFs. A guidance document should be developed that covers all aspects of the survey from proper altitude acclimatization and work schedules to conducting bathometric surveys, ground penetration surveys, and data analysis. Capacity building efforts should be directed toward the Department of Hydrology and Meteorology, MoEST, and Nepal universities. Proper monitoring of potential GLOFs should be implemented to reduce the physical vulnerability in the watersheds, including periodic surveys every five to 10 years using strictly comparable data sources (ICIMOD, 2011). Key indicators include changes in the lakes and their impoundments32, which should be observed using different data sets at varying time scales to evaluate glacier hazard and the stability of moraine dams. A considerable amount of information can be derived using remote sensing approaches to identify changes in lake size, as well as aerial observation with small cameras to observe lakes more closely. Monitoring of critical lakes requires direct, periodic observation to assess the influence of the surroundings, for example, the impacts of hanging glaciers (Tsho Rolpa); debris flows/slides (Tsho Rolpa and Thulagi Lake); and the condition of associated glaciers that may generate calving on a scale sufficient to cause a large surge wave. To be effective, this should be carried out in cooperation with all stakeholders: communities, government departments, institutions, agencies, broadcasting media, and others. An automated monitoring system has been set up for Imja Tsho in partnership with the DNPWC in Nepal, Asian Institute of Technology in Thailand, and Keio University in Japan as a test for developing an early warning system (Ives et al. 2010; ICIMOD, 2011). A low-cost early warning system that is simple enough for operation and maintenance by the local communities should be established. The GLOF sensing and warning systems should give sufficient

32 Monitored for seepages that can cause moraine dam failure by piping/undermining. Similarly, other key features including hydrometeorological conditions such as lake water level, excessive drainage, or extreme climatic conditions, and dam conditions such as subsidence or collapse of lateral and terminal moraines and moraine dam crest height.

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time for community response and mitigation measures. 33 Establishing awareness-raising in the local communities about the hazard and necessary response is essential. Infrastructure should be designed and built to protect against possible GLOF surges by allowing sufficient space for the flow of water. A guidance document should be developed to provide information on factors that should be considered during infrastructure design and construction. For example, bridges should have appropriate flow capacities at elevations higher than expected GLOF levels and the spans of piers should not be obstructed by uprooted tree trunks. Land use zoning should also be considered as an effective approach to mitigation by reducing the structures and elements at risk. Among others, settlements should not be built on or near low river terraces within either landslide or the GLOF hazard zones. River banks with potential for old landslides and scree slopes near settlements should be stabilized and appropriate warning devices installed (ICIMOD, 2011). As part of this guidance, a sediment budget and fluxes approach is a useful tool for assessing and managing potential threats to human settlements and infrastructures (Fort and Cossart, 2013). There should be greater cooperation by the GoN and the MDBs with China to understand its development and infrastructure plans for the transboundary rivers originating in the Tibet Autonomous Region. China is planning on building a series of large hydropower projects with construction expected to start in 2020 (Reklev and Chen, 2014). Additionally, a cooperative monitoring and early warning system should be developed for glacial lakes in China (Tibet) which have indicated a need for constant monitoring for potential GLOFs. Biodiversity (Terrestrial and Aquatic) Recommendations Protect biodiversity by developing corridor systems, deterring illegal trafficking of wildlife, identifying critical habitat and assessing species status to ensure that important species and habitats are protected. Recommendation Components  Assess the status of species identified as endangered or critically endangered by international standards (e.g., IUCN) and national law, ideally at the watershed or regional level.  Identify important habitats outside of protected areas.  Establish a robust training and monitoring system for deterring illegal trafficking of wildlife in advance of the increased access for illegal traders facilitated by the expanding road network.

Hydropower development in the key connecting rivers and tributaries within the Himalayan landscape are a serious threat to biodiversity. Projects border Conservation Areas and National Parks that contain threatened and endangered species and rivers contain important fisheries and indigenous species.

33 In addition to the now nonoperational Khimti EWS, An early warning system was installed in the upper Bhote Koshi valley near the Friendship Bridge on the Nepal-China border in eastern Nepal in 2001. This was intended to protect the Upper Bhote Koshi Hydropower Project. This system, however, has a lead time of only six minutes as the stations are all within the Nepal part of the catchment. To be effective, sensors need to be installed in the Tibet Autonomous Region to cover the upper catchments. The system was still functioning in 2009, presumably because of the interest of the hydropower project (Ives et al., 2010).

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Head Race Tunnel Recommendations

Incorporate the use of the Drawdown Hazard Index as a method to help verify and predict the impacts of head race tunnels as part of the ESIA.

Given the potentially significant environmental and social impacts of a head race tunnel, it is important to incorporate tunnelling impact management as a part of the environmental management plan. The plan should include requirements for monitoring springs, monitoring tunnel water ingress, conducting drawdown hazard analyses, conducting participatory discussions with stakeholders and developing clear cut agreements of what and how criteria will be used for compensation or provision of alternative supplies. The issue is complex and appropriate methodologies must be carefully developed. Issues include the annual and seasonal variations in spring flows, parallel climate change impacts, assessment of the likely reductions in impacts once the tunnels are lined and the limitations of assessment techniques (Torri et al., 2007; Thuro et al., 2001). Environmental and Social Impact Assessments Recommendation Conduct early engagement and appropriate scoping of the proposed project(s) to establish the foundation for an effective ESIA and cumulative impact assessment process. This will determine the geographical and temporal extent of the project, the communities likely to be affected, and the baseline data that needs to be collected (using internationally recognized methodology). Data collected will provide the basis for other assessments including ecosystem services, hydrological studies and environmental flow, and the identification of avoidance and/or mitigation measures. The ESIA should include all components of the project’s life from construction to operations and maintenance to decommissioning. Recommendation Component  Provide a clear explanation of the criteria used to determine impact magnitude and significance in the ESIA.  Collect baseline data on water uses and requirements for plants, animals and humans; water availability; snow melt data; environmental flows; and the hydrologic cycle.  Undertake a comprehensive study to evaluate the impacts of development activities, including hydropower projects on the country’s aquatic species to serve as a baseline for future assessments and benchmark for determining effectiveness of mitigation measures.  Incorporate a cumulative impact assessment as part of the ESIA and alternatives analysis.  ESIAs must inform the development of the Environmental Mitigation and Monitoring Plans to cover both the construction and operational periods of the project.

A standardized approach to data collection should be developed for the GoN for use in establishing baseline data, assessing project impacts and determining the success of mitigation measures and impacts of climate change. Appropriate baseline data, gathered over a sufficient period of time, including seasonal variation, is required to assess the scope of impacts and to identify prevention and/or mitigation measures. Baseline assessment is critical to allow the prediction of impacts and to later verify the accuracy of the predictions and mitigation measures. Examples of the types of baseline data that should be collected include:  On the biodiversity in the project area and its area of influence relevant to its local, regional, national and international importance; its use by local communities; population structure and dynamics.

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 On the distribution, richness, and diversity of habitats34 and ecosystems including connectivity/fragmentation, carrying capacity, and functional analysis.  A mapping of the temporal distribution, relative abundance and population status of fish species, including fish migration patterns (long, mid, and short distance migrations).  A mapping of critical habitats for life stage timing – spawning, incubation, migration and active rearing.  A mapping of microhabitat characteristics (e.g., depth, velocity, substrate, cover).  A mapping of and identification of habitat connectivity (e.g., channel morphology35 and characteristics) at discrete intervals to the mouth of the river.  On flow data over a period of time that reflects seasonal changes so that accurate estimates of minimum flow are known and can be used to conduct worst case analysis.  On hydrological studies to test and refine the hypotheses about the relationships between environmental flows and important river processes and conditions.  On sediment transport at the watershed level. Considering the high erosion rates and land mass movements that occur in the catchment, sediment management is likely to be a significant issue for reservoir management.  On water quality parameters (e.g., dissolved oxygen, pH, temperature, total suspended solids, total organic carbon36, phosphorus, nitrogen) collected in a temporally and spatially structured manner. Where reservoirs will inundate vegetation, water quality issues include mercury methylation and subsequent bioaccumulation.  A mapping of lower trophic levels (periphyton, macrophytes, invertebrates). Lower trophic level species are key components of stream productive capacity and are an important component of fish diets. It may be necessary to undertake assessments on primary and secondary production by sampling lower trophic levels to be able to evaluate the effects of flow change on their productivity.  Assessing wildlife hunting and fishing pressures and impact of construction workers on natural resources (wildlife, wood).  A mapping of vegetation during dry and wet seasons. The selection of transect sites is critical for collection and mapping efforts. Improperly located sites may not provide the data required. Transect sites should be located in habitats important to species of interest. Properly arranged and geo-referenced transect sites will enable and facilitate monitoring and pre-post project impacts (Lewis et al., 2004; State of Oregon, 1995). A cumulative impact assessment needs to be undertaken with a spatial (geographic) and temporal (time) scope appropriate for the project utilizing data on the status of natural, cultural, social, or economic resources and systems; data that characterize important environmental or social stress factors; and data on environmental and socioeconomic trends. The scope will include multiple ROR/River Diversion hydropower projects, including the associated infrastructure (e.g., roads, transmission lines) that needs to be addressed to avoid significant watershed-level impacts.

34 The purpose of fish habitat assessment is to describe the abundance and distribution of fish habitats and whether previous land and water uses will have affected the habitats. 35 This requires an understanding of fine and coarse sediment supply sources, transport mechanisms, and deposition. The interaction between sediment, flow, and setting determines characteristic features of the channel (shape-width-depth ratio, thalweg location, bars; stability – lateral instability, avulsions; bed forms – riffles, boulder riffles, etc.) 36 This is a critical water quality characteristic, given that it drives the energy balance and food chains in aquatic ecosystems.

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4.2. SOCIAL During the affirmative investigations, USAID/E3 identified the following key findings and recommendations regarding the social aspects hydropower projects in Nepal, summarized in the textbox and described in detail below.

Social Findings include:  The project areas are home to diverse ethnic groups and castes, in some areas located in remote locations. Local livelihoods are dependent on farming, fishing, raising livestock, and tourism.  Project-affected communities lack the skills and understanding to effectively interact with project developers.  Many project-affected communities will be economically and/or physically displaced. Nepal’s ad hoc approach to compensation is seen as ineffective.  Those who do not need to resettle are concerned about impacts on fisheries, agriculture, and tourism. Recommendations include:  Consultation Capacity: The GoN should develop, in cooperation with indigenous peoples, robust and meaningful consultation and community procedures and guidelines, in alignment with ILO Convention 169.  Consultation Capacity: Conduct effective and meaningful consultation, very early in the project planning stage with project affected people so that they understand and are able to comment on the project from its inception. This consultation process will be supported by providing analytical, technical, and financial support for communities to engage in river-basin and project planning to help ensure that infrastructure development will make their livelihoods culturally and environmentally sustainable.  Compensation: The GoN should develop, in consultation with civil society, consistent and fair guidelines for compensation including economic and physical relocation.  Baseline Demographic Data: Collect demographic, social, and economic baseline data to fill in gaps on water users, cultural sites, health issues, landscape and tourism uses as the basis for the ESIA and the CIA.

4.2.1. Findings USAID identified the following key findings from a literature search, and stakeholder and community comments during semi-structured interviews. 4.2.1.1. Findings (literature‐based) Indigenous Peoples Nepal‘s Act to Establish the Foundation for Development of Indigenous Nationalities (2002) defines "indigenous nationalities…[as] those ethnic groups or communities, who have their own mother tongue and traditional customs, different cultural identity, distinct social structure and written or oral history." It lists 59 indigenous nationalities, of which 18 are from the mountains, 24 from the hills, seven from the Inner Terai, and 10 from the Terai regions. According to the 2001 census, indigenous peoples comprise 38.8 percent of the 23 million people in Nepal. The National Foundation for Development of Indigenous Nationalities (NFDIN), the government agency responsible for looking after the issues facing indigenous peoples in Nepal, defines indigenous nationalities (Adivasi Janajati) as communities that perceive themselves as distinct groups with their own mother tongue, traditional culture, written and oral history, traditional homeland and

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geographical areas, and egalitarian social structures. As per the NFDIN, there are more than 100 ethnic/caste37 and religious groups and 92 mother tongues. The populations of almost all indigenous peoples are concentrated in their own ancestral lands. In the mountain regions, such as Mustang, Manag, and Rasuwa, indigenous peoples comprise 75 to 95 percent of the population, but in the Middle Hills and the Terai, indigenous peoples are less than 50 percent of the population (IFAD, 2012). There are four language families (Indo-Aryan, Tibeto-Burman, Dravid, and Proto-Australoid) and more than 125 languages and dialects in Nepal. The imposition of the Khas Nepali language as the only official language has resulted in illiteracy and low levels of education (IFAD, 2012). Nepal’s indigenous peoples pursue livelihood strategies primarily based on foraging, horticulture and agriculture (IFAD, 2012). Nepal’s indigenous peoples are at different stages in continuing or maintaining their social and political structure. Many indigenous peoples who live in the high mountain regions have had limited contact with external social and political structures due to the remoteness and difficulty of reaching these areas. In geographic areas that are easier to access, such as the Middle Hills and the Terai, imposition of the national social and political structure based on monarchy and Hindu religion, culture, and society has destroyed the social and political structures for many indigenous peoples. According to Bhattachan and Webster (2005), "…the causes of the comparatively high poverty levels of certain groups of indigenous peoples in Nepal are predominantly structural in nature and include dispossession of land, forest and other natural resources, non-recognition of traditional land- use patterns and land tenure arrangements, discrimination in political, cultural and economic spheres, non-recognition of their mother-tongue languages, customary law, institutions and collective rights." Nepal’s 1990 constitution and the current Interim Constitution (2007) recognize caste, ethnic, linguistic, and religious diversities, but fall short of giving due rights to indigenous peoples. As a consequence, there has been no legislation specific to indigenous peoples. All laws, including those on land and natural resources, have deprived indigenous peoples of ownership, control, and use of their traditionally owned, controlled, and used ancestral lands.38 This is in contrast to the fact that Nepal became the first country in Asia, the second in the Asia Pacific region, and the 19th country in the world to ratify International Labour Organization (ILO) Convention 16939. Additionally, Nepal is one of the 144 countries in the world that voted for the UN Declaration on the Rights of Indigenous Peoples (UNDRIP).40 Although Nepal has so far ratified, acceded to, or adopted international

37 The existence of the Hindu caste system modeled after the Brahmanic system of India was established upon arrival of the Indo-Aryans. Nepali society is highly stratified, with the state imposed and protected Hindu caste system´s so-called upper castes (Bahun and Chetri) holding key positions in the state, and indigenous nationalities, Dalits and Tarai caste groups experiencing subjugation, exclusion, discrimination, oppressed and exploitation. 38 Indigenous peoples began to lose their ancestral lands with the territorial unification of Nepal in 1769 through land tenure systems such as Birtsa (the rulers gave ownership of land to individual Bahuns), Jagir (land given in lieu of salary), and the abolition of Kipat (communal/collective land ownership) land tenure system, nationalization of the forests and the creation of national parks, wildlife reserves, protected land and community forest programs. Currently, personal landholding by indigenous peoples is low compared with the dominant caste groups. 39 With the exception of political rights, ILO 169 provides several rights to indigenous peoples, including: definition and identification of indigenous and tribal peoples, FPIC, participation, land and other natural resources, employment, education, health, media, social security and international contacts. 40 The UNDRIP provides for several rights including the right to identity, collective rights, rights to self- determination, ethnic autonomy or self-rule, FPIC, territory, land and natural resources, self-determined development, education (including traditional education), media, and health, all of which are very relevant in the current efforts of developing the country’s Constitution.

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treaties, covenants, conventions, and declarations supporting indigenous peoples’ rights, implementation has been very weak. There is no regulatory framework or guidance for conducting inclusive public participation or consultations and addressing compensation issues raised by communities. There are no consistent approaches applied to land acquisition, resettlement, and addressing the concerns of indigenous peoples. These issues are dealt with on a project-by-project basis and dependent upon the project sponsor. This ad-hoc approach to participation and compensation has caused confusion and conflict, with a large proportion of communities viewing compensation as insufficient and inadequate. The main legal regulatory framework for issues of land acquisition and compensation is the Land Acquisition Act (1977), which is implemented by Land Acquisition Regulations. For small-scale infrastructure projects that are expected to benefit local communities, such as road construction, the land is “voluntarily” donated and no compensation is paid for loss of land or structure. There are no regulations guiding this practice, resulting in different approaches, which has the potential to lead to disputes about compensation. The GoN has demonstrated a weak capacity to implement policy, negotiate contracts, and resolve disputes, including compensation claims by communities (DFID, 2009). This can lead to unrealistic claims of compensation by some parties, and long delays. On the other hand, communities are often marginalized by the high-level process, with limited capacity for negotiation once developers begin to promote a project (Upreti, 2008). 4.2.1.2. Stakeholder Comments: Various stakeholders raised a number of general and specific issues during discussions. A summary of stakeholder comments is provided below, with more comments provided in Annex III. Donor comments included the observation that the rights of indigenous peoples and social inclusion are evolving issues in Nepal and that advocacy groups are strong and indigenous peoples have access to more information. The GoN land acquisition policy is outdated but the ADB is working on technical assistance to develop a national resettlement policy. GoN comments focused on compensation and the demands by the local communities. A balance is needed between ensuring that local communities’ needs are incorporated into the project without communities taking advantage of the system. There needs to be some basis for determining compensation since developers have different capacities and financial assets. Civil society/researcher comments focused on the lack of community skills and understanding to effectively interact with the project developers and the absence of inclusive participation in many cases. Compensation discussions focused on the need to ensure that replacement land is equivalent to the land that villagers are losing in terms of fertility, access to water and other natural resources. 4.2.2. USAID Recommendations USAID makes the following recommendation with the goal of making project improvements and strengthening the ESIAs. Consultation Capacity Recommendation The government should develop, in cooperation with indigenous peoples, robust and meaningful consultation and community procedures/guidelines, in alignment with ILO Convention 169. Provide analytical, technical, and financial support for communities to engage in river-basin and project planning to help ensure that infrastructure development will enable their livelihoods to be culturally and environmentally sustainable. Recommendation Component

 Provide independent advisors as many communities do not have the technical or legal

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capability to understand the intricacies of the project and are not able to negotiate with the project developer on a level playing field. Many villagers are concerned about the valuation of their land and have no guidance.  Conduct comprehensive consultations reflective of views of the entire community, including separate consultations with women.  Distribute fact sheet to villagers with transparent and consistent project information.  Provide training and skills development as a number of communities are expecting economic growth but do not have the skills to take advantage of the economic opportunities provided during project construction and operation.

4.2.2.1. Compensation Recommendation The government should develop, in consultation with civil society, consistent and fair guidelines for compensation, including economic and physical relocation. Recommendation Component  Develop guidelines for participation and compensation, with public input, for project-affected communities, incorporating lessons learned from experiences to date.  Ensure that guidelines development supports keeping villages’ institutional and social structures (fabric) intact, as these structures are vulnerable to project impacts and the increased migration associated with a project (e.g., alcoholism, prostitution, diseases).  The MDB, GON, or the borrower provide a mechanism for project-affected communities to obtain independent technical, legal and social support.  Provide financial and small medium enterprise advisors to support financial management of compensation payments and alternative livelihood options.

Baseline demographic data Recommendation Collect demographic, social, and economic baseline data to fill in gaps on water users, cultural sites, health issues, landscape and tourism uses for the ESIA and CIA.

Data needs to be collected to fill in a number of identified gaps in the socio-economic baseline, include the following:  Water users: The quantities and points of withdrawal in the project area, especially in the dewatered section from the dam to the power house, need to be identified. This would include all uses of the river (e.g., grazing, fishing) by the affected population downstream of the dam site.  Cultural sites: Cultural sites, ceremonies and cremation sites along the river need to be identified and their water needs defined.  Health issues: Diseases, especially those that can be exacerbated by the influx of workers and camp followers (such as sexually transmitted diseases) need to be identified.  Landscape: Areas of highest scenic (and recreational) value need to be identified.  Recreational activities/tourism: Confirm if rafting is carried out in the area and potential impacts from changes to the river and civil infrastructure and transmission lines. Need to properly measure impacts of road construction on tourism.

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5. UPPER MARSYANGDI 2 HYDROPOWER PROJECT

PROJECT PURPOSE The primary purpose for the Upper Marsyangdi 2 hydropower project is to provide electricity for export to India, as part of Nepal’s hydropower policy and Nepal and India’s proposed power exchange (IANS, 2013). The project will provide revenue to the GoN as well as some electricity to the domestic grid. PROJECT BACKGROUND/DEVELOPMENT CONTEXT The Upper Marsyangdi 2 Hydropower Project is a 600 MW, 32 m high, River Diversion dam project on the Marsyangdi River. The intake site and dam is located near Siran Tal village and the powerhouse location is near Syange village. The dam site (elevation approximately 1,670 m above mean sea level (msl)) and powerhouse are located at the bottom of the Marsyangdi gorge. The section of the river that will be dewatered is within the Ghermu Village Development Committee. The headrace tunnel is 9.2 km resulting in reduced river flow in an approximately 13 km stretch of the Marsyangdi River from Siran Tal to Syange. Associated components of the project include: access roads for adit41 construction, project structures and facilities, and seven spoil/muck disposal areas. Villages and infrastructure that will be directly impacted include: Siran Tal Village (reservoir area, dam site), trekking trail to Manang (rock quarry area 1, reservoir area, dam site area, spoil/muck disposal areas 1 and 3), Besisahar and Chame (33 kv transmission line, rock quarry area 1, reservoir area, dam site area, spoil/muck disposal areas 5, engineers’ colony, other housing). Land use in these proposed project areas include agriculture land, riverine areas, grassland, rock/cliff, and settlements. Settlements and social services in the indirect impact area includes Nigalghari, Kyodo, Chhaijo, Tal Village, Gherang Village, Chymche, Sattale, Jagat Village and Market Center, Jital village, Synge Upper Market, Taghring, Nayagau, Mipra, Sirchaur, and Khanigau. These communities have schools, tourism lodges, markets, and restaurants. No information was provided concerning the transmission line route. The GoN has not approved the Project Development Agreement, so construction is limited to road construction activities. The road construction will extend the existing road further along the Annapurna Circuit historic trekking trail to Chame and beyond. LOCATION AND GENERAL ENVIRONMENTAL CONTEXT The project is located in the Dharapani VDC in Manang District and Taghring and Ghermu VDCs in Lamjung District. Of the seven proposed projects on the river, including Upper Marsyangdi 2, two are in operation: Lower Marsyangdi (69 MW) and Middle Marsyangdi (72 MW). An estimated total of 3,251.8 MW is expected to be generated by the ROR/River Diversion type projects in the Marsyangdi River (Jha, 2010).

41 An adit is a horizontal tunnel leading into the main headrace tunnel for the purposes of access.

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Upper Marsyangdi 2 is the third hydropower project from the top of the hydropower development cascade. The Marsyangdi River is a tributary of the Trishuli River and originates from a confluence of the two Annapurna mountain rivers – Khangsar Khola and Jharsang Khola – and drains the Annapurna and Manaslu massifs. Similar to Kali Gandaki, there is evidence of multiple large rock- slope failures. The Marsyangdi River runs alongside sections of the Annapurna Circuit historic trekking trail and traverses multiple forest types that are characteristic of the Himalayas, ranging from sub-tropical lowlands and forests in the plains and the valleys, to rhododendron and temperate evergreen forests in the south of the Annapurna.

Figure 1. Marsyangdi River Valley: Portion of river that will be diverted through headrace tunnel (left) and view of Tal Village, upstream of proposed hydropower project (right). PROJECT PROPONENT AND PARTNER ACTIVITIES Upper Marsyangdi 2 is sponsored by GMR Energy Limited, which is the majority shareholder. This project is an International Finance Corporation (IFC) Infraventures42 investment with IFC as one of the project developers. The project sponsor is in negotiations to finalize and sign the Power Purchase Agreement with NEA and the Project Development Agreement with MoE. STATUS OF ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT The project ESIA has been finalized and approved by the GoN. However, based on a gaps analysis, a series of complementary assessment studies are being undertaken by both GMR and IFC to bring the ESIA up to international standards prior to presentation to the World Bank Group Board of Executive Directors for approval.

42 The IFC Global Infrastructure Project Development Fund helps develop public-private partnerships and private projects for infrastructure in developing countries. It provides early-stage risk capital and actively participates in the project development phase to create private infrastructure projects that are commercially viable and able to more rapidly achieve financing close.

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PROJECT-SPECIFIC ENVIRONMENT AND NATURAL RESOURCES FINDINGS AND RECOMMENDATIONS Geology and Water-Induced Disasters The entire Marsyangdi basin is undergoing a phase of tectonic movement, with the higher Himalayas rising at a pace of 2 to 10 mm/year in relation to the middle Himalayas. The V-shaped narrow gorge of Marsyangdi is the reflection of this tectonic uplift. In addition to the erosion resulting from the drainage networks and heightened by the monsoon precipitation, glacier and ice erosion is quite active and is constantly etching the landscape of the basin. The gravitational force caused by the streams and rivers cutting through unstable geological areas have been responsible for large- and small-scale landslides. Over time, the Marsyangdi Valley has been fragmented into different compartments due to major landslides. Previously, the Marsyangdi River has been blocked by three major known mass movements (Weidinger, 2006):  The Dukur Pokhari rockslide located near the eastern end of the Upper Marsyandi Valley (estimated volume: 109 m3) at elevation of about 3,100 m asl;43  The Latamrang rockslide, considered one of the largest landslides in the Himalayas. It stretched over 4 km along the Marsyandi River – from the village of Thanchauk, passing Latamrang, with extensive outcrops as far as Danaque (estimated volume: 4x109 m3) at about 2,400 m asl; and  The Tal rock avalanche dam south of the Dudh Khola, which involved about 4.5x106 m3 of material. The original lake volume was 10-15 x 106 m3 and filled in with alluvium within <200 years. A boulder-armored spillway gorge has subsequently cut around the distal44 and largely intact dam deposit (Korup et al., 2010). This area is within the Upper Marsyangdi hydropower project area. Marsyangdi basin consists of 22 glacial lakes covering 5.158 km2 (ICIMOD, 2011). Thulagi Lake is located at the end of the Thulagi Glacier in the headwaters of the Dona Khola, a tributary of the Marsyangdi River, approximately 14 km upstream from the dam site. Thulagi Lake has attracted attention due to the hydropower projects planned downstream – including Upper Marsyangdi 2. Thulagi Lake began to form about 50 years ago when small supra-glacial lakes began to enlarge and coalesce. A comparison between topographical maps of the Survey of India from 1958 and the 1995 WECS field results indicated that the lake area had increased in size from 0.22 to 0.76 km2and in length from 0.6 to 1.97 km, but that there was not much change in width (ICIMOD, 2011). Field investigations showed that from 1995 to 2009, the length of Thulagi Lake had again increased from 1.97 to 2.54 km, and the lake area increased from 0.76 to 0.94 km2. Thulagi Glacier is a long, debris-covered glacier with a 40 m high terminal cliff. Even though ice calving (when chunks of ice break off at the edge of a glacier) is a regular phenomenon, the surge that these calvings could produce are not deemed sufficiently large enough to trigger a GLOF event by the surge waves. Temporary blockage of the lake outlet by freezing water and snow barriers, or lake ice debris, appears unlikely, as indicated by the uninterrupted flow of the lake even during winter, when the lake surface freezes. Lake drainage continues despite an average ice thickness of 0.4 m, as indicated by bore holes made through the ice during earlier bathymetric observations (WECS, 1995c). The peak monsoon flow from Thulagi Lake is easily carried by its outlet channel during typical monsoon seasons, but the potential for extreme monsoons and the disturbing effects of mass movements that may be associated with an extreme monsoon precipitation event might create conditions where an outburst of Thulagi Lake could develop very rapidly. These types of events can no longer be considered anomalous, given recent history in the Himalayas.

43 Above Sea Level 44 Relating to or denoting the outer part of an area affected by geological activity.

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Two significant mass movements occurred recently in Tal – downstream from Thulagi Lake – one of which buried some structures in the village in June 2012 (Leonard et al., 2014). Satellite image analysis shows that Thulagi Lake has slowed its elongation in the last couple years. A flood surge would have to traverse and erode the wide end moraine in order to generate a GLOF. However, remote sensing and field observations show debuttressing and moraine slip indicating that the moraines are unstable. Triggers for a rapid collapse of a moraine could include increased seismic activity, extreme rainfall, or a small landslip. The risk of a serious GLOF here exceeds that of Imja Lake due to Thulagi Lake’s large hydrographic head and the shape of its downstream end, which could funnel and amplify a potential tsunami generated by a large mass movement into the lake. A lateral moraine collapse into the lake would not necessarily generate a GLOF; however, a GLOF is possible (ICIMOD 2011). A preliminary bathymetric echo sounding and a side-scan sonar survey of Thulagi Lake, conducted in 2013, found that the lake volume is similar to that of the better studied Imja Lake (Leonard et al., 2014). The severe hazard situation – involving three components of hazard: GLOF, exceptional monsoon flooding, and landslide/rockfall – is aggravated by development in the watershed. For example, Tal is located a meter to two above the river level immediately next to the Marsyangdi River, and areas farther back from the river are at risk due to the landslide/rockfall hazard. Biodiversity The project area lies in the south eastern border of the Annapurna Conservation Area (ACA). The ACA encompasses a large landscape including high altitude mountains and pastures, trans-Himalayan valleys, forests, lakes, glaciers, rivers, and cultivated lands, and is home to many endangered and endemic plants and animals. The area also contains a number of settlements and facilities that have developed as a result of the Annapurna Circuit historical trekking route. A road is currently being constructed that will connect Bishshar to the upper villages along the Annapurna Circuit route. Wildlife in the area is more abundant the further one moves from the road construction and toward the upper areas, such as Tal. Species that likely transit this area include leopards, Himalayan black bears, langur monkeys, foxes, yellow-throated martin, and various species of birds. Stakeholder Comments Various stakeholders raised a number of general and specific issues during discussions. A summary of stakeholder comments is provided below, with more comments provided in Annex III. Villagers’ comments focused on concerns over reduced river flows and subsequent impacts on agriculture and fisheries, and the cumulative impacts of the multiple hydropower projects planned for the basin, including construction pollution. Other stakeholders’ comments focused on concerns over potential GLOF resulting from Thulgi Lake impacting Tal village, in addition to downstream infrastructure and the impacts on the Marsyangdi River Basin due to the perpetual state of construction for the next several decades. Recommendations USAID proposes the following recommendations specific to the Upper Marsyangdi 2 hydropower project with the goal of making project improvements and strengthening the supplemental ESIA.  Support the development of a Marsyangdi Basin Watershed Management Plan and associated Strategic Environmental Assessment.

 Establish a mechanism for the coordination of project design, construction and operation of hydropower projects and their associated facilities in the same watershed.

 Include the development of Chitwan-Annapurna Landscape corridor systems as part of the River Basin Planning process.

 Incorporate the use of the Drawdown Hazard Index as a method to help verify and predict the impacts of head race tunnels as part of the ESIA.

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 Protect infrastructure and communities from GLOF through monitoring, improved design, establishment of an early warning system, development of cooperative relationships with upstream neighbors, and provide guidelines and capacity building.

 Conduct appropriate scoping of the proposed project(s) to inform the data needed by the supplementary ESIA. This will determine the geographical and temporal extent of the project, the communities likely to be affected, and baseline data that needs to be collected (using internationally recognized methodology). Data collected will provide the basis for other assessments including ecosystem services, hydrological studies and environmental flow, and the identification of avoidance and/or mitigation measures. The ESIA should include all components of the project’s life from construction to operations and maintenance to decommissioning.

 Conduct a cumulative impact assessment (CIA) as part of the supplementary ESIA. The CIA will cover the spatial (geographic) and temporal (time) scope appropriate for the project utilizing data on the status of natural, cultural, social, or economic resources and systems and data that characterize important environmental or social stress factors; and data on environmental and socioeconomic trends. The scope of the CIA should include the following components as applicable: multiple ROR/River Diversion HPP; associated infrastructure (roads, transmission lines); and other development activities which need to be addressed to avoid significant watershed-level impacts. This assessment would help to inform not only mitigation measures but also coordination and sharing of related infrastructure such as transmission lines. PROJECT-SPECIFIC SOCIAL FINDINGS AND RECOMMENDATIONS The project region is home to more than 40,000 people of different ethnic and tribal backgrounds and with various religions including Hinduism, Buddhism, Bon Po, Shamanism, and Animism. Gurung, Magar, Thakali and Manangi are the dominant indigenous peoples groups. The three major ethnic/caste groups Janajati (mostly Gurung), Brahmin/Chhetri, and Dalit are in the project area. The team conducted impromptu meetings with villagers in eight villages along the Annapurna Circuit Historic Trekking Trail. Four of those villages had a road that had been built replacing part of the Annapurna Trail. The main occupations of the project area households are subsistence farming, tourism, and overseas employment, and the people are dependent on the forests for fuel, fodder and timber. Prior to development of the road, trekking tourism (including lodging, restaurants, and guides/porters) brought good income to the villages and villagers were able to make a living.

Stakeholder Comments Figure 2. Annapurna Circuit Historic Trail ending in the new road and site of Sinohydro Various stakeholders raised a number of general and HPP. specific issues during discussions. A summary of stakeholder comments, with more comments provided in Annex III.

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Villagers’ comments focused on concerns over road and other construction (e.g., headrace tunnel) and the impacts on tourism, the environment, and drinking water; the need to relocate; damage to the social fabric of the communities; lack of support and compensation; lack of inclusivity and perceived bias in public consultations and compensation. However, villagers indicated that they viewed the hydropower projects as a potential source of income, through temporary. Recommendations

USAID provides the following specific recommendations with the goal of making project improvements and strengthening the supplemental ESIA.

 Provide independent advisors as many communities do not have the technical or legal capability to understand the intricacies of the project and are not able to negotiate with the project developer on a level playing field. Many villagers are concerned about the valuation of their land and have no guidance.

 Provide support to ensure that the integrity of the villages’ institutional and social structures remain intact, given the potential social impacts associated with the project.

 Provide financial and small- and medium-sized enterprise advisors to support financial management of compensation payments and alternative livelihood options.

 Conduct comprehensive consultations reflective of views of the entire community, including separate consultations with women.

 Distribute fact sheets to villagers with transparent and consistent project information.

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6. UPPER TRISHULI 1 HYDROPOWER PROJECT

PROJECT PURPOSE The primary purpose for the Upper Trishuli 1 hydropower project is to provide electricity to the domestic grid (IANS, 2013). PROJECT BACKGROUND/DEVELOPMENT CONTEXT Upper Trishuli 1 is designed as a 216 MW, 30 m high dam, river diversion project on the Trishuli River. The hydropower facility is designed to work at a constant water level of 1,255 m, requiring storage capacity in the reservoir to compensate for low flows, although it is expected that the operation mode will be ROR/River Diversion most of the time. The diversion reach between the intake site and the tailrace extends for 10.7 km. The catchment area of the Trishuli watershed at the Upper Trishuli 1’s intake site is 4,350 km2, and 71 percent of this surface is located in the Tibet Autonomous Region (TAR) in Chinese territory. All the project’s associated facilities – including the intake structure, the headrace tunnel, the 19 km access road, and the underground power station – are located in the right bank of the Trishuli River in the community and private forest of Haku VDC. The left side of the weir falls on the buffer zone of the National Park. At this stage, the project has begun construction and earthworks are being carried out in the powerhouse area. It is expected that the project will be completed in five years. Following construction, the road will become part of the national strategic road going to the Chinese border. The Trishuli River has the highest concentration of hydropower development of Nepal’s river systems to date. There are currently five hydropower projects in operation and nine under construction, including the Upper Trishuli 1 Project. Another 19 have a survey license (DoED, 2013). All of these projects are operating or will operate as ROR/River Diversion facilities with generation capacities ranging up to 216 MW. Once finished, the Upper Trishuli 1 will be the facility with the highest generation capacity (216 MW) in the watershed. Hydropower projects are also located on at least one tributary – the Chlime River that enters the Trishuli above Upper Trishuli 1.

Figure 1. View of NEA hydropower project construction below the Nepal Water and Energy Development Company Pvt. Ltd. (NWEDCPL) camp. LOCATION AND GENERAL ENVIRONMENTAL CONTEXT The project is located on the Trishuli River in Rasuwa District in the higher Himalayan Zone of central Nepal, approximately 70 km north from Kathmandu. The project’s concession area affects

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the VDCs of Haku, Dhunche and Ramche and the project lies adjacent to the Langtang National Park, which extends along the left bank. The Trishuli River is a trans-boundary river and one of the major tributaries of the Kali Gandaki River Basin, which eventually flows into the Ganges River in India. The Trishuli watershed is one of the eight sub-basins of the Kali Gandaki River basin in central Nepal. The Trishuli watershed occupies 13 percent (roughly 4,200 km2) of the total Kali Gandaki area (32,000 km2) and is within the high mountain and midland zones, characterized by average altitudes of 2,000 m and high valley landscapes. The Trishuli River originates in the TAR of the People’s Republic of China, where it is known as Bhote Koshi. The catchment area of Bhote Koshi in Tibet is about 3,170 km2 for a river length of 120 km. Rapids are common along the Trishuli, but there are no impassable falls. PROJECT PROPONENT AND PARTNER ACTIVITIES The Nepal Water and Energy Development Company Pvt. Ltd. (NWEDCPL) is developing the Upper Trishuli I. The Korea South East Power Corporation is the majority shareholder, and Jade Power is the local developer. This project is an IFC Infraventures investment with IFC as one of the project developers. The project sponsor is in negotiations to finalize and sign the Power Purchase Agreement with NEA and the Project Development Agreement (PDA) with MoE.45 STATUS OF ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT The project ESIA has been finalized by NWEDCPL and approved by the GoN. However, based on a gaps analysis, a series of complementary assessment studies are being undertaken by both NWEDCPL and IFC to bring the ESIA up to international standards prior to presentation to the World Bank Group Board of Executive Directors for approval. PROJECT-SPECIFIC ENVIRONMENT AND NATURAL RESOURCES FINDINGS AND RECOMMENDATIONS Geology and Water-Induced Disasters The project area has experienced major landslides including Ramche, Thade, Hakubeshi and Sarghang46 (Ghimire et al., 2007). The Hakubeshi landslide is visible above the village of Hakubeshi where the headrace tunnel is expected to be located. Similar to Ramche, this landslide has not stabilized. The Trishuli Basin consists of 50 glacial lakes for a total of 1,678 km2. Surveys of glacial lakes in 2001 and 2009 showed rapid changes in number and size, partly due to differing methodologies, but also due to very small supraglacial lakes coalescing to form fewer but larger lakes. The 2001 inventory showed 117 glacial lakes consisting of 2.03 km2, while the 2009 inventory consisted of 50 glacial lakes for a total of 1.678 km2 (ICIMOD, 2011). The changes indicate the need for periodically repeated surveys every five to 10 years to maintain awareness of changing landscape and risks of GLOF. In 1964, the Longda lake experienced a GLOF that created a debris blockage 800 m long, 200 m wide and 5 m deep along the Gyirongzangbo River – the source of the Trishuli River (Bajracharya et al., 2006).

45 As of mid-January 2016, these agreements have not been signed. 46 The Sarghang landslide is near the proposed Adit 1.

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Figure 2. Trishuli River below Hakubeshi (left) and landslide above Hakubeshi (right).

Biodiversity The left bank of the Trishuli is in the core zone of Langtang National Park (WWF, 2013). The Langtang National Park, the nearest national park to Kathmandu, has an area of 1,710 km2 and a buffer zone area of 420 km2 covering three districts and encompassing 26 VDCs. The National Park represents a meeting point between Indo-Malayan and Palearctic realms, resulting in rich biodiversity (DNPWC, 2014). The area is characterized by sub-tropical Sal (Shorea robusta) forest in the southern section of the park leading to hill forest and a temperate zone covered mainly by oak forest and old growth forest of silver fir, hemlock, and larch in the lower sub-alpine zone. Reportedly, there are degraded areas along the Trishuli River (IFC meeting 23 April 2014). The park is known for its populations of red panda47, Himalayan black bear, snow leopard, wild dog, ghoral, serow, and more than 250 species of birds. The Trishuli River forms an important route for birds on spring and autumn migrations between India and Tibet. The population of red panda in Langtang National Park faces threats predominantly from livestock grazing and other human-induced activities such as the collection of fuel-wood, timber, mushrooms, Jhapra shoots, and other non-timber forest products by local herders, hotel operators, and pilgrims. These human-induced activities are leading to the degradation of red panda habitat. In addition to wildlife, 20 species of high-valued medicinal plants – 40 percent of the valuable medicinal plants in Nepal – were identified in Lantang National Park (Shrestha and Shrestha, 2012). Four of these species are under special protection by the GoN, seven species are in the IUCN Red List, and one species is included in CITES Appendix II. All of these species have a high trade demand for domestic and export and are traded both legally and illegally. Medicinal plants are crucial to the Tamang who inhabit that area as they rely on traditional herbal medicines to meet their primary health care needs.

47 Nepal is home to approximately 1.9 percent of the total global population of the red panda, which is estimated on the basis of habitat suitability index model. Langtang National Park shares 24.33 percent of Nepal's total red panda population.

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Stakeholder Comments Various stakeholders raised a number of general and specific issues during discussions. Below provides a summary of stakeholder comments, with more comments provided in Annex III. Stakeholder comments focused on concerns over the impacts of tunnel construction on the local climate and hydrological cycle, increased risk of landslides, destruction of community forest areas, prolonged construction period for numerous hydropower development projects, and increased access to restricted areas of the Langtang National Park due to lower river levels and more roads. Recommendations USAID makes the following recommendations specific to the Upper Trishuli 1 hydropower project with the goal of making project improvements and strengthening the supplemental ESIA.  Support the development of a Trishuli Basin Watershed Management Plan and associated Strategic Environmental Assessment.

 Establish a mechanism for the coordination of project design, construction and operation of hydropower projects and their associated facilities in the same watershed.

 Incorporate the use of the Drawdown Hazard Index as a method to help verify and predict the impacts of head race tunnels as part of the ESIA.

 Conduct appropriate scoping of the proposed project(s) to inform the data needed by the supplementary ESIA. This will determine the geographical and temporal extent of the project, the communities likely to be affected, and the baseline data that needs to be collected (using internationally recognized methodology). Data collected will provide the basis for other assessments including ecosystem services, hydrological studies and environmental flow, and the identification of avoidance and/or mitigation measures. The ESIA should include all components of the project’s life from construction to operations and maintenance to decommissioning.

 Establish a monitoring and early warning system for landslides. PROJECT-SPECIFIC SOCIAL FINDINGS AND RECOMMENDATIONS The region is home to several ethnic groups. The majority are Tamang, who are traditionally farmers and raise cattle. Three project-affected villages were visited: Hakubesi (50 houses), Thulohaku (150 houses), and Sanohaku (60 houses). One village is very isolated and has been in the

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location for at least 11 generations. The villages are dispersed, with about 200 homes in surrounding villages. One village has about 1,200 residents but most do not actually live in the village. Unemployment is very high so a number of men have gone abroad to Dubai, Malaysia, and Qatar for employment. All of these villages could be impacted by the head race tunnel. It is estimated that about 15 to 16 houses in Hakubesi will be impacted by the project and will need to be resettled. People have been living in Hakubesi for at least five or six generations. Most people in the Hakubesi area travel to Dhunche48 to purchase salt, pepper, and other basic supplies. People in the area depend on agriculture, cultivating maize, millet and wheat. There are times when the amount of food grown is not sufficient for year-round consumption. One village makes floor sheets (mandru) from bamboo for income. The project has also offered some labor work to villagers such as cutting trees, and access road construction. Villagers also earn income as guides and porters for Langtang trekking through the tourist sector. Villages close to Dunche will grow seasonal crops, but not on a regular basis as it is difficult to get the products to Dunche and the cost of mule transport is very expensive. Villagers depend primarily on spring water for drinking and agriculture. One village is seeing their spring water dry up, with only one spring now providing water year-round. Fishing is done for personal consumption, not for the market. There are at least three types of fish that are caught in the Trishuli, with more fish present during the April/May timeframe. Villagers are concerned that once the dam is constructed upstream, there will be a decrease in river flow and fish populations. There will be a benefit-sharing component of the project for the local communities, similar to the Chilime hydropower project (see textbox), though the details have not been defined. Three villages outside of the project area were visited to get a better understanding of the project area, Tamang livelihoods, Chilime hydropower project’s impacts, and benefit sharing. With the exception of one woman, everyone spoken to had knowledge of and shares in Chilime hydropower project. One villager reported that most of the villagers did not know how to manage their compensation, which has resulted in the loss of land and housing as well as a lack of money. Agricultural land and Chilime Hydropower Project livestock have been badly affected as the The Chilime hydropower project, developed by Chilime River was diverted to the head race NEA, is an example of benefit sharing for local tunnel as a result of insufficient water in the communities. The project is a 22 MW ROR dry season. Agricultural production has project on the Chilime River, a tributary of the decreased, in particular rice production, Trishuli River, upstream of Upper Trishuli 1. In which is affected by lack of water. Fish are the first phase, NEA staff bought into 25 percent reportedly no longer found in this area. equity shares. In the second phase, a Nepalese There are several other hydropower projects Bank provided loans to the local communities. either under construction or planned on the There was a major education campaign for local Chilime River. A Chilime representative people to understand the process. Project- provided additional information on Chilime affected communities were able to buy shares at 49 outreach efforts including: a Sarokar Samiti a lower price than other residents of the district. for three affected VDCs, an ambulance, There was no official monitoring on how this education and health care, all of which has improved peoples’ livelihoods, but people did been provided for the past six to seven years. buy housing/land, educated their children and They have also been providing assistance for used the shares as collateral for bank loans. road development and school construction, as well as salaries for some teachers.

48 Dhunche is the main headquarters for Rasuwa District and the main entrance to Langtang National Park. 49 Sarokar Samiti is a committee that is formed to work on a particular goal.

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Stakeholder Comments Various stakeholders raised a number of general and specific issues during discussions. A summary of stakeholder comments is provided, with more comments provided in Annex III. Villagers’ comments focused on concerns on the location of the road and villagers access to it, inconsistent compensation payments and issues concerning official land ownership, and long-term social and environmental effects on the village, Villagers’ expect benefit sharing, including increased status and a share of payments, as provided to communities in the Chilime project, and expect the project to bring additional income and employment opportunities. Anecdotal discussions with project-affected villages indicated that up to 75 percent of households purchased stocks in the Chilime HPP. Recommendations USAID proposes the following recommendations specific to Upper Trishuli 1 with the goal of making project improvements and strengthening the supplemental ESIA.  Provide independent advisors as many communities do not have the technical or legal capability to understand the intricacies of the project and are not able to negotiate with the project developer on a level playing field. Many villagers are concerned about the valuation of their land and have no guidance.

 Provide support to ensure the integrity of the villages’ institutional and social structures remain intact, given the potential social impacts associated with project.

 Provide financial and small- and medium-sized enterprise advisors to support financial management of compensation payments and alternative livelihood options.

 Conduct comprehensive consultations reflective of views of the entire community, including separate consultations with women.

 Distribute fact sheets to villagers with transparent and consistent project information.

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7. UPPER ARUN HYDROPOWER PROJECT

PROJECT PURPOSE NEA is prioritizing the development of a suite of proposed hydropower projects to meet increasing energy demand. The 335 MW Upper Arun hydropower project is a high priority due to its expected low generation cost and high availability of firm power.50 The Upper Arun hydropower project will supply power to the domestic grid, though surplus energy may be exported. PROJECT BACKGROUND/DEVELOPMENT CONTEXT The project is expected to be a 335 MW, river diversion hydropower project, located on the Arun River. The Project Development Department of the NEA has initiated the preparatory works for the detailed engineering design. NEA has been given permission by the Cabinet of the GoN to implement the Upper Arun hydropower project under the ownership of the GoN. The site visit team passed by the Ikhuwa Khola51 where the proposed Ikhuwa Khola hydropower project will be developed as part of benefit-sharing arrangement with the villagers. Local communities’ expect that they will have a 10 percent share investment in the hydropower project. However, because NEA is financing Upper Arun, it will not be possible to provide shares for this project. Therefore, NEA plans to develop the 30 MW Ikhulua Khola hydropower project for the local communities to invest in. Although the details are still being worked out, a company will be hired to manage the project. The model for this project is the Chilime hydropower project, which provides benefit-sharing opportunities for the local communities and is considered a success story. LOCATION AND GENERAL ENVIRONMENTAL CONTEXT The project is located in the Sankhuwasabha District of eastern Nepal, about 15 km south of the international border with Tibet and 220 km east of Kathmandu. The Arun River is part of the Sapta Koshi River Basin in eastern Nepal, which consists of a network of seven major rivers. The Arun River is one of four rivers in the system that originates from a glacier on the northern slope of Mt. Xixabangma Feng on the Tibetan Plateau. The Arun River is called the Pengqu within Tibet, where it flows east and then south to join the Sapta Koshi at Tribeni. The Arun sub-basin consists of 91 glaciers with a drainage area of 482.2 km2 (Mool et al., 2001). The road through the Arun Basin, one of Nepal’s six strategic roads connecting India and China, will provide access to the powerhouse area at Barun Bazaar. The powerhouse location is 2 km downstream of the Barun River confluence with the Arun River. PROJECT PROPONENT AND PARTNER ACTIVITIES The proposed Upper Arun hydropower project site was first identified by the Master Plan Study of Koshi River Water Resources Development by JICA in 1985. The World Bank is supporting the proposed studies as part of its ongoing engagement with and support to the GoN in strategic planning and detailed project preparation for priority projects in the hydropower sector.

50 Firm power refers to the power level that is always available, even at times of low flow. 51 The proposed Ikhuwa Khola hydropower site is located on a tributary to the Arun River approximately 8 km downstream of the proposed Upper Arun hydropower project powerhouse site, and 5 km upstream of the proposed Arun III Hydropower Project headworks.

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While decisions related to the future financing of the project have not yet been made, the proposed studies will be carried out in accordance with World Bank Operational Policies including Safeguard Policies and Environmental, Health and Safety Guidelines, in addition to applicable national legislation. The World Bank is developing a technical assistance proposal for Upper Arun hydropower project which is expected to go to the World Bank Board before the end of 2014. STATUS OF ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT NEA held a public consultation on the ESIA draft terms of reference in April 2014. At the time of the USAID site visit, NEA was in the process of organizing technical teams, to carry out the studies identified in the TOR. NEA is planning to undertake a Cumulative Impact Assessment for the entire basin with the earliest possible start date of September 2014. At this time, there are no plans for a broader basin planning effort. It is expected that a different consultant group will be hired for monitoring project implementation. The MoE is responsible for monitoring but does not have the capacity. MOEST will review/approve the ESIA and perform the audits. PROJECT-SPECIFIC ENVIRONMENT AND NATURAL RESOURCES FINDINGS AND RECOMMENDATIONS Geology and Water-Induced Disasters Similar to the findings for Marsyangdi 2 and Upper Trishuli 1, surveys of glacial lakes in the basin conducted in 2001 and 2009 showed rapid changes in number and size, partly due to differing methodologies, but also due to very small supraglacial lakes coalescing to form fewer but larger lakes. The 2001 inventory showed 109 glacial lakes consisting of 2.53 km2 , whereas the 2009 inventory found 81 glacial lakes covering an area of 3.284 km2 (ICIMOD, 2011). The changes indicate the need for periodic surveys every five to 10 years to maintain awareness of changing landscape and risks of GLOF (see Table 1).

Table 1. GLOF events that have occurred in the Arun Basin (Chaudhary, 2013). Year Lake Cause Origin Unknown Barun Khola Moraine collapse Nepal Unknown Barun Khola Moraine collapse Nepal 1964 Gelaipco Glacier surge TAR/China 1968 Ayaco Unknown TAR/China 1969 Ayaco Unknown TAR/China 1970 Ayaco Unknown TAR/China 1982 Jinco Unknown TAR/China

Figure 1. West Barun Glacial Lake (Byers, 2014)

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The Arun River sub-basin has experienced GLOF from four lakes, of which three originated in Tibet. A recent visit to the West Barun Glacial Lake revealed a growing lake and the potential for a glacial lake outburst flood which could directly threaten development on the Arun River below Barun Bazaar (Byers, 2014). The following concerns were identified:

 Rapid growth of the lake. This is indicated by the rapidly calving glacier terminus, abundance of icebergs, thin debris cover on the glacier (accelerates heat transfer to the ice), gentle glacial slope, and comparison between present size (1 km long, ½ km wide) and depictions on available maps. Annual calving could easily be exceeding 100 m/yr which means that the lake will be directly under the West Barun ice fall within five or 10 years, one of the largest and highest ice fall of its kind.  Unusual abundance of potential triggers. Avalanches were heard cascading daily from Peaks 6 and 7 (center of photo) directly into the lake. The massive wall of ice at their summits is another source of potential avalanches some 3,000 m higher. Once the lake reaches a position directly under the West Barun glacier terminus, a third and particularly dangerous potential trigger will be created. The depth and volume of water in the lake increases the lake’s potential danger level and high, regular swells created by snow and ice avalanches are assured for the present and future.  River morphology. The Pleistocine U-shape of the valley quickly changes to a particularly steep V-shaped channel down around Yangle Kharka, which would accelerate flood velocity and power. Regardless, the abundance of old lake sites along the river (as evidenced by soil pits dug which showed distinct lake sedimentation) suggests that the river is prone to glacial lake formation and flooding, as well as to bottle necking at various narrow river sections and abrupt bends in the channel. Earth and debris-dammed lakes store millions of cubic meters of water that could be released in the event of dam failure caused by a large swell or lake outburst. Likewise, undercutting of the huge landslide area below Yangle Kharka could also create debris-dammed lakes that are particularly dangerous. Biodiversity The Arun River borders the Makalu Barun National Park, the eastern extension of the Sagarmatha National Park. Makalu Barun National Park and Buffer zone area was established by the GoN in 1992. This park is administered and managed by the Department of National Parks and Wildlife Conservation and supported by The Mountain Institute's initiative, through an innovative conservation model that integrates protected area management and community development. The park management approach encouraged local people to become actively involved in protecting the forests and natural resources upon which their lives depend, and conserving their own rich cultural heritage through traditional resource management systems, such as community-controlled grazing and forest guardianship. Most of the park infrastructure and conservation/development programs were destroyed during the Maoist insurgency. Today, the park and buffer zone regions are understaffed with few ongoing development activities.

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Figure 2. Arun River and Valley (left) and confluence of Barun Khola and Arun River (right). The Makalu-Barun National Park and surrounding area is included in the Sacred Himalayan Landscape, which extends across the Arun River into the Kanchenjunga Conservation Area in Nepal and extends into India and Bhutan. The Makalu-Barun National Park area falls in the eastern Himalayan climatic regime where monsoon starts early (June) and stays longer than in west Nepal (until late September). The climate is generally described as monsoon type, where more than 70 percent of the precipitation occurs between June and September. Pre-monsoon rain is common during the month of April and May. No reliable records of climatic data represent the entire area, as great variations in temperature and precipitation can be expected due to extreme differences in altitude, slope, and aspect. The Makalu-Barun National Park is recognized for its tremendous diversity of plants, wildlife, and culture. The area is composed of diverse forest types that are characteristic for the Eastern Himalayas, ranging from near-tropical dipterocarp52 monsoon forest to subalpine conifer stands. Botanists have recorded 3,128 species of flowering plants, including 25 species of rhododendron, 47 types of orchids, 56 rare plants, and 67 economically valuable aromatic and medicinal plants (Shrestha et al., 1990) . There are 78 species of fish as well as 440 recorded bird species, ranging from eagles and other raptors to white-necked storks and brilliantly colored sunbirds (Jha, 2003; Bhuju et al., 2007). The 88 species of mammals include snow leopard, leopard, clouded leopard, jungle cat, leopard cat, jackal, Himalayan Wolf, red fox, red panda, black bear, Hanuman langur, Assam macaque, Himalayan tahr, and Himalayan goral (Jha, 2003). Recommendations USAID provides the following recommendations specific to the Upper Arun hydropower project with the goal of making project improvements and strengthening the ESIA.

 Support the development of an Arun Basin Watershed Management Plan and associated Strategic Environmental Assessment.

 Establish a mechanism for the coordination of project design, construction and operation of hydropower projects and their associated facilities in the same watershed.

52 A forest of tall hardwood tropical trees chiefly of south eastern Asia.

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 Incorporate the use of the Drawdown Hazard Index as a method to help verify and predict the impacts of head race tunnels as part of the ESIA.

 Conduct early engagement and appropriate scoping of the proposed project(s) to establish the foundation of an effective ESIA and cumulative impact assessment (CIA) process. This will determine the geographical and temporal extent of the project, the communities likely to be affected, and the baseline data that needs to be collected (using internationally recognized methodology). Data collected will provide the basis for other assessments including ecosystem services, hydrological studies and environmental flow, and the identification of avoidance and/or mitigation measures. The ESIA should include all components of the project’s life from construction to operations and maintenance to decommissioning.

 Conduct a CIA as part of the ESIA and alternatives analysis. The CIA will cover the spatial (geographic) and temporal (time) scope appropriate for the project utilizing data on the status of natural, cultural, social, or economic resources and systems and data that characterize important environmental or social stress factors; and data on environmental and socioeconomic trends. The scope of the CIA should include the following components as applicable: multiple ROR/River Diversion HPP; associated infrastructure (roads, transmission lines); and other development activities which need to be addressed to avoid significant watershed-level impacts. This assessment would help to inform not only mitigation measures but also coordination and sharing of related infrastructure such as transmission lines.

 Conduct a detailed glacial lake and GLOF risk assessment and mitigation survey for the entire Arun watershed in both Nepal and Tibet. Remote sensing-based surveys must be accompanied by field-based ground assessments to obtain the most reliable data and information regarding lake volume; integrity of the lateral and terminal moraines; presence of ice within the terminal moraines; GLOF triggers such as overhanging ice, landslides, earthquakes, seepage; and local information related to the lake and its history of development.

 Develop a guidance and training manual for remote area glacial lake and natural hazards assessment, measurement, data analysis, and risk reduction. Such a manual would have applications throughout the Himalaya and other high glaciated mountains of the world.

 Strengthen in-country capacity by including staff from the Department of Hydrology and Meteorology and university and graduate students in all glacial lake, natural hazard, and environmental surveys.

 Develop community-based, low-tech (e.g., cell phone-based) early warning systems for floods, river damming landslides, and other natural disasters.

 Develop local and governmental capacity for designing and implementing disaster management plans.

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PROJECT-SPECIFIC SOCIAL FINDINGS AND RECOMMENDATIONS There are a number of ethnic groups in the area – including Tamang, Gurung, Rai, Bahun and Chetri – and within each village. Villagers depend on spring water for both drinking and agriculture. None of the villages along the Arun River have access to grid electricity, instead they depend on solar panels and, in some areas, micro-hydropower. One village installed solar panels, a project that received 35 percent investment by the Rural Reconstruction Nepal53 project, while the rest was paid for by the villagers. Livelihoods are primarily based on agriculture – including maize, millet, potato, fruits, grains, and vegetables – and livestock. The land is very productive, with a high percentage of rice paddies. There is also a growing cardamom industry, which is providing villagers with decent income. Cardamom is grown in villages and, due to the close proximity to China, is taken there on yaks. The Arun River and its tributaries are used for year-round fishing, primarily by the male villagers. At least seven different kinds of fish are found in the river, from small fish to up to 1 kg in size. Fish is normally used for personal consumption, but when large amounts are caught it is sold in the market.

Figure 3. Terraced rice paddy fields (left) and Upper Arun survey marker (right).

Stakeholder Comments Various stakeholders raised a number of general and specific issues during discussions. A summary of stakeholder comments is provided below, with more comments provided in Annex III. Villagers’ comments on Arun 3 HPP focused on concerns over uncertainty about resettlement and lack of communication and excitement over road access that will enable them to get more products to market (including cardamom and medicinal herbs). Villagers in the proximity of the Upper Arun HPP transmission line are aware of the project as a result of the survey that was conducted for the transmission line. They are also aware of the

53 Rural Reconstruction Nepal is a NGO, established in 1989. It works among underprivileged communities of rural Nepal, implements integrated community development programs at the grassroots’ level and advocates, lobbies, and networks at the local, national, and international levels to promote human rights, social justice, and sustainable peace among poor and disadvantaged rural communities.

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general proximity of the power station (located below Barun Khola near Barun Bazaar) and the dam site (located at the base of Chepuwa). Researchers and civil society representatives’ comments focused on the importance of diversifying livelihoods (including tourism) and preserving the cultural landscape from road impacts so as to protect tourism as a viable livelihood sector. Comments also focused on the need to involve local communities in all discussions related to project-related planning, opportunities, problems, and prospective solutions.

Representatives from villages in Makalu-Barun recently visited The Mountain Institute (in Kathmandu) requesting support for developing ecotourism skills and livelihood improvement.

GoN noted that Upper Arun will go forward with or without World Bank financing. Construction will start in 2017 and NEA can manage the development. Also, that Upper Arun must come with a local benefit which is why NEA is proposing development of the IKhuwa Khola HPP. Recommendations USAID makes the following recommendations specific to Upper Arun with the goal of making project improvements and strengthening the ESIA.  Provide independent advisors as many communities do not have the technical or legal capability to understand the intricacies of the project and are not able to negotiate with the project developer on a level playing field. Many villagers are concerned about the valuation of their land and have no guidance.

 Provide support to ensure the integrity of the villages’ institutional and social structures, given the potential social impacts associated with project.

 Provide financial and small- and medium-sized enterprise advisors to support financial management of compensation payments and alternative livelihood options.

 Distribute fact sheets to villagers with transparent and consistent project information.

 Conduct comprehensive consultations reflective of views of the entire community, including separate consultations with women.

 Provide the analytical, technical and financial support for communities to engage in river- basin planning and ensure that infrastructure development (either roads or hydropower projects) will enable their livelihoods to be culturally and environmentally sustainable.

 As part of the project commitments, develop pre-construction programs and incentives for the recycling and management of solid waste (e.g., glass, cans) in an appropriate manner.

 Review the Makalu-Barun National Park and Buffer Zone Working Paper Series for a decade’s worth of experience and documentation of appropriate training and skills developed in the region.

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8. REFERENCES

Accountability Council. 2014. Nepal: High Voltage Power Line. Available online at: http://www.accountabilitycounsel.org/communities/current-cases/high-voltage-power-line-nepal/. Ansar, A, Flyvbjerg, B, Budzier, A, Lunn, D. 2014. Should we build more large dams? The actual costs of hydropower megaproject development. Energy Policy, 69:43-56. Asia Foundation. 2014. A Political Economy Analysis of Electricity Tariff Restructuring in Nepal. Available online at: http://asiafoundation.org/resources/pdfs/PEAelectricitytariffrestructuringinNepal.pdf. Asian Development Bank (ADB). 2010. Integrated Water Resources Management Scoping Study for Sutlej River Basin: Improving Capacity for Climate Change Adaptation. Available online at: http://www.adb.org/projects/43169-012/documents. ADB. 2012a. Nepal: Kali Gandaki “A” Hydroelectric Project. Available online at: http://www.adb.org/documents/performance-evaluation-report-kali-gandaki-hydroelectric-project. ADB. 2012b. Tanahu Hydropower Project (43281-013) Project Data Sheet. Available online at: http://www.adb.org/projects/43281-013/details. ADB. 2013a. South Asia Subregional Economic Cooperation (SASEC) Power System Expansion Project (44219-015) Project Data Sheet. Available online at: http://www.adb.org/projects/44219- 015/details. ADB. 2013b. Project Preparatory Facility for Energy (47036-001) Project Data Sheet. Available online at: http://www.adb.org/projects/47036-001/details. ADB. 2014a. South Asia Subregional Economic Cooperation Power System Expansion Project (44219-014). Available online at: http://www.adb.org/projects/44219-014/details. ADB. 2014b. Electricity Transmission Expansion and Supply Improvement Project (41155-013). Available online at: http://www.adb.org/projects/41155-013/details. Bajracharya, SR, Mool, PK, Shrestha, BR. 2006. The impact of global warming on the glaciers of the Himalaya. ICIMOD. Bajracharya, SR, Mool, P. 2009. Glaciers, glacial lakes and glacial lake outburst floods in the Mount Everest region, Nepal. Annals of Glaciology, 50(53): 81-86. Bajracharya, SR, Mool P, and BR Shrestha. 2008. Global climate change and melting of Himalayan glaciers. In Ranade, P.S., ed. Melting glaciers and rising sea levels: impacts and implications. Hyderabad, India. Bajracharya, SR, Mool, P, and BR Shrestha. 2007. Impact of climate change on Himalayan glaciers and glacial lakes: Case studies on GLOF and associated hazards in Nepal and Bhutan. Kathmandu: ICIMOD. Baral, HS and GP Upadhyaya. 2006. Birds of Chitwan (4th edition). Kathmandu. GoN Department of National Parks and Wildlife Conservation, Participatory Conservation Programme II and Bird Conservation Nepal. Bhattachan, K and S Webster. 2005. Indigenous Peoples, Poverty Reduction and Conflict in Nepal. Switzerland: International Labour Organization. Bhuju, UR, Shakya, PR, Basnet, TB, Shrestha, S. 2007. Nepal Biodiversity Resource Book. Protected Areas, Ramsar Sites, and World Heritage Sites. International Centre for Integrated Mountain Development, Ministry of Environment, Science and Technology, in cooperation with United Nations Environment Programme, Regional Office for Asia and the Pacific. Kathmandu, Nepal.

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Buisson, L, Thuiller, W, Lek, S, Lim, P, and G Grenouillet. 2008. Climate change hastens the turnover of stream fish assemblages. Global Change Biology, 14(10): 2232–2248. Byers, A. 2014. Contemporary Human Impacts on Subalpine and Alpine Ecosystems of the Hinku Valley, Makalu-Barun National Park and Buffer Zone, Nepal. Himalaya, the Journal of the Association for Nepal and Himalayan Studies, 33(1). Central Intelligence Agency (CIA). 2014. The World Factbook: Nepal. Accessed August 28, 2014. Available online at: https://www.cia.gov/library/publications/the-world-factbook/geos/np.html. Challinor, A., Slingo, J., Turner, A. and T Wheeler, 2007. Indian Monsoon: Contribution to the Stern Review. University of Reading, UK. Chaudhary, A. 2013. Glacial Lake Outburst Flood Frequency Analysis in the Sapta Koshi River Basin of Nepal. Thesis project; Asian University for Women. Available online at: http://www.auw.edu.bd/library/auwspace/handle/1/22. Chu, C, Mandrak, NE, and CK Minns. 2005. Potential impacts of climate change on the distributions of several common and rare freshwater fishes in Canada. Diversity and Distributions, 11(4): 299-310. Convention on Biological Diversity (CBD). 2010. Global Biodiversity: Outlook 3. Available online at: http://www.cbd.int/doc/publications/gbo/gbo3-final-en.pdf. Department of Electricity Development (DoED). 2013. Issued Licenses. Accessed November 2013. Available online at: http://www.doed.gov.np/issued_licenses.php. Department of Natural Parks and Wildlife Conservation (DNPWC). 2014. Langtang National Park. Available online at: http://www.dnpwc.gov.np/index.php/page/18. Douglas, T. 2007. “Green” Hydro Power Understanding Impacts, Approvals, and Sustainability of Run-of-River Independent Power Projects in British Columbia. Watershed Watch. Available online at: http://www.watershed-watch.org/resources/green-hydro-power-understanding-impacts- approvals-and-sustainability-of-run-of-river-independent-power-projects-in-british-columbia/. Dyson, M., Bergkamp, G. and J. Scanlon (eds). 2003. Flow – The essentials of environmental flows. Gland, Switzerland: IUCN. Eigenbrod,F, Gonzalez, P, Dash, J, and I Steyl. 2014. Vulnerability of ecosystems to climate change moderated by habitat intactness. Global Change Biology. Food and Agriculture Organization of the United States (FAO). 1999. Fish and Fisheries at Higher Altitudes: Asia. Fort M and E Cossart. 2013. Erosion assessment in the middle Kali Gandaki (Nepal): A sediment budget approach. Journal of Nepal Geological Society, Vol. 46, pp. 25-40. Glacier and Permafrost Hazards in Mountains (GAPHAZ) Working Group. 2007. GAPHAZ Recommendations, version 29.3.2007. Recommendations prepared by the Glacier and Permafrost Hazards in Mountains (GAPHAZ) Scientific Working Group of the International Association of Cryospheric Sciences (IACS) and the International Permafrost Association (IPA). Available online at: http://gaphaz.org/recommendations. Ghimire, T, Paudel, LP, Pant, B. 2007. The Devastating Ramche Landslide (Rasuwa) and the Future of Polchet Residents. Journal of Nepal Geological Society, 36. Gurung, CP, Maskey, TM, Poudel, N, Lama, Y, Wagley, MP, Manandhar, A, Khaling, S, Thapa, G, Thapa, S, and ED Wikramanayake. 2006. The Sacred Himalayan Landscape: Conceptualizing, Visioning and Planning for Conservation of Biodiversity, Cultures and Livelihoods in the Eastern Himalayas. In McNeely, J.A., T. M. McCarthy, A. Smith, L. Olsvig-Whittaker, and E.D. Wikramanayake (editors), Conservation Biology in Asia.

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The Himalayan Times. 2014. Government declares 72 new municipalities. May 8. Available online at: http://www.ekantipur.com/2014/05/08/fullnews/govt-declares-72-new-municipalities-with- list/389310.html. Indo-Asian News Service (IANS). 2013. “GMR, IFC to develop hydro-power project in Nepal.” December 20. Available online at: http://www.sify.com/news/gmr-ifc-to-develop-hydro-power- project-in-nepal-news-international-nmutaxhejdc.html. International Centre for Integrated Mountain Development (ICIMOD). 2011. Glacial lakes and glacial lake outburst floods in Nepal. Kathmandu: ICIMOD. Available online at: http://lib.icimod.org/record/27755/files/icimod- glacial_lakes_and_glacial_lake_outburst_floods_in_nepal.pdf. International Energy Agency (IEA) Statistics. 2014. Available online at: http://data.worldbank.org/indicator/EG.ELC.LOSS.ZS International Finance Corporation (IFC). 2011. Climate Risk Case Study: Khimti 1 Hydropower Scheme Himal Power Limited – NEPAL. Available online at: http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/cb_home/publ ications/climate_risk_hydro_nepal. International Fund for Agricultural Development (IFAD). 2012. Country Technical Notes on Indigenous Peoples’ Issues: Federal Democratic Republic of Nepal. Available online at: http://www.ifad.org/english/indigenous/pub/documents/tnotes/nepal.pdf. International WaterCentre. 2007. The Brisbane Declaration. http://www.watercentre.org/news/declaration. Intergovernmental Panel on Climate Change (IPCC) Working Group II. 2007 Ives, JD, Shrestha, RB, and PK Mool. 2010. Formation of glacial lakes in the Hindu Kush-Himalayas and GLOF risk assessment. Kathmandu: ICIMOD. Japan International Cooperation Agency (JICA). 2013. Nationwide Master Plan Study on Storage- Type Hydroelectric Power Development in Nepal – Draft. Available online at: http://www.jica.go.jp/english/our_work/social_environmental/archive/pro_asia/nepal_1.html. Jha, SG. 2003. Linkages between biological and cultural diversity for participatory management: Nepal’s experiences with Makalu-Barun National Park and buffer zone. Journal of the National Science Foundation of Sri Lanka 31 (1&2): 41–56. Jha, R. 2010. Total Run-of-River type Hydropower Potential of Nepal. Hydro Nepal: Journal of Water, Energy and Environment , volume 7. Kantipur. 2014a. ADB okays $180m loan to ease power shortages. July 8. Available online at: http://www.ekantipur.com/2014/07/08/business/adb-okays-180m-loan-to-ease-power- shortages/391898.html. Kantipur. 2014b. Tourism supported 504k jobs in Nepal in 2013. Available online at: http://www.ekantipur.com/2014/03/23/business/tourism-supported-504k-jobs-in-nepal-in- 2013/387115.html. Kharel, Satish Krishna. 2012. Discussion on the Draft of Electricity Act (Bill), 2065. Prepared for the Nepal Constitution Foundation. New Spotlight News Magazine, 05(13). Available online at: http://www.spotlightnepal.com/News/Article/-Discussion-on-the-Draft-of-Electricity-Act-Bill-. Korup, O, Densmore, A, and F Schlunegger. 2010. The role of landslides in mountain range evolution. Geomorphology, 120(1-2): 77-90. Krchnak, K., Richter, B., and G. Thomas. 2009. Integrating environmental flows into hydropower dam planning, design, and operations. Water Working Notes: Note No. 22, November 2009. World Bank.

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Lewis, A., Hatfield, T., Chilibeck, B., and C. Roberts. 2004. Assessment methods for aquatic habitat and instream flow characteristics in support of application to dam, divert, or extract water from streams in British Columbia. Ministry of Sustainable Resource Management, British Columbia. Miller, M and D Beauvais. 2012. Smart Grid Contributions to Variable Renewable Resource Integration ISGAN white paper Annex 4, Subtask 3.2. Mittermeier, R A, Robles, G, Hoffmann, M, Pilgrim, J, Brooks, T, Mittermerier, CG, Lamoreux, J, and GAB da Fonseca. 2004. Hotspots: revisited. Cemex, Mexico. Mittermeier, RA, Turner, WR, Larsen, FW, Brooks, TM, and C Gascon. 2011. Global Biodiversity Conservation: The Critical Role of Hotspots F.E. Zachos and J.C. Habel (eds.), Biodiversity Hotspots. Mool, PK, Bajracharya, SR and SP Joshi. 2001. Inventory of Glaciers, Glacial Lakes, and Glacial Lake Outburst Flood Monitoring and Early Warning Systems in the Hindu Kush-Himalayan Region – Nepal. Kathmandu: ICIMOD. Myers, N, Mittermeier, RA, Mittermeier, CG, da Fonseca, GAB, and J Kent. 2000. Biodiversity hotspots for conservation priorities. Nature, 403: 853-858. Nepal Electricity Authority. 2013. A Year in Review – Fiscal Year 2012/13. Available online at: http://www.nea.org.np/images/supportive_docs/A-Year-in-Review-FY-2012-13.pdf. The NITI Foundation and the Asia Foundation. 2011. Catalyzing Rapid Hydropower Development in Nepal: Understanding Underlying Constraints and Engaging Reform Constituencies. Available online at: http://nitifoundation.org/wp-content/uploads/2012/09/Niti-Policy-Product-2.Final-Report-on- Hydropower-Study.pdf. Olsen, CS. 2005. Valuation of commercial central Himalayan medicinal plants. Ambio, 34(8): 607-10. Practical Action. 2014. Micro-hydro power. Available online at: http://practicalaction.org/micro- hydro-power-3. Rana, Shrestha, Reynolds, Aryal, Pokhrel, and Budhathoki. 2000. Hazard assessment of the Tsho Rolpa glacier lake and ongoing remediation measures. Journal of Nepal Geological Society. Rathore, BP, Kulkarni, AV, and NK Sherasia. 2009. Understanding Future Changes in Snow and Glacier Melt Runoff Due to Global Warming in Wangar Gad Basin, India. Current Science, 97(7). Rees, G, Croker, K, Zaidman, M, Cole, G, Kansakar, S, Chalise, S, Kumar, A, Saraf, A, Singhal, M. 2002. Application of the regional flow estimation methods in the Himalayan region. Flow Regimes from International Experimental and Network Data (FRIEND): Regional Hydrology : Bridging the Gap Between Research and Practice, Ed.van Lanen H.J.A., Demuth S., Servat E. International Commission on Water Resources Systems, International Association of Hydrological Sciences 274. Rees, HG, Holmes, MGR, Young, AR, and SR Kansakar. 2004. Recession-based hydrological models for estimating low flows in ungauged catchments in the Himalayas. Hydrology and Earth System Sciences, 8(5): 891-902. Republica. 2014a. Major parties agree to form HLPC. March 25. Available online at: http://www.myrepublica.com/portal/index.php?action=news_details&news_id=71565. Republica. 2014b. 3 glacial lakes in Tibet could deluge parts of central Nepal. March 6. Available online at: http://www.myrepublica.com/portal/index.php?action=news_details&news_id=70527#. Reklev, S, Chen, K. 2014. Tibet's glaciers at their warmest in 2,000 years: report. Reuters. August 14. Available online at: http://www.reuters.com/article/2014/08/14/us-china-climatechange- idUSKBN0GE09520140814. Reynolds, JM. 1999. Glacial hazard assessment at Tsho Rolpa, Rolwaling, Central Nepal. Quarterly Journal of Engineering Geology.

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Richardson, SD and JM Reynolds. 2000. An overview of Glacial Hazards in the Himalayas. Quaternary International 65/66: 31-47. Richter, B.D., Davis, M.M., Apse, C., and C. Konrad. 2011. A presumptive standard for environmental flow protection. River Research and Applications. John Wiley and Sons. Sapkota, Pralhad Prasad. 2010. Country Report for the group training course in Energy Policy (A) 2010 (Nepal). Presented at the Institute of Energy Economics, Japan, in April 2010. Available online at: http://eneken.ieej.or.jp/data/3146.pdf. Sarkar, UK, Pathak, AK, Sinha, RK, Sivakumar, K, Pandian, AK, Pandey, A, Dubey, VK, and WS Lakra. 2011. Freshwater fish biodiversity in the River Ganga (India): changing pattern, threats and conservation perspectives. Reviews in Fish Biology and Fisheries, 22:251–272. Sehgal, KL. 1999. Coldwater Fish And Fisheries In The Indian Himalayas: Rivers And Streams. In Fish and Fisheries at Higher Altitudes: Asia. FAO. Available online at: http://www.fao.org/docrep/003/x2614e/x2614e04.htm. Sharma, U. R. 2010. Kangchenjunga Landscape: Opportunities for Transboundary Sharing of Knowledge and Skills. In: Pages 1-6, Biodiversity Conservation Efforts in Nepal, 15th Special Issue. DNPWC, Kathmandu, Nepal. Shrestha, TB, Sakya R, Nepali, HS. 1990. Scientific Report on field survey of 1989: General and Phyto-ecology Working paper No. 8. Makalu-Barun Conservation Project, Kathmandu, Nepal. Shrestha, N and KK Shrestha. 2012. Vulnerability assessment of high-valued medicinal plants in Langtang National Park, Central Nepal. Tropical Conservancy , 13(1): 24-36. State of Oregon. 1995. Fish and Fish Habitat Assessment. Chapter 9 in Oregon Watershed Assessment Manual. Salem, Oregon. Thuro et al., 2001. http://www.geo.tum.de/people/thuro/pubs/2001_uef_davos.pdf. Torri, R, Dematteis, D, Delle Piane, L. 2007. Drawdown hazard of springs and wells in tunneling: predictive model and verification. Available online at: http://seaconsult.eu/dmdocuments/Torri_et_al_2007_XXXV_IAH.pdf. United Nations Development Programme (UNDP). 2014. Human Development Indicators: Nepal. Available online at: http://hdr.undp.org/en/countries/profiles/NPL. United Kingdom Department for International Development (DFID). 2009. Nepal: Defining the Political Opportunities and Constraints in Key Economic Sectors for Promoting Inclusive Growth, Power Sector Study. United Nations. 2002. Report of the World Summit on Sustainable Development: Johannesburg, South Africa, 26 August-4 September 2002. Available online at: http://www.unmillenniumproject.org/documents/131302_wssd_report_reissued.pdf. United States Agency for International Development (USAID). 2014. The Glacial Lake Handbook Reducing Risk From Dangerous Glacial Lakes In The Cordillera Blanca, Peru. Available online at: http://mountain.org/sites/default/files/attachments/glaciallakehandbook_portocarrero_final1_0.pdf. Upreti, BR. 2008. Changing Political Context, New Power Relations and Hydro-Conflict in Nepal. In: Natural Resources Security in South Asia: Nepal’s Water. Rotberg, F and Swain, A (Eds.). Stockholm: Institute for Security and Development Policy. Water and Energy Commission Secretariat (WECS). 2011. Water Resources of Nepal in the Context of Climate Change. Available online at: http://www.wecs.gov.np/reports-publications.php. Weidinger, JT. 2006. Landslide Dams in the High Mountains of India, Nepal and China – Stability and Life Span of their Dammed Lakes. Italian Journal of Engineering Geology and Environment. World Bank. 2003. Water Resources and Environment Technical Note C.1. http://iwlearn.net/publications/courses/environmental-flows-case-studies-david-hirji.

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World Bank. 2008. Proposal to Restructure Power Development Project. Available online at: http://www- wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2008/02/11/000333038_2008021 1011854/Rendered/PDF/424260MOP0P04311466B0IDA1R200810017.pdf. World Bank. 2009. Water Working Notes Note No. 22, November. World Bank. 2013a. Project Information Document (PID) Appraisal Stage: Kabeli-A Hydro Electric Project (P122406). Available online at: http://www- wds.worldbank.org/external/default/WDSContentServer/WDSP/SAR/2013/10/28/090224b081fee859 /2_0/Rendered/PDF/Project0Inform0ic0Project000P122406.pdf. World Bank. 2013b. Nepal - Kali Gandaki a Hydropower Plant Rehabilitation Project. Project Appraisal Document. Available online at: http://www.worldbank.org/projects/P132289/kali-gandaki- hydropower-plant-rehabilitation-project-kgahprp?lang=en. World Bank 2013c. Memorandum to the Executive Directors and Alternates of the International Development Association: Request for Inspection, Nepal Power Development Project (P043311). Available online at: http://www- wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/07/30/000333037_2013073 0114352/Rendered/PDF/798340IPNR0INS000PUBLIC00Box379788B.pdf. World Bank. 2013d. WB Inspection Panel Report and Recommendation Nepal: Power Development Project (P043311) (October 24, 2013). World Bank. 2014a. Project Information Document (PID) Appraisal Stage: Nepal: Grid Solar and Energy Efficiency (P146344). Available online at: http://www- wds.worldbank.org/external/default/WDSContentServer/WDSP/SAR/2014/05/14/090224b08246028 7/1_0/Rendered/INDEX/Project0Inform0Efficiency000P146344.txt. World Bank. 2014b. Nepal overview. Available online at: http://www.worldbank.org/en/country/nepal/overview. WWF. 2011. Government of Nepal endorse Sacred Himalayan Landscape Interim Implementation Plan. Available online at: http://wwf.panda.org/?198992/Government-of-Nepal-endorse-Sacred- Himalayan-Landscape-Interim-Implementation-Plan WWF. 2012. The Sacred Himalayan Landscape: Unique, Threatened, Irreplaceable. Available online at: http://assets.worldwildlife.org/publications/326/files/original/The_Sacred_Himalayan_Landscape.pdf?1 345732409. WWF. 2013. Chitwan-Annapurna Landscape Biodiversity Important Areas and Linkages. Hariyo Ban Program. Available online at: http://www.wwfnepal.org/?212400/Chitwan-Annapurna-Landscape- Biodiversity-Important-Areas-and-Linkages. World Wildlife Fund. 2014. Eastern Himalayas. Available online at: http://www.worldwildlife.org/places/eastern-himalayas. Zech, R, Zech, M, Kubik, PW, Kharki, K and W. Zech. Deglaciation and landscape history around Annapurna, Nepal based on 10Be surface exposure dating. Quaternary Science Reviews, 28(11-12).

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ANNEX I: BRIEF DESCRIPTION OF GON AUTHORITIES IN THE ENERGY SECTOR

The electricity sector falls under the responsibility of the Ministry of Energy (MoE), which is in charge of sector policy formulation and regulation as well as overseeing planning, investment, and development of the power sector. The MoE is also responsible for issuing licenses for electricity generation, transmission and distribution. The Department of Electricity Development (DoED) supports the MoE in these areas as well as in technical issues related to hydropower and electricity. The Nepal Electricity Authority (NEA) was formed in August 1985 as a vertically-integrated, government-owned utility responsible for generation, transmission and distribution of electricity in Nepal. The NEA's mandate also includes formulating policy recommendations to the Government on power sector development, sector regulation and tariffs. The NEA owns a generation capacity of 531 MW (90 percent of which is hydropower), equivalent to 75 percent of the country's total installed capacity, and holds 1,087 MW of survey licenses for new hydropower generation. The NEA serves as single buyer for a large portion of the power generated by the IPPs. Under current conditions, NEA is neither able to generate the financing required to invest in generation, transmission, and distribution infrastructure nor to serve its debts (World Bank, 2013a). As a result, several proposals have been put forward for restructuring NEA. Suggested improvements include isolating the transmission and distribution departments as a precursor to further corporate restructuring, and establishing a fully independent regulatory agency. The Investment Board of Nepal (IBN) was established in November 2011 and entrusted with the responsibility of facilitating the development of large infrastructure projects including hydropower projects above 500 MW. The Board provides one-window access (provides all services under one window) for large, national priority projects and is hoping to attract more than $6 billion in investments into such projects. The IBN is currently responsible for five large foreign-investor financed hydropower projects– Upper Karnali, Arun III, Tamakoshi III, Upper Marsyangdi and West Seti– with a combined 3,800 MW of potential peak generating capacity that would serve both the domestic market and the export market to India. The Electricity Tariff Fixation Commission (ETFC) is mandated to set consumer electricity tariffs. The ETFC operates under the Ministry of Energy and is the tariff regulator for electric consumers. The ETFC is expected to be replaced by a new, independent Nepal Electricity Regulatory Commission (NERC) with greater autonomy and a mandate to regulate the electricity sector (Kharel, 2012). However, the draft Electricity Act for the formation of NERC has been stalled since 2009. The Alternative Energy Promotion Centre (AEPC), under the Ministry of Science, Technology, and Environment, is mandated to promote alternate energy technologies that include mini and micro-hydropower, biogas, and solar energy technologies. The Water and Energy Commission Secretariat (WECS) is responsible for providing policy advice on water and energy issues to the GoN. WECS’s draft National Energy Strategy, which has not yet been approved by the GoN, has suggested the following strategic objectives: 1) make consumption of biomass energy resources sustainable; 2) make hydropower resources the main energy resource; 3) reduce dependence on imported fossil fuels; and 4) develop alternative energy technologies such as biogas, solar, and wind (Sapkota, 2010). There is no national electricity plan or demand forecast for energy planning in Nepal. Nepal’s National Planning Commission (NPC) is the advisory body for formulating development plans and policies of the country under the directives of the National Development Council (NDC). The NPC explores and allocates resources for economic development and works as a central agency for monitoring and evaluation of development plans, policies and programs. It

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facilitates the implementation of development policies and programs. Additionally, the NPS is designed to serve as a platform for exchange of ideas, and discussion and consultation pertaining to economic development of the country. It also serves as an institution for analyzing and finding solutions to the problems of civil societies, non-governmental organizations and the private sector in the country.

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ANNEX II: BRIEF DESCRIPTION OF WORLD BANK AND ASIAN DEVELOPMENT BANK ENERGY PROJECTS

Both the World Bank Group and the Asian Development Bank (ADB) are actively involved in Nepal’s energy sector, primarily in hydropower. The following is a list of their projects in Nepal. WORLD BANK GROUP Kabeli Corridor Transmission Project (2011): This project’s development objectives are: (i) to support the addition of transmission capacity to the Integrated Nepal Power System; and (ii) to provide access to electricity and cooking fuel to communities in the area of the Kabeli 132 kV transmission line. The Project has three components which, in addition to physical investments, include associated technical assistance and project management costs:  Component 1: the Kabeli Corridor 132 kV Transmission Line Component, to be implemented by NEA;  Component 2: the Community-based Rural Electrification-Grid Extension Component, to be implemented by NEA; and  Component 3: the Rural Enhanced Energy Services Component, to be implemented by the Alternative Energy Promotion Center (AEPC). Kali Gandaki A HPP (2013): This HP facility is a 144 MW run-of-river plant with six hours of daily peaking capacity, located below the confluence of Kali Gandaki and Andhi Khola rivers. The facility was largely funded by the ADB and commissioned in 2002 at a cost of $453 million. Today it is the largest hydropower power station in Nepal, and it supplies nearly 40 percent of NEA’s total annual electricity generation, or a quarter of the country’s total annual electricity generation. Kali Gandaki A is unique in Nepal both because of its large capacity (144 MW) and its peaking capacity (6 hours). This facility is currently facing low generation capacity from erosion and cavitation,54 leading to severe damage to its power generation equipment as well as safety management issues. The proposed rehabilitation program will address five important issues:  Improve the safety management of the dam;  Decrease the total quantity of sediments entering the powerhouse;  Reduce the cavitation in the turbine in the dry season;  Improve the safety of the plant by improving the operation of the Main Inlet Valves; and  Improve the safety of the plant by repairing the control systems. An internal evaluation of the Kali Gandaki A HPP conducted by the ADB (2012) identified three key recommendations: (i) the NEA should invest $20 million in the plant to rectify problems, which include vibrations in the powerhouse, and ADB should consider making funds available to carry this out; (ii) the government should revise electricity tariffs to encourage cost recovery and foreign investment in the energy sector; and (iii) environmental and social mitigation measures should be formulated comprehensively in an area-wide development approach to ensure the “do good” in

54 The erosion is caused by increased sediment concentration dominated by quartz particles in the water passing through these parts of the power generation units. Reduced efficiency of the sediment handling facilities at the headworks was identified as a significant cause of this increase in sediment concentration. In addition to erosion, the electromechanical equipment is affected by cavitation caused by decrease in the tail water level.

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addition to “do no harm” principle is applied. Many future HPPs will likely be undertaken by the private sector or as public-private partnerships, which will require far more streamlined approaches to addressing environmental and social impacts (ADB, 2012a). Power Development Project (original 2003; revised 2010) (World Bank, 2008): The objectives of the original project were to: develop Nepal’s hydropower potential in an environmentally and socially sustainable manner to help meet electricity demand; improve access of rural areas in electricity services; and promote private participation in the power sector to improve efficiency and to mobilize financing in the sector’s investments. The revised Project Development Objectives would be to: build capacity to manage the development of Nepal’s hydropower potential in a prudent and sustainable manner; increase access to electricity services in rural areas; and improve the supply and accountability of electricity. In 2013, the WB Independent Inspection Panel received a request for inspection specifically concerning the 220 kV Khimti-Dhalkebar Transmission line (World Bank, 2013c). This line involves the construction of a 75 km, double circuit transmission line and the extension of associated substations. In October 2013, the Inspection Panel issued their report and recommendation (World Bank, 2013d) that a full investigation should be carried out, to focus on violations of World Bank policies during the planning and implementation of the high voltage transmission line, as well as requirements for studying alternative project design. The Inspection Panel announced that the investigation would begin after April 30, 2014, in order to allow World Bank staff to extend their participation in the project, which was scheduled to close on December 30, 2013, and to allow Bank management the chance to implement an action plan to address community concerns. The panel’s investigation is now scheduled to begin in July 2014 (Accountability Council, 2014).55 Kabeli A HPP (approved May 2014): The project development objective is to increase hydropower generation capacity to supply the NEA grid through public-private investment. The project is run-of-river, with an installed capacity of 37.6 MW, a 14.3 m high dam, 60 m long barrage with a live storage of 335 thousand m3, and a 4.327 km long headrace tunnel with an above-ground powerhouse. The power generated under the KAHEP component will be evacuated by the Kabeli Corridor 132 kV transmission line, which is under implementation by the NEA with financing from the WB, and which will also provide evacuation capacity for the power generated by small projects in the Kabeli corridor that are being developed by independent power producers (IPPs). Nepal: Grid Solar and Energy Efficiency (proposed Sept 2014): The proposed project development objectives are to: (i) increase grid power supply through installation of a grid- connected 20 MW solar power generation facility; and (ii) support NEA to prepare actions for financial performance improvement through distribution system loss reduction and financial restructuring. Proposed Pilot Program for Climate Resilient Nepal Investment in Upper Trishuli 1 (UT1) and Upper Marsyangdi 2 (UM2) (2014): The project proposes to support assessments for climate adaptation and identification of necessary design changes for “climate proofing” UT1 and UM2 run-of-river projects. At close, the funding will be converted into long term construction equity of the project companies. The potential environmental and social impacts of the two projects are likely to be aggravated with climate change risks – such a modification of the natural river flow dynamics comes with potential conflicts with downstream water uses. It also would change natural aquatic and riparian habitats and potentially increase watershed erosion and driver sediment loads.

55 Nepal: Power Development Project Case 87: The investigation commenced after April 30, 2014, and a Panel team visited the Project area in July 2014. The Panel submitted its Investigation Report to the Board of Executive Directors on February 12, 2015. http://ewebapps.worldbank.org/apps/ip/Pages/ViewCase.aspx?CaseId=91

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ASIAN DEVELOPMENT BANK Tanahu Hydropower Project (2013) (ADB, 2012b): This project has three main components: (i) a medium-sized hydropower plant of 140 megawatts (MW) with significant water storage facilities and associated transmission lines to evacuate the generated power; (ii) rural electrification and community development in the project area, and (iii) a reform and restructuring plan for the national utility, the Nepal Electricity Authority (NEA). The project comprises a 140 m high concrete gravity dam with a crest length of 175m on the Upper Seti River and a reservoir with a total surface area of 7.26 km2 at FSL (EL 415m). The waterway consists of a 7.4 m diameter, 1,203 m long headrace tunnel. A 117 m long 7.4 m diameter tailrace tunnel will discharge the tail water back into the Upper Seti River. An underground powerhouse measuring 27m wide x 46m high x 97m long will be built approximately 6 km (along the river course) downstream of the dam. Access roads (totaling 7.3 km) and several temporary and secondary access roads will provide access to the project area. Temporary facilities include contractor's camps, equipment and maintenance yard, office areas, and project staff camping area. The project will also include rural electrification and transmission lines (TL) components. A new 220 kV double circuits TL will evacuate the generated power to the Bharatpur Substation. The length of the transmission line corridor is 39 km. Additionally, the project will electrify villages through its Rural Electrification Program in 18 VDC areas. South Asia Subregional Economic Cooperation Power System Expansion Project (2013)(ADB, 2013a): The project will contribute to Nepal’s energy development objectives by: (i) scaling up both on-grid and off-grid rural electrification supplies; (ii) facilitating cross-border power exchange; (iii) increasing access to renewable energy in rural areas; and (iv) building capacity for on- grid and off-grid power sector development. The on-grid components will facilitate delivery of new generation output to end-users and also allow cross-border power exchange once connected to the second 400 kV cross-border transmission line. The off-grid component will provide access to electricity and facilitate productive energy use (PEU) activities in rural locations beyond the last mile of the national grid. The project is fully consistent with the ADB Country Partnership Strategy for Nepal which focuses on: (i) improving inclusive electricity access; (ii) renewable energy development; (iii) regional cooperation; and (iv) strengthening sector governance. Large-scale hydropower developments are underway in the Kali Gandiki basin and the Marsyangdi basin, for both domestic use and export into India. Two IPP hydropower projects of 92 MW and 119 MW are scheduled to be commissioned in the Kali Gandiki basin and the Marsyangdi basin by 2018, based on the power purchasing agreements. NEA will face large penalties if the power evacuation facilities in the basins cannot be put in place in time. Additionally in the medium time frame, 840 MW and 662 MW hydropower plants are to be developed in each basin. The GoN has prioritized the implementation of transmission lines in each basin corridor – the Kali Gandiki (220/400 kV double circuit) and Marsyangdi (220 kV double circuit). This prioritization will enable the evacuation of 2,000 MW of new energy outputs and facilitate at least 1200 MW of power exports to India. Scaling Up Renewable Energy Project (2012): Nepal has been selected as a pilot country identified for funding and technical assistance under the Scaling Up Renewable Energy Program in Low Income Countries (SREP), a targeted program of the Strategic Climate Fund (SCF, a multi donor Trust Fund within the Climate Investment Funds) with an overall objective of supporting investments to increase energy access and accelerate economic growth through renewable energy. The proposed project aims to address these constraints by leveraging SCF funds with ADB and other donor-assisted funds to set up both credit and subsidy windows for mini-micro hydropower (MMH) and solar home systems (SHS) under the Central Renewable Energy Fund (CREF). Funds under the CREF will be managed by a nodal financial intermediary (FI) for relending of medium to long-term local currency subloans and providing other support to participating financial institutions (PFIs) that meet ADB eligibility criteria to help finance the development of off-grid MMH and SHS subprojects.

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Project Preparatory Facility for Energy (2013)(ADB, 2013b): The Project Preparatory Facility for Energy (the Facility) is intended to prepare a series of hydropower projects and related transmission infrastructure for development in Nepal, emphasizing private sector participation and regional integration. The first component of the Facility will support the project preparatory activities of selected candidate hydropower projects and a second Nepal-India 400 kilo-volt (kV) cross-border transmission line project. It will also produce a set of bankable documents. The study includes a feasibility study and environmental / social impact assessments (EIA/SIA). The hydropower projects for such study will be selected from various candidate projects being considered for development through private or public / public-private sectors. The Facility will also support project implementation consultants and a panel of experts. The second component of the Facility will support another set of project preparatory activities for an export-oriented hydropower project to be developed under the public private partnership (PPP). The activities include Transaction Advisory Services (TAS), detailed design and project procurement processes.

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ANNEX III: STAKEHOLDER COMMENTS56

STAKEHOLDER COMMENTS ON ENERGY SECTOR IN NEPAL Key donors noted that the new Electricity Regulation Act has been awaiting passage by Parliament for six years. The Act will provide stability to private sector investment by unbundling NEA (separation of generation, transmission, and distribution components); provide for a separate body for the regulation of this sector known as National Electricity Regulatory Commission; and give DoED responsibility for licensing of new generation, transmission, and distribution projects They note that NEA needs to be restructured to separate the generation, transmission and distribution components of its operations to allow for increased competitiveness with private sector investment. As a developer itself, NEA does not have strong incentives to ensure efficient processing and approval of private sector Power Purchase Agreements (PPAs)57. Other constraints to foreign investment, according to the donors, include the challenges of hydro-power seasonality in Nepal and project risks for investors. Water and Energy Commission Secretariat (WECS) has an important role to play in the energy and agriculture sectors, but is a small agency and does not have sufficient resources or mandate. The 1992 Water Resources Act needs to be revised and strengthened to reflect current conditions. Government representatives stated that the focus of the GoN is drafting Nepal’s Constitution. When the Constitution is completed, district governments will have more power and will be able to develop their own plans for economic growth and use of natural resources. Government representatives noted that the government has not taken an integrated approach to development. Sector-based development occurs separately from other interests. For example, there is limited to no communication between ministries that are involved in utilizing a specific resource (e.g., for a resource such as water, the Ministries of Energy, Agriculture and Tourism all have equities at stake but are not communicating). This results in haphazard infrastructure development. According to various stakeholders, the National Planning Commission (NPC) should be the GoN entity to coordinate and recommend an integrated development policy. DoED has a small environment team that issues licenses for the construction of wind, hydro, and solar projects. This team was strong through 2006, when it was disbanded. It is now regaining capacity. Regarding ESIAs, the government representatives noted that ESIA legislation has not been revised since 2002, and as a static document it cannot address changing situations or unique situations. For example, they noted that the ESIA laws should be suspended during a power crisis and an ESIA should not be required for transmission lines unless it passes through a conservation area. Government representatives also believe that the process to develop an ESIA is too long. Private developers want ESIAs produced in a shorter period of time and with a streamlined approval process. Additionally, there are no set criteria to evaluate the ESIAs and the ESIAs that are currently produced are too large to implement in the field. A system needs to be in place for

56 All comments in this section represent those of stakeholders and not the representation of fact by the author of the report. 57 The Power Purchase Agreement (PPA) is an instrument that determines the return on hydropower investment.

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developing the capacity of consultants and qualifying them for work through an examination, but this will require financial and technical resources. The World Bank and ADB want separate ESIA and Cumulative Impact Assessment studies. Neither the World Bank nor the ADB have been able to assess the success of mitigation efforts on their projects. It is difficult to strengthen the role of Ministry of Environment, Science and Technology (MOEST) – currently, monitoring and auditing does not happen. Mitigation measures are not being implemented except when local communities exert pressure on authorities. Research and civil society representatives believe that the NPC, though once powerful, has lost its influence. GoN ministries work in isolation of each other instead of working together in crosscutting sectors – such as water resources, energy and agriculture. This is seen clearly in the unplanned, uncoordinated road building efforts by each Village Development Committee (VDC). There are 3,300 VDCs in Nepal and the first thing VDCs do with their budgets is road construction. As a consequence, roads are going through watersheds, dense forests, and conservation lands without rules and regulations. Large infrastructure is required for development, but the key is to develop in a manner that has less impact in communities and forest areas during construction. Construction methods that reduce impacts on fragile forest areas are required. Research and civil society representatives highlighted the need for a mechanism to support project-affected communities in technical and legal aspects, ensure the infrastructure is being developed in an environmentally and socially sustainable manner, and facilitate negotiations/discussions between developer and communities. Communities along the new roads are vulnerable to loss of agricultural land, increased prostitution, etc. The question is, who benefits and who loses? For the losers, what are the opportunities and the incentives (e.g., better education, health facilities, sustainable alternative livelihoods)? Within a project-affected community, there is a have/have not problem in the context of compensation. A person who is compensated has more opportunities, such as the option to stay or move. Those who are not compensated lack those opportunities. Migration patterns are from village to roadside to city. The lure for migration is cash, which gives people the choice to decide where to spend it. However, the state is not able to provide the business environment for entrepreneurship. The civil society representatives assert that there is a need to move to the next level of manufacturing, beyond simple craft making. How many candlesticks can you make and expect society to develop, they ask? The ability for CSO/NGOs to think critically and discuss publicly Nepal’s energy options is shrinking. Regarding ESIAs, research and civil society representatives stated that there is a severe lack of technical capacity both for creating ESIAs and reviewing them, which results in poorly defined ESIA scoping processes, poor ESIAs, and a lack of critical review. MOEST stamps ESIA approvals without critical review. Coordination among ministries, they say, should be required for reviewing ESIAs. Additionally, implementation of ESIAs is very weak. Gaps in the EIA process include the absence of Free, Prior and Informed Consent (FPIC) in spite of the fact that REDD+ requires FPIC. Most people do not know what is in the ESIA or what safeguard measures are being undertaken, so they cannot make claims or figure out who to blame (e.g. government, contractor) if there are problems with the project. Civil society representatives and researchers noted that the alternatives analysis is missing in most ESIAs because the project has already been identified. Consequently, there is limited opportunity for civil society to discuss alternatives to various infrastructure projects. Although the donors are pushing for a cumulative impacts assessment (CIA),58 civil society representatives say this is not sufficient. They think that donors need to conduct a strategic environmental assessment (SEA)59.

58 A cumulative impact is the impact on the environment which results from the incremental impact of the action when added to other past, present, and reasonably foreseeable future actions regardless of what entity

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When asked about government, research and civil society representatives noted that the GoN is very slow to respond to crises, and moves forward on an ad hoc basis. They point out that since there have not been local elected officials in Nepal for the past 16 years, accountability is limited to non-existent. Overall planning for water resources is in disarray. In May 2014, the GoN declared 72 new municipalities across the country which would bring the total to 130 municipalities (The Himalayan Times, 2014). These new municipalities need basic infrastructure such as electricity, drinking water, hospitals, and schools. In making this determination, the discussants said that there was no analysis of the increasing pressures that new municipalities would place on the natural resources due to the increased number of homes, businesses, and access roads. GoN natural resource management authorities do not have the capacity to deal with the wide range of issues resulting from environmental impacts, from aesthetics to ecological carrying capacity. Civil society representatives and researchers claim that areas of Nepal are being negatively impacted due to the lack of planning for water resources. For example, deforestation is leading to decreased water supply in areas, including Terai, which is considered the breadbasket of Nepal. This group of stakeholders also discussed that although the GoN finances resettlement, the guidelines for land acquisitions are not clear. Grievance mechanisms are not well coordinated and end up with entities that are not prepared to resolve the grievances. The GoN is using the 1974 Land Act as their guideline for compensation, but it lacks any definition of benefit sharing. STAKEHOLDER COMMENTS ON HYDROPOWER DEVELOPMENT IN NEPAL Donor representatives noted that the GoN plans to fast track one to two reservoir projects and waive value added taxes on the project supplies. Government representatives stated that there is no holistic plan or requirement to coordinate upstream and downstream development activities within a river basin. As a consequence, the entire burden is put on the developers as the projects are treated separately. GoN explained that the process to develop hydropower is not integrated across Ministries. DoED provides the license while the Ministry of Environment and Forestry provides the forest clearance permit, with the result that the developer is required to deal with a number of ministries separately, which is very time consuming. Coordination and approval is complicated since responsibility for water resources are spread out among ministries. WECS is supposed to be developing master plans for all of the major river basins (Karnali, Kali Ghandaki, and Koshi), but a wide range of stakeholders think that WECS has limited capacity. Researchers and civil society representatives highlighted that without new river basin master plans, old energy-focused river basin plans are utilized. If there are no cities present, then requirements for water usage or land for irrigation have not been put in place for projects to follow as they are being developed. WECS is responsible for the technical and economic clearance. Many developers are lobbying against this clearance, as it lengthens the approval process. The Government representatives also stated that the GoN will not focus on environmental and social issues associated with hydropower development until the country is self-sufficient in energy.

or person undertakes such other actions. Cumulative impacts can result from individually minor but collectively significant actions taking place over a period of time. 59A strategic environmental assessment is a systematic decision support process, aiming to ensure that environmental, social and other sustainability aspects are considered effectively in policy, plan and program making.

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At this time, the GoN stated that these issues are left for others (e.g. donors, project developers) to consider. Research and civil society representatives noted that the 2001 Hydropower Policy is a good document that has yet to be implemented. There is no systematic planning or criteria for selecting hydropower projects for development. In addition, there is limited to no recognition of the landscape connectivity throughout the Kali Ghandaki basin and the water flows that are supporting the grasslands of the Terai and protected areas (e.g., Chitwan). Research and civil society representatives pointed out that no one is considering ecosystem impacts when flows are regularized, or when monsoon floods decrease – resulting in reduced water tables and encroachment of woody plants that will impact the grassland ecosystem. From their perspective, there is a need to look holistically at the sub-basin level, where an SEA would be appropriate. The SEA could be used to assess the placement of hydropower projects on tributaries as opposed to on the main rivers. There are no legal provisions in Nepal to undertake a CIA. Research and civil society representatives raised the fact that there are key data gaps resulting from limited baseline data for stream flow, sediment, and biodiversity for incorporation into the ESIA. Most of the rivers are ungauged, resulting in gaps in the hydrological and sedimentation data used to design hydropower facilities. These stakeholders stated that better information needs to be collected and analyzed such as bedload,60 discharge volume, and velocity needs, for incorporation into ESIAs. Research and civil society representatives also raised that another key aspect is the lack of understanding regarding how sedimentation/nutrients contribute to maintaining ecosystems, as well as the impacts of changing sedimentation flow. Expert intervention is required to develop a standard methodology for data collection and analysis. A number of stakeholders stated that there is no environmental standard for developers to follow for the ESIA and mitigation measures. Mitigation measures are not being implemented, no one is monitoring and the measures are poorly designed. CSOs/NGOs do not have the capacity to monitor implementation. Research and civil society representatives stated that public meetings concerning hydropower only deal with how to finance the project, while environmental and social aspects are not raised. Meanwhile, electricity shortages are viewed as a national emergency, so GoN wants to stop mitigation measures in order to focus on the electricity shortage. NGOs do not have the capacity to monitor implementation measures.

Lastly, a range of stakeholders stated that systematic corruption and rent seeking plagues hydropower development, resulting in delays and cost overruns. STAKEHOLDER COMMENTS ON CLIMATE CHANGE AND GEOLOGY/WATER-INDUCED DISASTERS Government representatives stated that climate change is only an academic exercise and there is no unit in DoED that deals with climate change. Researchers highlighted this weakness with discussion that the fate of operations and ability to generate power for the Upper Tamakoshi is not known given the reduced snowpack and glacier mass. Researchers and civil society representatives believe that an energy strategy should be developed for Nepal, including not only hydropower but also solar and wind, that integrates climate change. Climate change also needs to be integrated into the development planning process. There is a void

60 Bedload is the portion of the total sediment in transport that is carried by intermittent contact with the streambed by rolling, sliding, and bouncing.

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of climate smart discussions – developers are not talking to each other and the GoN is not engaged in the issue despite the likelihood that extreme weather events will occur and impact infrastructure. Researchers stated that climate change is a leading contributor to the formation of glacial lakes, and there is a suspected relationship between climate change and GLOFs. However, the linkages between climate change and GLOFs are not simple and remain mainly theoretical pending more thorough assessment of statistics on GLOFs and their specific causes. Even more than climate change, imprudent development and land uses are probably the most important dynamic elements contributing to deaths and economic losses due to Himalayan floods and mass movements, although the studies to validate this statement remain to be done. STAKEHOLDER COMMENTS ON BIODIVERSITY Researchers and civil society representatives believe that it is critical to consider the landscape, ecology, and species. Climate change and infrastructure – including hydropower projects – are the biggest threats to maintaining biodiversity. Ecosystem interconnection is often overlooked. For example, if environmental flows are reduced, habitats will change and tiger and rhinoceros, among other species, will disappear from Bardia National Park. Consequently, the Terai flood plain needs to be protected. Increasingly vulnerable areas are being opened up as a result of infrastructure development, allowing for increased access into areas and fragmenting landscapes. STAKEHOLDER COMMENTS ON SOCIAL ISSUES AND INDIGENOUS PEOPLES

Donors noted that the issues of indigenous peoples came to prominence after the civil war61 and that the rights of indigenous peoples and social inclusion are evolving issues in Nepal. Donors mentioned that with advocacy groups being quite strong, indigenous peoples are now exposed to more information. The GoN land acquisition policy is outdated and ADB is working on technical assistance to develop a resettlement policy. It will be submitted to the cabinet for approval and incorporated into all sectors. Regarding compensation, government representatives noted that there needs to be a framework to limit locals’ demands within reasonable bounds. People are increasingly aware of their rights, and political groups try to incite trouble. Local communities’ needs are incorporated into the project but communities take advantage when they believe the developers are wealthy. There is no provision in the ESIA for carbon trading, yet local communities are raising this because they want benefit-sharing. The GoN believes that there needs to be some basis for determining local compensation since developers have different capacities and financial assets. Researchers and civil society representatives believe that in most cases the communities do not have the required skills and understanding to effectively interact with the project developers. This creates a distance between the developers and communities and results in both entities mistrusting each other. There needs to be a mechanism to find common ground. The GoN process is centralized and it is hard for local communities to feel they are part of it. Researchers and civil society representatives stated that participation is not inclusive; only a few key actors are consulted. During discussions they highlighted a number of key points. For example, they highlighted the need for a mechanism that allows for inclusivity and for the expression of concerns and solutions. Lessons learned from previous projects have not been well-documented and integrated into project design. There also needs to be a mechanism that allows for the development of lessons learned. There needs to be participation during all stages and identification of how investment will benefit the communities. For the majority of projects there is not equal

61 Civil war took place between 1996 and 2006.

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negotiation power between the project sponsor/GoN and project impacted communities. Depending on personal interests there can be ‘leader capture’ where the project is supported through a process of Broad Community Support62 is not meaningful. Researchers and civil society representatives stated that, in many cases, compensation is discretionary based on which political party is in power. Compensation should be consistent and needs to involve money, land, and natural resources. It needs to be determined whether replacement land is equivalent to the appropriated land in terms of fertility, water, and access to other natural resources. It is often difficult to find the same quality of land, which is an issue for negotiation and a necessity to achieve a win-win for both parties. Researchers and civil society representatives recommend that compensation should be land-based – land for land – but this is difficult when all the land is already occupied. Many project-affected people are being resettled to the Terai which is resulting in increased deforestation; increased environmental impacts and host community conflicts. One acre of land will provide for education and support a family, but when this is taken and not replaced with equal quality land, people move to Kathmandu.

The GoN and other stakeholders believe that there is no limit to peoples’ expectations due to lack of compensation guidelines. MOEST tells developers that they have to satisfy communities’ demands. Researchers and civil society representatives stated that communities’ education and awareness is weak. People are not aware of environmental mitigation plans and the plans are not translated into local languages. Researchers and civil society representatives suggested that a possible approach to improve the process is a basin perspective, looking at the overall impact instead of the impacts project by project. There is a need to connect the communities to the electrical grid and to also look at smaller projects. STAKEHOLDER COMMENTS ON ENVIRONMENTAL AND NATURAL RESOURCES ISSUES OF THE UPPER MARSYANGDI 2 HYDROPOWER PROJECT The villagers expressed the following concerns:  The Marsyangdi river would dry up;  Reduced water flows in the Marsyangdi river would change the microclimate, resulting in low agriculture production;  Vegetation will be polluted by the construction;  There will be at least seven hydropower projects on the Marsyangdi River, which will impact the natural environment, culture, and social fabric of the villages; and  Fishing in the Marsyangdi River (below Tal) has declined. Other stakeholders expressed the following concerns:  Given the number of hydropower projects planned in the watershed, it would be ideal to coordinate the various transmission line systems.

62 Broad Community Support is a collection of expressions by the affected communities, through individuals, and/or their recognized representatives, in support of the project. There may be broad community support even if some individuals or groups object to the project.

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 Given the number of hydropower projects and road development, the Marsyangdi river basin will be under a perpetual state of construction for several decades.  Given the potential GLOF, Tal is completely unsafe, and there is no justification for increasing risk (exposure and hazard) and vulnerability by expanding the size of the village. There is nowhere to expand that is safe. STAKEHOLDER COMMENTS ON SOCIAL ISSUES OF THE UPPER MARSYANGDI 2 HYDROPOWER PROJECT The assessment team met villagers along the road who were initially very supportive of the road. However, they have been negatively affected by the road connecting portions of the Annapurna Circuit historical hiking trail. Over the past few years, they all have experienced a decrease in tourists trekking the trail and subsequently their hotel, tea house, and restaurant businesses have seen a decline by as much as 50 percent. One hotel owner stated that up to 60 percent of trekkers now travel by vehicle. Instead of primarily relying on tourism, they now have to depend on other sources of income including livestock, agriculture, and overseas employment. In several instances, families moved to the area to take advantage of tourism income but because of the road, they are now also depending on other sources of income. Some have heard that a new trekking trail will be constructed from Besishar to Syanghe but are unsure how that will help their situation. One villager told the team that although they fall under the GoN definition of indigenous peoples, they do not have access to any support. Since the area falls under the Annapurna Conservation Area buffer zone, they do not have access to other programs such as WWF’s Hariyo Ban project which provides livelihood support/development training. The GoN did not compensate the villagers for land that was used for the road. Given the economic situation, the villagers along the road were supportive of the hydropower project due to its potential to raise incomes in the area. At the same time, several people stated that they realized the income would only be for a limited period of time and then the question was what to do afterwards. One villager stated that because his village is located nearest to the construction site, they will be put at more risk after the construction is completed. In one village, people are aware that they will lose their houses and hotels and only ask for good compensation and a suitable place for resettlement. One village wanted to be relocated as an intact village. Reportedly the project company told some of the villagers that they should take the proposed compensation or they would receive no compensation when the GoN came to widen the road, though this was not verified. There have been some discussions about an alternative route for the road to limit the impact on houses and hotels, but the outcome of those discussions is not known. Some villagers are aware that the headrace tunnel is being constructed from Syanghe to Tal, and that the villages in between, Chyamche, Jagat, Srichaur and Old Syanghe, will be the most affected. Spring water, not the Marsyangdi River, is used for their daily water needs. There were some complaints about the consultation process being undertaken by GMR. Issues raised were that the consultation meetings were not inclusive and there was a perception of bias in favor of some villages. Social concerns raised by villagers included:  Of the 55 houses at Tal, only 28 are registered officially. According to the villagers’ understanding, only those homes officially registered will be compensated.  Villagers want some form of insurance as security if the dam is breached.  Villagers in Karte and Dharapani have land in Tal that will be impacted, and they are unsure how they will be compensated.  Some villagers believe that politics are involved in the decision-making process. They are not satisfied with how a number of issues are being handled, and believe the selection processes for training and for meeting invitations were not inclusive. Some villagers have

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started a stakeholders committee, where a representative from each village is sent to GMR- organized meetings to represent the village. STAKEHOLDER COMMENTS ON ENVIRONMENTAL AND NATURAL RESOURCES ISSUES OF THE UPPER TRISHULI 1 HYDROPOWER PROJECT Villagers expressed the following environmental concerns for the Upper Trishuli 1 Hydropower Project:  Tunnel construction will lead to the area becoming drier. This concern is coupled with information from one village that 15 to 20 years ago they used to see snowfall in November/December, but now during those months snow can only be seen on the upper part of the hills. Rainfall has decreased and now it only seems to rain in the forest areas.  After the river flow decreases, villagers will be able to cross the river and remove firewood and non-timber forest products from the restricted areas of Lantang National Park.  Similar to the Chilime River following the HPP, the Trishuli river will dry up.  Landslides, as there are several visible ones above Hakubesi and Thulohaku, have not stabilized.  Villagers have heard about impacts from other projects, such as the blasting for the Trishuli 3A project which has caused landslides around several villages, and are concerned.  Upper Trishuli is a fragile area and the high number of projects is destroying a lot of community forest areas.  In one village, approximately 1,200 trees have been cut down.  Given the number of hydropower projects and road development, the Trishuli river basin will be under a perpetual state of construction for several decades. STAKEHOLDER COMMENTS ON SOCIAL ISSUES OF THE UPPER TRISHULI 1 HYDROPOWER PROJECT All villages have a preference for where they would like to see the road constructed so that they can have good access. However, the road is being constructed in areas where access is more difficult – such as the lower part of the valley. One shopkeeper moved to the area in anticipation of the project and additional income from selling goods to the construction workforce. A number of villagers were aware of the Chilime hydropower project, which is the first project in Nepal to introduce benefit sharing to project-affected villages, and the district where the project is located. Their view of the Chilime hydropower project is that it has brought about a lot of changes in the lives of villagers and has helped people develop their social status through share distribution and payments. Some beneficiaries of the Chilime hydropower project benefit sharing have purchased homes in Kathmandu. Villagers have the same expectations with Upper Trishuli 1. Social concerns raised by the villagers included:  Villagers have been notified that their land will be used by the project, but it has not yet been occupied by construction crews. Compensation has been paid in a number of cases for land, but not for homes.  Although compensation has been paid to some, others whose land is not directly impacted are not seeing any benefits of the project.  Communities do not have the capacity to approach the project sponsor about project concerns. The Forest User Committees are only concerned with forest issues.  Villagers are worried about their life after their land is occupied, and they want good security.

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 A number of villagers wanted the project because it would bring development to their villages. Villagers also expect employment opportunities and many think they will increase their incomes by selling agricultural produce to the construction workforce.  There are villagers with land which has not yet been registered with the GoN. Villagers have been told that if they do not have written proof of the ownership of their land, they will not be compensated per the project rules. Villagers in some communities have started adding floors to their houses expecting to get more compensation from the project. STAKEHOLDER COMMENTS ON SOCIAL ISSUES OF THE UPPER ARUN HYDROPOWER PROJECT Several meetings were held with villages that will be affected by the Arun 3 project. A number of people have migrated to the village nearest the site where the road bridge will be constructed over the Arun River. Once completed, the road will connect to villages in the upper valley such as Simma and Hatiya and north to the Chinese border crossing at Kimathangka. Most of the people in this area own small hotels, which was the main reason for moving to this site. They have no agricultural land and depend on small livestock including goats and chickens. The ESIA has been completed and the project sponsors (SJVN Limited63) are waiting for the PDA64 approval from the GoN. Road construction is ongoing and people in one village visited will have to resettle, but they do not know where to go. The villagers expect employment opportunities, shares of the project, and technical education for their children. Since the PDA has not been signed yet, there have been no public meetings. Villagers, in proximity to Arun 3 HPP, are more excited about Upper Arun than Arun 3 since it will bring road access to other villages, which will help with sending products to market, which they currently transport on mule or carry on foot. There are a number of small businesses that can be developed once a road is built, such as making bamboo furniture from the various types of bamboo found in the area. One villager said that cardamom production is very high and selling it has lifted up peoples’ standard of living. The cardamom is purchased by a local buyer and is either used domestically or exported to India or China . Their agricultural produce is usually sufficient for the year – if not, they manage to get additional food from Khandbari. Villagers collect herbs from the forest to sell to local buyers as well as for export to China. One herb, yarsagumba, is found primarily in the hills and is collected and sold at a high price. Several villagers had migrated from more remote villages to villages located along the main trail to open up shops and sell goods. Researchers and civil society representatives noted that representatives from villages in Makalu- Barun recently visited The Mountain Institute (in Kathmandu) requesting support for developing ecotourism skills and livelihood improvement. After years of civil war and neglect, the region is particularly poised for the development of ecotourism because of its unmatched scenery, opportunities for new trail development, and bio- and cultural diversity. It is important to diversify livelihood strategies. For example, in the Mt. Everest region, people have become dependent on tourism for income, and are no longer focussed on agropastoral livelihood activities. This has resulted in no income going into the area when flights are not operational,

63 SJVN Limited is a joint venture between the Government of India (51 percent equity share) and the Government of Himachal Pradesh (49 percent equity share). They are operating and building a number of hydropower plants in India. 64 A PDA is designed to serve as the definitive document that sets out all obligations by the Government and the Developer to ensure that the interests of both parties are protected and well served for the duration of the 30 to 35 year concession period. In the agreement, the government assures investors that it would avert any possible social, economic, or policy-level uncertainties during the construction phase.

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economically impacting everyone from lodge owners to porters. The resurrection of pre-Maoist income diversification programs (e.g., allo cloth, lokta paper, cook training, tailoring training) would enhance local peoples’ lives and livelihoods concurrent with new benefits brought by the road and availability of power. The road built along the Annapurna Historic Trekking Trail and Mustang trekking trail to Lo Manthang has resulted in a reduction of tourism resulting in communities not as supportive in road development as before the roads were built. Providing incentives that facilitate preservation of the cultural landscape, particularly traditional architectural housing styles, would enhance the tourist experience and facilitate long-term, sustainable tourism development.

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