Beijing Law Review, 2011, 2, 17-24
doi:10.4236/blr.2011.21003 Published Online March 2011 (http://www.SciRP.org/journal/blr)
Nepal’s West Seti Project Imbroglio: The Supreme
Court Speaks
Kishor Uprety
Attorney at Law, Nepal.
Received January 4th, 2011; revised January 13th, 2011; accepted February 1st, 2011.
ABSTRACT
The history of Indo-Nepal water resource cooperation is a litany of dashed hopes, shelved projects, treaties lacking
implementation, and mutual recrimination. The small-neighbor versus big-brother syndrome that pervades relations in
every sphere invariably arouses suspicion of unequal benefits. In this context the West Seti Hydroelectric Project in far
western Nepal, the biggest energy generation project, was also stymied for more than a decade. This Project’s fate was
put on balance with a non-governmental organization moving the Supreme Court, alleging the Project would help India
at Nepal’s expense, and asking the Court to stop it since it was “illegal” and went against “national interests”. The
Court’s ruling, touching broadly upon the issues of national, international, and environmental laws, established a
precedent of significant value which will impact if not reshape the nature of cooperative development in the region.
Keywords: Hydro-Power, Development, International and Environmental La w, Riparian Rights
1. Background
A government decision to build a multi-billion dollars
hydropower project on the Seti River in the far western
region of Nepal (West Seti Hydroelectric Project or
“Project”) became a much discussed topic in the country,
especially, during 2006-2008. The Project, aimed at pro-
ducing power primarily for export to India, involved the
construction of a high dam, storing of excess wet season
river flows in its reservoir, and using of water to generate
electrical energy during peak demand periods in the dry
season [1]. The resulting reservoir, developments down-
stream of the dam, and the transmission lines running
from the Project site, would also inun date over 2000 hec-
tares of land and affect 18,269 people in 2,421 house-
holds, and requ iring resettlemen t o f an estimated 1,39 3 of
those households.
The private and public entities financing the Project,
namely the Snowy Mountains Engineering Company
(SMEC), an Australian Corporation, the West Seti Hy-
droelectric Corporation Limited (WSHL), the govern-
ment of Nepal (GON), and the Asian Development Bank
(ADB) considered the Project-related decision a way of
enabling Nepal to generate much-needed revenue from
the use of its rich water resources, and a means of ena-
bling India to meet its energy needs in a climate-friendly
manner.1 Opponents, however, viewed that, in ligh t of the
severe and long-term consequences of developing such a
major dam project, which will irreversibly destroy eco-
systems, permanently alter land and water use in the area,
necessitate resettlement of a huge number of people, and
require huge investments from government and private
funds, the venture called for full disclosure and discus-
sion of its detailed costs and benefits.
2. The Contractual Framework
In 1994, GON concluded an agreement with the SMEC
to explore the development of the Project. Among other,
the 1994 agreement provided that SMEC, through a sub-
sidiary company it established under the laws of Nepal
(the WSHL) would initiate work to prepare a Detailed
Engineering Report (DER) on the Project. In 1997, the
agreement between SMEC and GON was renewed along
with additional amendments. The amendment, among
others, increased the capacity of the Project from 360
1It was not possible, however, at the time to determine the real price that
was being paid to accomplish that. According to a senior analyst, this
was because the environmental impact assessment (EIA) prepared by
SMEC-WSHL, and approved by GON as a prerequisite for the approval
of the Project, failed to address certain major issues about the economic
and environmental costs. Those omissions in the EIA related to its fail-
ure to take climate change into account, the Project’s economic returns
for investors and Nepal, and its environmental and social consequences.
For a more detailed discussion, see [3].

Nepal’s West Seti Project Imbroglio: The Supreme Court Speaks
18
MW, as originally envisaged, to 750 MW [2].2 That same
year, in May, a Power Purchase Agreement (PPA) was
reached in connection with the export of electricity from
the proposed Project; and in June a Project Agreement
was concluded setting forth the detailed terms and condi-
tions for proceeding with the implementation of the Pro-
ject.
The export of electricity will, therefore, be undertaken
within the framework of the PPA between SMEC-WSHL
and Power Trading Company India Limited (PTC). PTC,
in turn, will sell power within the Northern region of In-
dia. The tariff, expected to be on a take-or-pay basis, will
comprise 1) off-peak energy rate, 2) peak energy rate,
and 3) excess energy rate. The average tariff will be
$0.04.95/kilowatt-hour at the point of delivery on the
Nepal-India bo rder.
The 1997 Project Agreement between WSHL an d GON
stated that SMEC–WSHL would prepare an Environ-
mental Impact Assessment (EIA) of the Project as part of
the DER, in accordance with the National Environmental
Impact Assessment Guidelines, 2050, the Environment
Protection Act, 2053 and all relevan t rules and guidelines
made thereunder. SMEC–WSHL submitted the DER to
the government in December 1997, and received ap-
proval in January 1999. Subsequently in August 1999,
SMEC–WSHL submitted an EIA, and in 2000, Nepal’s
relevant agency approved the Project. In 2007, SMEC–
WSHL updated the EIA along with information on the
impacts of the transmission line and incorporating new
considerations on increased costs and the plan to resettle
people affected by the Project.3
Under the terms of the Project Agreement, the Gov-
ernment receives revenue from the sale of power through
energy and capacity royalties. In addition, the Govern-
ment was given an option to receive 10% of the output of
the power station as free power, or 10% of the revenue
received under the terms of the PPA, in lieu of free power.
The government chose the latter option.4 Nevertheless,
some experts say that after 14 years of the agreement, the
real figure of royalty is still not clear [2].
The Project is a build-own-operate-transfer scheme, for
which WSHL has a 30-year license to generate for 24.5
years. The PPA has a 25-year term from the date the Pro-
ject starts commercial operation, at the end of which pe-
riod, full ownership will be transferred to GON.
The dam site is located on the Seti River, 82 km up-
stream of the confluence of the Seti and Karnali rivers.
The Project sites, in the middle mountains, at elevations
ranging from 550 to 920 meters, span six districts. All
sites, excluding the reservoir area and transmission line
corridor, are located in Doti and/or Dadeldhura districts.
The reservoir is located in Baitadi and Bajhang districts,
and the transmission line corridor crosses the districts of
Doti, Dadeldhura, Kailali, and Kanchanpur.
The plant consists of four Francis-type vertical-shaft
turbines connected to four alternators, each with an out-
put of 187.5 MW at the rated net head. The average an-
nual electricity production will total about 3,636 giga-
watt-hours (GWh). The main Project features are a 195 m
high concrete faced rock-fill dam, 2,060 hectare (ha) res-
ervoir area, 6.7 km headrace tunnel, underground power
station, 620 m tailrace tunnel, regulation weir, switchyard,
20.3 km permanent access roads, and 132.5 km 400
kilovolt (kV) double-circuit transmission line in Nepal, as
well as permanent accommodation for up to 200 opera-
tion and maintenance staff [4].
The Project will generate power from a head of 259 m,
created by running the headrace tunnel across a river
bend of the Seti River and thus diverting water around a
19.2 km river section. The reservoir will fill during the
monsoon season (mid June to late September/early Oc-
tober), and then water will be drawn down to generate
2It is important to note that, after this date also, the agreement has been
amended eight times already (11 December 1998, 5 November 1999,
20 June 2001, 7 May 2002, 8 January 2004, 8 February 2005, 1 march
2006, and 29 October 2006). The 29 October 2006 amendment (the 8th
amendment) modified article 16.6 and included a provision that SMEC
would pay GON a 0.05% export tax. In the earlier versions, this per-
centage was missing. At the same time, by amending article 18.1, the
two parties included a provision that GON would receive 10% of the ne
t
income of the sales of the power. The amendment does not state that
N
epal would receive 10% electricity free of cost (unlike reports by the
media which actually covered this aspect in an ambiguous fashion).
Anyway, despite 8 amendments, the royalty of 2% fixed as per the Elec-
tricity Act of 1992 still applies, although the new water resource policy
specifies that such royalties be set at 12%. For detail, see Dixit 2008:
158-159.
3As stated in the EIA, the Project involves construction of a 195 me-
ter-high concrete-faced rock-fill dam, creating a 2,060-hectare reservoir
area with a total storage capacity of 1,566 million cubic meters of water,
and will require the acquisition of 2,326 hectares of land, including 659
hectares of cultivated land, 806 hectares of forest, 246 hectares o
f
grassland and 169 acres of shrub land.
4According to SMEC–WSHL’s 2007 estimates, GON would receive
$991 million in revenue during the course of the 30-year generation
license, with an average annual benefit of $33 million. After the
thirty-year license expires, SMEC-WSHL projects that GON would
receive $170 million per year in revenue from electricity sales to India
(assuming the prices in the power purchase agreement between
SMEC–WSHL and PTC continue to apply). Experts have noted that
such a revenue stream, however, would only be temporary because the
accumulation of sediment in the reservoir will eventually prev e n t WSHP
from being able to generate power. It may also be noted that, accord-
ing to the EIA, sedimentation in the reservoir could terminate the Pro-
j
ect’s useful life within 25 years after its transfer to the GON. At that
time, the government would be required to decommission the dam, a
p
rocess requiring the government to perform a host of significant tasks
(assessing the safety of the dam; removing selected facilities and main-
taining others; recycling and disposing of materials and wastes, includ-
ing hazardous wastes; evaluating the effect of decommissioning on
aquatic ecosystems and uses of the river water; identifying ways to
mitigate negative effects of decommissioning; conducting ongoing
maintenance, surveillance, and security of retained facilities; and budg-
eting for and financing these and other necessary activities. For detail,
see, Johnson 2010: 515.

Nepal’s West Seti Project Imbroglio: The Supreme Court Speaks
19
power at peak times each day during the dry season.5 The
peak generation flow will be 330m3/s. The daily and
seasonal pattern of power generation will be dictated by
market demand. Average power generation over seven
months, from November to May, is likely to be over two
periods per day (to match peak power demand in India).
Power will be transmitted from the Project via a 230.5
km 400 kV transmission line, the initial 132.5 km located
in Nepal, running south from the switchyard to Attariya
then West to Mahendranagar, and the final 98 km head-
ing southwest in India to join the Ind ian transmission grid
at Atamanda, 22 km north of Bareilly.
3. Call for Court’s Intervention
In view of the significant public concern associated with
the Project, a writ petition was filed at the Supreme Court
of Nepal in August 2006 by seven individuals (locals and
human rights activists) against a number of State institu-
tions and the private companies (SMEC and WSHL),
claiming that several issues of significance were ne-
glected by the agreements on the West Seti Project. The
petition sought the Court’s intervention as follows:
1) Consistent with Article 156 of the Interim Constitu-
tion, which provides for the agreement on sharing of
natural resources to be approved by a two-thirds’ major-
ity of the Legislature Parliament, the agreements related
to the Project be required to be so ratified;
2) Until all agreements are duly so ratified, the works
under the Project is halted;
3) The agreement between GON and SMEC, including
the amendment of 29 Oct obe r 20 0 6, be q uashed; and
4) Consideration is giv en to the adverse environmental
impacts that may be caused by the Project.
The Court asked for written responses from all re-
spondents and set a hearing date. Oral arguments then
followed.
3.1. Arguments
The agreement was contested essentially on three grounds:
the rights of people in regard to the water and the river
(covering the environmental, informational and other
social and cultural rights, including compensation and
rehabilitation); national interest (revolving around the
notion of sovereignty); and as already noted above, ap-
plication the Interim Constitution.
Rights of People: According to the petitioners, the
Project will cause displacement of more than 15 thousand
people who have been historically part of the river. These
people must have the right to first use the water, to make
a decision over the use of water by others, and must be
consulted on any resulting plan or development in con-
nection with water. They are the stakeholders whose free
and prior informed consent needs to be secured . National
and international laws clearly state that the local people
have the first right over their natural resources. But,
against this spirit, because of the Project, the companies
will retain absolute rights over water. A guarantee of the
right to use water for local people’s basic needs, at least,
should have been included in the Project Agreement [1].
In addition, the agreement is silent on the social and
economic rights of local people, as it is on benefits-
sharing with them, on employment opportunity for them
in the Project, or on overall cost of the Project.
In this context, it is appropriate to note that costs have
been defined broadly. Beyond the initial in vestment, they
include costs of environmental degradation, submergence
of forest, and loss of cultivable lan d that Nepal will have
to bear. According to the EIA, the Project’s reservoir
inundates/submer g es 25.1 km of th e Seti River and a total
of 28.0 km of five main tributaries (Chama, Dhung, Saili,
Nawaghar, and Kalanga). It further notes that the perma-
nent Project features will require the acquisition of 659
ha cultivated land, 806 ha forest, 169 ha shrubs, 246 ha
grassland, 9 ha abandoned land, 5 ha settlement, 409 ha
river feat and 23 ha rock/cliffs totaling 2,326 ha of land.
Similarly, 678 ha will be utilized fo r th e transmissio n lin e
right-of-way. In total the Project will use 3004 ha land
permanently. Although the acquisition of land, as such, is
covered by the EIA report, the Project proponents have
plans on the anvil to rehabilitate the displaced people by
providing “land” in lieu of “cultivated land”. The land
occupied/cultivated by the displaced populace is just 659
ha of cultivated land, comprising 22% of total land to be
acquired. In this manner, the Project will be using Ne-
pal’s additional land for the purposes of rehabilitation.
Moreover, the Project has no plan s to provide land in lieu
of remaining 2345 ha (3004 ha minus 659 ha) that it is to
use. The question therefore was why Nepal should sacri-
fice 2345 ha land to provide low cost power to India,
which will also enjoy the benefits of flood control in the
rainy seasons and au gmented flow in the dry season, free
of charge (unjust enrichment).
The petitioners also argued that Clause 7.2(d) of the
Project Agreement puts restriction on consumptive use of
water in the upstream area in order to ensure the supply
of water for the Project to generate electricity.6 This re-
5The reservoir will have a total storage capacity of 1,566 million m3
(926 million m3 of live storage and 640 million m3 of dead storage) and
a drawdown range of 59 m (from the full supply level to minimum
operating level).
6Clause 7.2(d) reads: “In accordance with Rule 20 of the Electricity
Regulation 2050, the Generation Licence will confer on SMEC the right
of the uninterrupted flow of the West Seti River to the Project. HMGN
(the Government) will not issue, and will ensure that no Government
Agency issues, any other licence or permit for use of the water in the
catchment area that substantially impairs the flow of such water.”

Nepal’s West Seti Project Imbroglio: The Supreme Court Speaks
20
striction adversely impacts a number of villages (Rayal,
Dangaji, Parakatne, Bhairabnath, Chaughari, Kotbhairab,
Malumela, Matela, Subeda, Luyata, Hemantabada,
Chainpur, Sunkuda, Banjh, Khiratadi, Dahabagar, Pi-
palkot and Kapalseri in Bajhang District, Belapur in
Dadeldhura District, Shivalinga, Dhungad, Sigas and
Thalakada in Baitadi District, and Lamikhal, Mahadevst-
han, Dahalkakikasthan, Girichauka and Chhapali in Doti
District), which will no t be allowed to use water for con-
sumptive uses like irrigation. The Project undermines the
significance of the issue by merely saying that there will
not be any restriction on drawing of water by the people
in these villages for drinking purpo ses, brushing asid e the
fact that the real issue, here, is the water for irrigation.
Due to the restriction imposed by Clause 7.2(d) of the
Project Agreement, no new irrigation work will be per-
missible in these villages. Water will also become un-
available for use by locals in the de-watered area (Bayar-
pada, Banlek, Jijaudamandu, Latamandu and Pachanali,
in Doti District and Belapur in Dadeldhura District). The
environmental flow of 10% that the Project is required to
maintain will not be enough for irrigation in the villages
on the banks of the dewatered river.
National and Water Sovereignty: After the construc-
tion of the dam, the volume of water will increase by
90-156 cu sec. Nepal should have retained absolute rights
over water stored in the dam. Nepal could have also
sought from India payment for this water. However the
agreement is completely silent on the poin t. And, as such ,
it has not only ended water rights of people of Nepal; the
commencement of such a practice has undermined na-
tional sovereignty.7
Constitutional Issues: Article 156(1) of the Interim
Constitution states that the ratification of, accession to,
acceptance of or approval of treaties or agreements to
which the State of Nepal or the Government of Nepal is
to become a party shall be as determined by the law.
Sub-article (2) specifies that laws to be so made shall,
inter alia, require that the ratification of, accession to ac-
ceptance of or approval of treaty or agreements on (a)
Peace and friendship; (b) Security and strategic alliance;
(c) The boundaries of Nepal; and (d) Natural resources
and the distribution of their u s es, be do ne by a two-thirds’
majority of the total number of members of the Legisla-
ture-parliament. The Constitution further provides that if
any of the treaties/agreements referred to in (a) and (d)
above, is of ordinary nature and does not affect the nation
gravely or long term, a simple majority proced ure may be
followed.
According to the petitioners, the agreement for the
West Seti Project establishes a regime for sharing water
and electricity between Nepal and India, in addition to
“giving” to India the river for 30 years. It is clearly,
therefore, a case of sharing of natural resources between
two countries, thus requiring a two-thirds’ majority.8
3.2. Counter Arguments
The attorneys, on behalf of the government institutions
and the two companies rebutted by making three main
points:
1) SMEC-WSHL is a company registered under the
Nepalese Companies Act. Providing a license to a na-
tional company is the country’s internal matter. An
agreement of commercial nature need not be ratified by
parliament. This is not an issue concerning two countries.
Only agreements between countries are subject to the
7The petitioners took this position relying on a number of precedents
established elsewhere. According to them, the reservoir Project gener-
ates downstream benefit in terms of flood control in the rainy season,
augmented flow during dry season and additional electricity generation
capacity. But Nepal is deprived of any recompense for these. Note that
under Article V of the Columbia Treaty between Canada and USA, the
former is entitled to one half the downstream power benefits. Applying
this principle to the West Seti Project, the installed capacity of which,
without a reservoir, is only 100 MW, Nepal should have been entitled to
p
ower benefit of 325 MW, as its capacity increases to 750 MW due to
construction of the reservoir. The Columbia Treaty also includes a pro-
vision for (a) compensation to Canada for flood control benefit in USA
(due to storage of water during rainy season), and (b) augmented flow in
USA during the dry season. USA paid a lump sum to Canada for flood
control as well as for the economic loss to Canada arising directly from
Canada foregoing alternative uses of the storage used to provide the
flood control. Under the West Seti arrangement, Nepal receives nothing
for the downstream benefits that India will enjoy with the completion o
f
the Project (India stands to receive 90 m3/s during the dry season or
7.77 billion liters per day). From this perspective, India will receive a
huge amount of water absolutely free. Similarly, Lesotho receives US$
25 million annually for 18 m3s water it supplies to South Africa. At this
rate, Nepal would be entitled to US$125 million per annum for the
augmented flow of 90 m3s which has been sacrificed. Furthermore,
analysts consider that the proponents of the Project focused on the bene-
fit to Nepal (with a value of $ 1.2 billion) that will accrue after handove
r
of the Project, but failed to realize that it will not be worth the same (due
to wear and tear). In that context, they also glossed over another serious
issue of silt loads in the rivers of Nepal that are very high and within a
short span of time can increase dead storages in the reservoirs. Once the
reservoir gets filled up with silt, India could start asking for the decom-
missioning of the dam. But the Project has not allocated any fund for the
p
urpose, meaning that Nepal will have to foot this bill. See for discus-
sion, Shrestha (2008).
8During the 10th modification, the Nepalese Law Ministry was also
opposed to the renewal of the West Seti Agreement. It raised an objec-
tion stating that the proposal undermined the “sovereignty and integrity”
of Nepal. Expressing serious concern over some of its provisions, the
Minister of Law and Justice urged the Ministry of Energy not to renew
the agreement without first removing one controversial clause which
made Nepal government to be liable for all damages. The Ministry said
“TheNepal government cannot be responsible for all the damages; it
can be responsible only for damages as prescribed by Nepali law and
regulations, and thus it [clause] is objectionable”. Another clause on the
settlement of disputes was also considered objectionable. The agreement
included English law as the applicable law for settling disputes, which
the Ministry considered a serious challenge to the national sovereignty
and integrity, and recommended its removal. The Ministry also objected
to the Project’s right to issue debentures, and asked for its removal,
b
ecause no private company should have the right to issue debentures, a
right only reserved for the Central Bank. See [5].

Nepal’s West Seti Project Imbroglio: The Supreme Court Speaks
21
constitutional provision on ratification.
2) The agreement is not an international treaty on sh ar-
ing of natural resources, but an agreement warranting a
license under the Electricity Act, which has been awarded
after the r eview of the de tailed environmental assessment.
It concerns trading of energy (as a commodity) upon li-
cense.
3) There is no provision in the agreement specifying
the quantity of water that needs to be released to India.
Therefore it is not about sharing of water (natural re-
sources). Furthermore, because the agreement will be
implemented under the general oversight of the Govern-
ment, the risks, if any, will be easily contained.
3.3. The Ruling
In the Case, the Court had five main inter-related ques-
tions to answer.
1) Whether the locus standi of petitioners is clearly es-
tablished?
2) Whether the agreement is directly and indirectly
against national interest, or has adversely affected down-
stream benefits?
3) Whether the agreement is on sharing of national
natural resources, and needs to be ratified by 2/3 majority
of the Legislature- Parliament?
4) Whether the Project has adequately dealt with envi-
ronmental issues, and has provided for adequate protec-
tion of property and wellbeing of the people livin g in the
area? and
v) Whether an Order is warranted?
1) On the question of locus standi of the petitioners,
the Court first noted that to justify a public interest, one
needs to establish an obvious relation of the Project with
the group, the society, the region, and the country, and
substantiate that at least one has been deprived of a right.
The Project’s lawyers’ position was that by giving the
license, a contractual relation had been established be-
tween GON and the Project. The Project-related decision
was based on purely economic grounds and the contract
was a technical and a commercial one. It derived from an
administrative decision, and is beyond the scope of pub lic
interest.
Furthermore, the Court’s jurisdictions as well as the
remedies can be different on matters governed by a con-
tract. A breach of contract, damages or benefits, comes
under the Court’s ordinary jurisdiction and cannot be
brought within the purview of its extraordinary jurisdic-
tion (i.e. a writ petition). GON provided a license pursu-
ant to its sovereign right and within the framework of the
law. Also, the fact that PTC is allowed to buying cheap
electricity does not alone become an act against national
interest, as contended by the petitioners.
The petitioners’ position was that th e fact that land will
be inundated and livelihood affected is clear. Therefore,
stating that they do not have locus would be wrong. A
Project allowed to operate and to use natural resources,
certainly, generates public concern because it affects hu-
man livelihood, and the decision-making related to it as
well as its effects can be questioned by the general public
in search of judicial remedy. Moreover, because of the
scarcity of freshwater, any activity that uses water can
become a matter of public interest. Water is a common
good. Its values are reflected in the religions. It is also a
human right, and, therefore, its use can be of public con-
cern.9
The Court, after analyzing the arguments of both sides,
at the outset, acknowledged that the Project was, no
doubt, important fo r the country, because it brings in fo r-
eign direct investment, including skills and technology,
and as such, its success or failure becomes a serious mat-
ter of concern.
The Project is located within the Nepalese territory;
electricity will be generated and will be managed by a
company established under the Nepalese law; after gen-
eration, water will flow, for a long distance, within the
Nepalese territory, thus will not be devoid of all multi-
purpose uses. The Project has been selected by GON to
serve its needs and its priority, along with a management
mechanism also selected by it. In this connection, actu-
ally, the involvement of GON’s Department of Electricity
Development (DOED), particularly in the issuance of th e
license, is logical. Except for an agreement between PTC
and SMEC-WSHC on the export of power generated
from the Project, there is no other agreement in connec-
tion with this Project. There is no agreement between
India and Nepal at government level.
The Court acknowledged that professional shortcom-
ings may have been there to influence the assessment of
the economic returns of investments, management of
technology transfer, and understand ing of the market, but
nonetheless, the country’s abundant natural resources and
their use being indispensable to open the door for devel-
opment, their exploitation also had to be started.
The Court went on to state, “It is not enough to only
state that natural resources are precious; they should also
be harnessed economically. That is what defines the
benefits of natural resources. If we continue to sow the
seeds of possibilities only, but fail to implement anyth ing
9The petitioners also stressed the internationalized status of the right to
water by making reference to, among other, the 1992 Rio de Janeiro
Conference and the Agenda 21, which talk about sustainable develop-
ment. They emphasized, in that context, that from selection to manage-
ment of a development Project, the local people have a role to play
(decision making, participation, sovereignty, benefit sharing, transpar-
ency, environmental protection, securing inter-generational right, and so
forth). As a member of the UN, Nepal has a duty to abide by the UN
recommendations and for the Court to order its compliance. As such, the
locus standi of petitioners can be adequately established.

Nepal’s West Seti Project Imbroglio: The Supreme Court Speaks
22
in practice, they will never be beneficial. It is the right of
the people to improve their livelihood by using natural
resources. When making a decision on these types of
resources, the government or its agency needs to use the
law in good faith and spirit. Whether, in this context,
GON’s decision has undermined the peoples’ rights long
term, or has foreclosed their rights over these natural re-
sources unjustly, are points that need to be considered in
a different context by examining the legality of the deci-
sion. It is also important to note that in the present case,
the State does not design and implement the Project itself,
but with the assistance of local and foreign agencies, and
a company registered in Nepal. Moreover, for the license,
the State receives a royalty, receives skills and technol-
ogy, receives some electricity free of cost, and after thirty
years, gets the whole Project.”
The Court further stated that although divergences of
views are normal, and acceptable, it is not appropriate to
discredit a decision of a responsible agency about the site,
the design and the management method, which has, as
clearly established by the Project lawyers, carried out all
necessary studies before making the choice. Certainly, on
environmental issues, a careful approach is warranted,
but whether the specific agreement has created a long
term negative effect on the constitutional practices or
national interest is something that needs to be substanti-
ated not by guesses but by statistics, analysis, practical
examples, and the assessment of the intention of the deci-
sion maker. Barr ing guesses and hypotheses, no informa-
tion has been provided in the case on the futility of the
Project. The most important point in this case is that Ne-
pal’s own agencies made a decision on the use of water
resources through its own internal processes. Therefore,
in the agreement related to West Seti and the natural re-
sources involved in it, Nepal’s sovereignty remains intact.
The agreement is not with another country on the use and
sharing of natural resources undermining national inter-
est.10 Therefore, the petitioners’ contentions are deemed
baseless.
2) On the second question as to whether the agreement
is directly or indirectly against national interest, or has
adversely affected downstream benefits, the Court, after
considering a number of principles of internation al law,11
made a few interesting points.
The West Seti, not being an international river, its wa-
ter being used traditionally and there being no interna-
tional agreement on its governance, the right of Nepal on
the unrestricted use of its waters is clear. International (or
common) rivers are generally governed by agreements
under international law in so far as their waters, or their
use or sharing, are concerned. There are situations where
lower riparian countries can abuse of the situation (weak
economy, low technology and skill of upper riparians)
and, by using the notion of prior use, can fulfill th eir own
interests. But this right needs to have been established
with prior agreement [6].
It is important to note that, beyond the main Project
site, the Seti river continues to flow within the Nepalese
territory, for a long distance, before entering another
country. Yet, the upstream country cannot use it reck-
lessly so as to affect the quantity and quality of water and
to affect downstream riparian. Likewise, the downstream
country also cannot use water in a manner to affect the
territory and environment of the upstream country. The
efforts and successes of upstream countries on water and
environment protection can actually benefit downstream
riparians. And, as such, it is useful for downstream coun-
tries to assist upstream countries in such endeavor. As a
corollary, an upstream country also, while developing
projects, should not indulge in making any unnecessary
publicity that a down stream coun try has obtain ed benefits
free of cost, or that it has benefited from a situation of
unjust enrichment. In any case, the right to use water
from a river is a right under international law. Equitable
use of waters from a river is the prevailing practice, and
is also “justice”. It is natural for a country to use water
for the benefit of its citizens. The petitioners’ contention
that the Project will lead to unjust enrichment is not
something on which the court can give any judicial
evaluation, direction or in tervention.
In so far as the contract between the two companies
-one registered in Nepal under Nepalese law and another
in India under Indian law- is concerned, it is for the pur-
chase of electricity, and in view of its objective and na-
ture, it does not fall in the category of a contract creating
an obligation under international law. Moreo ver, the Pro-
ject is a fully-fledged national Project, and thus does not
create any responsibility, whether directly or indirectly,
under international law. There may have been some
glitches in the deal emanating from the failures of diplo-
macy or politics involved in it, but diplomatic and politi-
cal issues need to be discussed and settled in their own
sphere and envir onment; they cannot be resolv ed through
a judicial interven tion. Also the argument of the petition-
ers that because the Project is financed by investments
from Australia, China, India, and the ADB, there may be
10In this context, the Court also provided the examples of Lesotho ex-
p
orting water to South Africa against the payment of a royalty or Egypt
b
uilding a powerhouse in Ethiopia to provide energy to Ethiopia and
getting water for itself.
11It referred to the principle of absolute territorial sovereignty: that there
is sovereign right of the country to use of waters from a river flowing
within one’s territory, and later also made reference to the UN Con-
vention on the Law of the Non-navigational Use of International Water
Resources of 1997, the principles deriving therefrom, and the elements
defining equitable utilization.

Nepal’s West Seti Project Imbroglio: The Supreme Court Speaks
23
change in its “national status” is not convincing.12 Such
foreign companies have not been granted any right of
claim under international law
Certainly there is scarcity of serious data about the
quantity of waters available in the rivers and their flow
and the reduction in such quantity and flow, which may
have been due to many reasons. But nobody can be held
responsible for this type of change caused by the nature.
In any case, in the absence of any specific agreement,
concluding that some countries will derive benefits due to
the Project is only a narrow susp icion and hypo th etical. A
judicial process canno t rely on that kind of a hypothesis.
Regarding the electricity generated and its sales in a
foreign market, the Court acknowledged, at the outset,
that the petitioners are not against the export of energy
but have specifically questioned the low price. Neverthe-
less, how electricity should be supplied, or how a deci-
sion on developing a project should be made is a policy
and administrative matter. The decision is incumbent
upon GON’s mandated agency which has to take into
account factors such as investments, long-term market
management, possibility of export in foreign market and
so forth. Any abuse of authority by such agencies is
monitored pursuant to specific applicable laws. The
Court cannot, in the context of a writ petition, second
guess the decision of such agency operating under the
laws, and, therefore, cannot intervene.
Regarding whether the PPA has violated national Law,
the Court noted that Section 35 of the Electricity Act
2049 allows the government to enter into any contract
with any person or entity on generation or distribution.
Similarly, Section 12 of the Water Resources Act 2049
allows the government to develop hydropower, its uses
and services. The PPA, a commercial agreement, has not
created any international obligations or rights under in-
ternational law. On this basis, therefore, it cannot be
deemed illegal and voided .
Regarding whether there is sharing of national natural
resources, the Court reiterated that energy itself is not a
natural resource but a commodity (or a service) deriving
from a natural resource (i.e. water). All water resources,
as well as the decision-making authority, after generation
of electricity, still continue to remain in Nepal. The
agreement is about generation/production of energy, not
about sharing of water.
3) On whether the agreement needs to be ratified by a
two-thirds’ majority of the Legislature-Parliament, the
Court relied on a content-analysis of Article 156 of the
Interim Constitution. It reads as follows:
“156. Ratification of, Accession to, Acceptance of or
Approval of Treaty or Agreements:
1) The ratification of, accession to, acceptance of or
approval of treaties or agreements to which the State of
Nepal or the Government of Nepal is to become a party
shall be as determined by the law.
2) The laws to be made pursuant to clause (1) shall,
inter alia, require that the ratification of, accession to,
acceptance of or approval of treaty or agreements on the
following subjects be done by a two-thirds majority of
the total number of members of the Legislature-Parlia-
ment present in the House:- (a) peace and friendship; (b)
security and strategic alliance; (c) the boundaries of Ne-
pal; and (d) natural resources and the distribution of their
uses.
Provided that out of the treaties and agreements re-
ferred in the subclauses (a) and (d), if any treaty or
agreement is of ordinary nature and which does not affect
the nation extensively, seriously or in the long-term, the
ratification of, accession to, acceptance of or approval of
such treaty or agreement may be done at a meeting of the
Legislature-Parliament by a simple majority of the mem-
bers present in the House.
3) After the commence ment of the Constitution, un less
a treaty or agreement is ratified, acceded, accepted or
approved in accordance with this Article, it shall not be
binding to the Government of Nepal or the State of Ne-
pal.
4) Notwithstanding an ything written in clauses (1) and
(2), no treaty or agreement shall be concluded that may
have detrimental effect on the territorial integrity of Ne-
pal.” [8].
The Court emphasized that the above constitutional
provision mainly refers to the possibility of making laws
to govern the treaties and agreements, or the type of ma-
jority required for their ratification. It does not spell out
the different categories of agreements.
With regard to the Project, there are three sets of
agreements: The agreement between GON and SMEC
(for feasibility study), the agreement between GON and
SMEC-WHSL (development of the Project), and the
agreement between PTC and SMEC-WHSL (for power
trading).
The first agreement (between GON and SMEC dated
1994), which is for feasibility only, is irrelevant for pur-
poses of constitutional discussion. With respect to the
other two agreements, the Court made two points. Article
2(a) of Treaty Act 2047, defines a treaty between coun-
tries or a country and an international organization. In
similar vein, Article 2 (1) of the Vienna Convention of
the law of Treaties also defines a treaty as “agreement
conducted between states and governed by international
12China joined later, in 2004. China’s state owned Export-Import Bank
(China Exim Bank) agreed to extend financing of one billion US dollars
for the Project, for which it signed an agreement with SMEC. The Pro-
j
ect will be constructed by China National Machinery and Equipment
Import and Expor t Company. For detail, see [7].

Nepal’s West Seti Project Imbroglio: The Supreme Court Speaks
24
law…” Based on these, the Court concluded that the
above agreements do not fall in the category of agree-
ments as defined by the Treaty Act. The Court further
pointed out that if a different position was taken, a
precedent would be created in which the country would
be completely barred from developing any Project, eco-
nomically beneficial or not. Therefore, the agreements do
not require to be ratified by a two- thirds’ majority as they
are not about the shar ing of natural resour ces, and are not
international treaties, stricto sensu.
4) On whether the Project has adequately dealt with
environmental issues and downstream effects and whether
it has provided for adequate protection to the property
and wellbeing of people living in the area, the Court ac-
knowledged that development projects have the potential
of adversely affecting environment and livelihood. The
effort, therefore, should be to minimize such problems
and lower and manage such risks. That is why an EIA is
generally required. Our type of country, the Court noted,
needs more and more development projects, and imped-
ing development by only creating problems of environ-
ment is nonsensical. It is, on the contrary, important to
participate constructively in the development of the
country by creating a balance between its developmental
needs and environmental concerns. The Project, being in
its early stage, it is important to identify its weaknesses
and mitigate environmental adverse effects. It has, indeed,
been given a license to operate, which does not mean that
it will, and it can, neglect all environmental concerns.
The Court further stressed that only identifying is not
enough; an honest and effective implementation of rec-
ommended measures is indispensable, and even though
the petition failed to do so, the rare species, fauna and
flora, and environmental effects on them should also be
part of the solution.
Big companies generally tend to carry out EIA espe-
cially because of legal requirement, but do not present
such EIA in a language understandable to all stakeholders,
which often results in misunderstanding by the latter.
Therefore, it is imperative to let people participate in the
assessment and management of plans, and the Project
needs to honestly inform the concerned stakeholders
regularly and provide them with opportunities. In this
context, the Court also deemed it important to develop an
administrative machinery to preserve nature and protect
the population through appropriate plans, and if need be,
through a fund established for such purpose. The Execu-
tive Branch was asked to be proactive in establishing
such a fund, and monitoring and evaluating it.
5) Finally, on whether an Order is warranted, the Court
reiterated two points.
Because the agreement between GON and WSHL is
not an agreement between two countries on the sharing of
specific natural resources, and because the companies
received a license to generate and export power, it cannot
be considered an agreement for sharing of natural re-
sources and benefits. A parliamentary ratification for the
Project is, therefore, not required.
Given the fact that after thirty years, upon completion
of the contract, the Proj ect will be returned to the GON, it
cannot be considered as having created adverse long term
effect. The downstream water within Nepalese territory,
after generation, continuing to be usable by Nepal, it
cannot be considered as having limited Nepal’s rights on
the use of water, in any manner whatsoever. Therefore,
the Court denied to issuing an Order to halt all Project
related work, as per the petitioners’ request.
4. Conclusions
On September 9, 2008, thus, th e Supreme Court, through
its landmark verdict, issued by Justice Anup Raj Sharma
and Justice Kalyan Shrestha, upheld the West Seti deal.
While so doing, as noted above, Justice Sharma and Jus-
tice Shrestha also ordered GON to develop a permanent
mechanism to compensate people who will be affected by
big undertakings such as this West Seti Project. In addi-
tion to displaying an exemplary environment-friendly
approach, in their verdict, they have also successfully
managed the ambiguity that tags along the notion of sov-
ereignty, often a thorny item in the discourse of the Nep-
alese bilateral relations, by providing a clear explanation
to its constructive understanding, and made of “water”,
no more than a simple easily tradable commodity. This
verdict, needless to stress, will have a long-term and far-
reaching effect on Nepal’s efforts to develop mega pro-
jects involving multiple national and international inves-
tors.
REFERENCES
[1] L. Johnson, “Advocacy Strategies for Promoting Greater
Consideration of Climate Change and Human Rights in
Development Activities: The Case of the West Seti Hy-
droelectric Project in Nepal,” Vol. 27, No. 2, Pace Envi-
ronmental Law Review, 2010.
[2] A. Dixit, “Dui Chhimekiko Jalayatra,” The Water Trajec-
tory of Two Neighbors, Actionaid, 2008.
[3] R. S. Shrestha, “Opinion,” West Seti Project. A Nepali
Perspective, September 2008.
[4] West Seti Project Document (undated).
[5] B. Gautam and A. Shah, “Law Ministry Opposes West
Seti Renewal,” Advises Against New Clauses, Republica,
November 2009.
[6] Order of the Supreme Court, September 2009.
[7] B. Sangraula, “China bank to invest $1b in West Seti,”
Kantipuronline.com, 2004.
[8] Interim Constitution of Nepal 2063, 2007.