NRSC 616 Project Paper

Power Shortage, its impacts and the Hydropower Sustainability

Assessment Protocol: in the context of South Asia

Submitted by:

Bipin Pokharel

Master of Science Candidate Environmental Assessment Option,

McGill-UNEP Collaborating Centre on Environmental Assessment,

Depart of Natural Resource Sciences,

McGill University, MacDonald Campus,

Montreal, QC, Canada

Submitted to:

Dr. Mark A. Curtis

Dr. Gordon M. Hickey

Dr. Michel A. Bouchard

McGill-UNEP Collaborating Centre for Environmental Assessment,

Depart of Natural Resource Sciences,

McGill University, MacDonald Campus,

Montréal, QC, Canada

December 08, 2010

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Table of Contents

Figures and Tables 3

Abstract 4 Scope of Study 5

Study Method 5

1.0 Electricity in South Asia: An Introduction 7

1.1 South Asian Economic Boom and Electricity 7 1.2 Electricity Situation in South Asia 8 1.3 Power Shortfall in Urban South Asia 10 1.4 Lack of Electricity Access in Rural South Asia 12

2.0 Impacts of South Asian Power Shortage 13

2.1 Economic Impacts 13 2.2 Health Impacts and Other Social Impacts 15 2.3 Environmental Impacts 17 2.4 Hydropower Potential in South Asia 20 2.5 Challenges to Hydropower Development in South Asia 21

3.0 ARUN III Project: A Lost Opportunity for the Region 23

4.0 Safeguard Policies in Multilateral Development Bank 24

5.0 Hydropower Sustainability Assessment Protocol 26

6.0 Climate Negotiation, Energy Security and Hydropower in South Asia 30

7.0 Conclusion 32

Acknowledgements 33

References 33

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Figures and Tables

Figures

Figure 1: GDP Growth Various Regions of Asia in Percentage from 2001 to 2005

Figure 2: Electricity Supply Demand Gap in India, Nepal, Pakistan and Bangladesh in the Year 2007/08

Figure 3: Population in Millions without Access to Electricity in Different Regions of the World

Figure 4: The cost comparison between planned (Load-shedding) versus Unplanned power outages in Sri Lanka for the 2003

Figure 5: Comparision of Mortality from Major Dieases in 2008 with the Mortality from same diseases in 2030

Figure 6: Effect of biomass cooking in Asian BC loading

Figure 7: Investment in Hydropower Project by the World Bank 1990-2008

Figure 8: Major Hydropower Project Decision Points and the HSAP Tools

Figure 9: CO2 Emission Profile for All South Asian Countries from 1960 to 2004

Tables

Table 1: Hydropower Potential and Percent Currently Exploited by South Asian Countries

Table 2: Environmental and social criteria that are assessed and managed by HSAP

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Abstract

In the pursuit of dynamic course of economic growth and modernization, much of South Asia

visions the need to increase its electricity generation capacity through the development of

hydropower projects. This need is further required due to rising electricity demand in urban and

industrial South Asia, and worsening negative environmental and health impacts from use of

biomass as energy sources in its rural parts. The unprecedented economic growth in South Asia

is becoming constrained by significant shortages in power supply, and unless corrective steps

are urgently initiated and implemented, it may be difficult to sustain its industrial development

momentum. Fortunately, South Asia has immense hydropower potential (estimated 232 GW of

hydropower potential combined in Nepal and India alone, only approximately 15% of that has

been exploited). Argued by many, developments of large hydropower projects have adverse

environmental impacts on human population and environmentally important areas. Against this

perspective, Hydropower Sustainability Assessment Protocol (HSAP) can identify environmental

impacts of such projects early and can design mitigatory measures; thus achieving a sound

hydropower development plan that will not have detrimental effects on environment and human

population, both during construction and operation. In other words, HSAP holds potential for

advancing sustainable hydropower.

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Scope of the study

This study seeks to analyze the Hydropower Sustainability Assessment Protocol (HSAP) in the

context of hydropower development project those financed by the Multilateral Development

Banks (MDBs) - specifically in the context of development in South Asia- in achieving

sustainable development of hydropower sector without having tradeoffs with the environmental

and social dimension. The study will examine a case study of a failed hydropower development

projects (e.g. ARUN III discussed by Rai & Schmidt-Vogt, 2004) financed the World Bank. The

analysis seeks to outline the benefits of HSAP in recognizing and managing it social and

environmental issues associated with hydropower project, in turn, saving development funds,

mitigating adverse environmental and social effects, and avoiding unwanted litigations.

Furthermore, the study seeks to underline the importance of HSAP in communicating the

Region‟s large economic growth opportunities associated with development of hydropower

projects. The most important objective of this paper is to draw attention to environmental

and social impacts of power shortage, and crucial role hydropower development projects

can play to alleviate climate (black carbon) and health (indoor air pollution) issues in the

region that must be address urgently. Lastly, suggest the role of hydropower in South Asia in

providing future energy security.

Study Method

This NRSC Master‟s Research Project consists of two parts namely; work conducted during the

NRSC 615 Internship at the United Nations Environment Programme Regional Resource Centre

for Asia and the Pacific, Bangkok, Thailand; and the analysis of the Hydropower Sustainability

Assessment Protocol developed by International Hydropower Association collaborating with

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multi-sector stakeholders. Further, the Research includes analysis of data obtained from the

World Bank Climate Portal.

Part A: Resources from NRSC 615 Internship with UNEP RRC.AP

During my internship term with UNEP RRC.AP, my work involved researching and

maintaining liaison with different NGOs in Nepal , India and Bhutan that are currently working

in energy sector to make modern energy accessible to rural communities. My research, meetings

with various faculty members at the Asian Institute of Technology and NGOs staffs provided

basis for introduction to the topic and analysis of current energy situation in the region.

Literature on ARUN III project is also based on my valuable internship term with the UNEP

RRC.AP. Analysis of ARUN III will further be based on McGill University‟s library resources

and the Work Bank reports on the project.

Part B: Analysis of Hydropower Sustainability Assessment Protocol and library resources

This part of the study includes analysis of the newly developed Hydropower Sustainability

Assessment Protocol. Analysis will be conducted based on McGill University‟s library

resources. The analysis compares past the World Bank‟s environmental assessment of the ARUN

III project with newly developed the HSAP. The analysis also includes graphs and tables adapted

from data gathered from the World Bank Climate Portal and various other journal articles.

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1.0 Electricity in South Asia: An introduction

South Asia, which comprises of seven countries namely, India, Pakistan, Nepal, Bhutan, Sri

Lanka, Maldives and Bangladesh, is home to estimated more than 1.6 billion people or almost

25% of the world‟s population; out of which, 1.2 billion people live in India alone (WHO,

2009),. Approximately one billion South Asian live under US $2 a day; grouping it together with

the poorest regions of the world. In the United Nations‟ extended definition, South Asia

comprises of five more countries, namely Iran, Afghanistan, Myanmar, Tibet and the British

Indian Ocean Territory. For the purpose of this study, the definition includes only core seven

countries mentioned above.

1.1 South Asian Economic Boom and Electricity

Although grouped among the poorest regions in the world, in recent years many South Asian

countries – Bangladesh, Sri Lanka, Pakistan and India- are experiencing vibrant economic

growth. Rates of economic growth – measured as percentage change in gross domestic product

(GDP) at market prices based on constant local currency- major countries in the region (India,

Pakistan, and Bangladesh) exceeded 5.4% in 2005 (Saaez, 2007). The Economic Outlook

Report 2006 published by the Asian Development Bank indicated that the average GDP growth

of South Asia from 2001 to 2005 was the highest among the Asian regions, soaring at 6.7%. It is

higher than Southeast Asia‟s 6.4% and new industrialized economies‟ 4.0% GDP growth (fig 1).

This economic boom will only further widen already alarming supply and demand electricity gap

in South Asia.

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Economic gains of South Asia in the past have been offset by numerous development challenges.

In addition to poor social services, the biggest challenge was weak overall infrastructures. In

recent decades, development growth is resulting from out-sourced manufacturing and IT-related

jobs from the west.

Fig 1: GDP Growth Various Regions of Asia in Percentage from 2001 to 2005

(Source: ADB Economic Outlook South Asia 2006)

However, to sustain this economic growth – which was not impeded by weak infrastructure in

the past – South Asia today needs to invest heavily on infrastructures (Noor & Siddiqi, 2010). If

failed to do so, the region will face an unleapable hurdle to its future long-term economic growth

and human development. Saarez (2007) emphasizes that rising energy needs of the region, if not

addressed immediately by investing on energy infrastructure, will affect the sustainability of

long-term economic growth and human development in the region over the next 30 years.

1.2 Electricity Situation in South Asia

Meeting the growing energy demand in the urban and industrialized parts of South Asia has

become of major challenge for all the South Asian countries‟ governments. The skyrocketing oil

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prices have made this further difficult and consequently are threatening the economic growth of

the region. The South Asia is energy deficient as fossil fuel and natural gas potential of the

region is very limited, thus it relies heavily on fossil fuel imports for energy supply (Hammons,

2007). Most of the countries in the region are also not able to generate sufficient electricity to

meet their demands, despite their large hydropower potential. The gap between the energy

demand and supply is only expected to grow larger (WBGU, 2003). The Energy Sector

Management Program (ESMAP) estimated that energy needs of South Asia will increase three

times in next two decades – mostly as result of growing industrial activities and modernization of

estimated 70% of population that live in rural parts of the region (Hammons, 2007).

Currently, less than 50% of the population in the region have some sort access to electricity.

Even among them, the supply of electricity is sporadic; large city like Kathmandu in Nepal faces

“load-shedding” (planned power-cuts) anywhere from 12 hours to 18 hours every day

(Kanagawa & Nakata, 2008). Another 50% that have no access to electricity heavily rely on

primitive form of energy sources such as cow dungs, crop residues and fuel-woods (Kanagawa &

Nakata, 2008). Burning of these biofuels (cow dungs, crop residue and fuel-woods) have severe

health and environmental impacts. Burning of the biofuels that are source of indoor air pollution

(IAP) is the cause for 1.6 million immature deaths worldwide, making it the fourth largest cause

for death and the largest environmental mortality risk in the World. The IAP is a hard pressing

issue in rural parts of developing countries and a step forward must be taken to construct

hydropower plants, as it is a viable option to solve this issue. Electricity shortage is not only an

economic growth issue in the region but also a pressing social issue that must be solved urgently

(Zahnd, A., & Kimber, H. 2009).

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Energy infrastructure is a key problem across the region. It needs repairs and upgrades after

years of underinvestment, has been damaged by political instability, by unforgiving heavy

monsoon rain, or most importantly non-existence of the infrastructures. In addition, hydropower

theft is exacerbating the situation, with India estimating that it loses about US$ 5.4 million worth

of electricity annually, simply because of inefficiencies and theft.

Pakistan experiences the same problem, as suggested by some energy analysts that the country's

energy infrastructure is the worst in Asia. This problem arguably presents the single largest risk

to the country's longer-term growth and development prospects. Unlike other South Asian

countries, Pakistan has the potential to increase its domestic production of oil and gas

significantly to meet consumption needs; poor infrastructure is one of the problems preventing

this in addition to ongoing political turmoil.

In Nepal, the decade-long Maoist insurgency has damaged the country's infrastructure and

undermined attempts to improve access to electricity. Even at the point where a negotiated

settlement between the Maoists Party (previously a rebel group that led the People‟s Liberation

Movement for more than a decade) and the government is finally secured; Nepal is unlikely to

meet its electricity demand, simply due to lack of investment towards new infrastructures and

maintenance of existing ones.

1.3 Power Shortfall in Urban South Asia

Electricity, the primary source of energy for households and industries in urban areas, is facing

massive shortfall in the region. In 2005, India‟s at the time Ministry of Finance stated, “The

rapid economic growth of the last few years has put heavy stress on India‟s infrastructure

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facilities. The projections for further expansion in key areas could snap the already strained lines

of transportation unless massive programs of expansion and modernization are put in place.

Problems include power demand shortfall, port traffic capacity mismatch, and poor road

conditions” (Reineberg, 2006). This speech highlighted the severity of electricity shortfall in

India, this shortage of electricity will have spill over affects on the entire region.

Fig 2: Electricity Supply Demand Gap in India, Nepal, Pakistan and Bangladesh in the

Year 2007/08 (Source: Adapted from data presented in Karmacharya, 2009; Nepal Electric

Authority; Dhaka Electric Supply Authority; and Government of Pakistan)

Estimates show that every country in South Asia is facing major power shortfall. Largely power

shortfall is experienced in the urban areas, as most of the rural areas lack electricity

infrastructures. In India, annual electricity demand during 2007/08 fiscal year was estimated 110,

000 megawatts and the country was able to meet that demand with only 97,000 megawatts of

electricity, putting nation in 13,000 megawatts of power deficit (fig. 2). Similar, the fig 2

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illustrates other two larger economies of South Asia – Bangladesh and Pakistan- had 1,400

megawatts and 2,600 megawatts of electricity deficit respectively, in the same fiscal year. Nepal,

a country with potential of generating 83,000 megawatts of electricity only supplied 621

megawatts of electricity to its 697 megawatts of demand. Consequently, forcing country‟s the

largest city Kathmandu to face 12 hours to 18 hours of load-shedding every day.

1.4 Lack of Electricity Access in Rural South Asia

Much of the world still lives in dark. Estimates indicate that 1.4 billion people or 20% of world

population still have no access to electricity (IEA, 2010). South Asia has the largest number of

people in the World without access to electricity. The region‟s 612 million people without access

to electricity dwarf all other regions. The number is higher than staggering 585 million people of

the Sub-Sahara Africa (fig 3).

Fig 3: Population in Millions without Access to Electricity in Different Regions of the

World (Source: Adapted from World Energy Outlook 2010 by International Energy

Agency)

More on the regional context, about 50% or 700 million people in South Asian have no access to

electricity. Out of those 700 million people 90% live in rural parts of South Asia, unless major

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development takes place they are expected to continue their lives in darkness until 2030

(IEA,2010).

2.0 Impacts of South Asian Power Shortage

The power shortage disconcerts all three spheres of sustainable development- environment,

economic and social- with its negative impacts. Hence, it can be confirmed that current South

Asian power shortage is a major impediment towards achieving sustainable development in the

region. This section will highlight such negative impacts of power shortage in South Asia.

2.1 Economic Impacts

It is clear from section 1.1 that the negative impacts of power shortage is going to heavily impact

economy of South Asia in future, if the problem persists. However, there are negative economic

impacts that are currently being felt in the region due its power shortage. Although, economic

impact of power shortage in South Asia is the least studied sphere; however, some studies that

were published in past years have significantly quantified its impacts.

(Rao Akkina, 2000) suggests that the power shortage that existed in different states of India

during the period 1970-90 had a significant negative impact on the average rate of growth per

capita income. The results from the study suggest that a 10% shortage of power supply during

1970s had reduced average growth rate of per capita income approximately by 0.1% , whereas

the same 10% shortage in power supplies in the 1980s reduced the average per capita income

growth by 0.5%. A report published in 2003 by United States Agency for International

Development South Asia Regional Initiative for Energy (USAID-SARI/Energy) (applying the

same neoclassical growth model that Rao Akkina (2000) applied) estimated that power shortages

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to the agricultural sector resulted in loss up to 3.1% and 13.3% of the total agricultural sector

value added (GDP) in Haryana and Karnataka, respectively (USAID, 2008). Consistent with the

methodology, there were similar studies conducted in Nepal and Sri Lanka that indicated

significant GDP loss because of power shortage.

(Wijayatunga & Jayalath, 2004) conducted a different study in Sri Lanka, which estimated the

economic loss from 300 hours of power interruption to be approximately in the range of US$ 47-

117 million that was 0.4-0.9% of the country‟s GDP in that year, which was estimated loss of

US$ 12.5 billion. This is a significant loss of GDP for a country in the poorest region of the

world.

Fig 4: The cost comparison between planned (Load shedding) versus unplanned power

outages in Sri Lanka for the 2003 (Source: Wijayatunga & Jayalath, 2004)

Although planned power outages comapred to unplanned outages can significantly reduce the

cost for industries as they can prepare themselves in many ways (for instances, stop production

to damage goods, schedule workers around power outage ); still the cost incured from the

planned outage is significantly highly (fig 4). In 2003, Sri Lanka experienced US $ 0.36 million

per hour on planned outages alone, and additional US $ 0.58 million per hour on unplanned

outages.

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These economic impacts have only analyzed data collected from industries, therefore it can be

assumed that actual economic loss from power shortage is much higher as small bussiness and

rural araes were not taken into consideration in the estimates. The aggreagate economic loss

value from power shortage is very siginifacant for a region with 62% of population living under

$2 per day.

2.2 Health and Other Social Impacts

Predominantely, health and social impacts of power shortage is felt in rural South Asia. Today,

there are approximately 1.4 billion people lacking access to eletricity, largest portion of 1.4

billion people live in rural parts of South Asia. International Energy Agengy on its World

Energy Outlook 2010 report has strongly indicated that if the current trend continues, 1.2 billion

people, or 15% of the world‟s population, will still lack access to electricity in 2030. However,

energy is basic necesity for survial – to cook food, to light house, and to heat room. So how do

these 612 milliom people that have no access to eletricity fullfill this necessity? Answer is

simple, same way our ancestors did thousands of years ago – by burning fuelwood, crop residue

and animal dung. Lack of access to eletricity around the world has become a major roadbloack

in achieving the Millinium Development Goals of eradicating extreme poverty by 2015. The

2010 UN MDG summit highlighted that 395 million more people need to have access to

electricty by 2015 in order to achieve the „goals‟. This is because smoke emited from burning of

biomass has huge impact on human health pushing families in perpetual cycle of extreme

poverty.

Household use of biomass for cooking and heating in a poorly ventilated house is the most

widespread source of Indoor Air Pollution (IAP). It is estimated that 3 billion people, almost half

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of the world, rely on biomass for household energy (Perez-Padilla et. al., 2010). The number of

people using biomass is almost double the number people without access of eletricity. This is

because of two major factors. First is affordability, some people despite having access to eletrcity

are still using biomass (estimated 1.4 billion people) because of extreme poverty they can‟t

afford to buy electricity. Second major factor is poor infrastructure, the access of electricity is

defined as people connected to the grid, however, many those are connected to the grid have no

access to electricity as the grid runs dry. Due to power shortage often rural communities are

hardly supplied with electricity forcing them to step down on “the Energy Ladder” to biomass

burning. Therefore, South Asian countries must invest in electricity infrastructure to tackle the

health impacts from biomass burning. Health impacts resulting from biomass burning is

extremely severe. The World Health Organization estimate show 1.6 million people die

prematurely every year to the IAP. This ranks IAP as the first environmental health risk in the

world, esclipsing even unsafe water and sanitaiton, global climate change and lead exposure

(WHO, 2009). The prevalence of IAP related diseases is higher in women and children than men

simply due to their household roles (Kaplan, 2010).

Fig 5: Comparision of mortality from major dieases in 2008 with the mortality from same

dieases in 2030 (Source: Adapted from IEA World Energy Outlook 2010)

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It is projected that if major policy action are not taken today, number of people dieing from IAP

from biomass burning will be much higher than number people dieing from HIV/AIDS by 2030

(fig 5).

Other indirect social impacts from lack of access to electricity that leads to biomass burning

include rough terrian hazards and wild life hazards during fuelwoods collection in the forest.

There is also risks of fire hazards due to the nature of open pit burning of biomass.

In urban areas, social impacts of power shortage is much different. Increase in crimate rate are

associated with planned and unplanned power outage. In other impacts, closure of educational

institutions, health-care facilities and offices are common, which disrupts everyday life of

millions in South Asia. High level stress and sleep deprivation among people are also observed

in the population as their daily schedule is heavily influenced by planned power outage. The

power shortage in South Asia have became root cause for many social issues that are very hard

to comprehend in the developed world. Post-conflict regions and countries of South Asia (e.g

Nepal) that have just started the peace-building process must urgently deal with the issue of

power shortage to continue on their newly resored peace.

2.3 Environmental Impacts

On the environmental front, the most indirect impact from lack of access to electricity is related

to biomass burning for energy source in rural areas. Whereas, in the urban areas although certain

portion of population still rely on inefficient form of energy source such as fuel-woods, charcoal

and crop residue; but primary source of environmental impacts is from switching to kerosene

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powered or low grade fossil fuel powered generators. It is very common in South Asia for

households and small businesses to have these generators in urban areas, which produce Green

House Gases (GHGs) and pollute both air and sounds in its surrounding areas. Although its

localized impact on air pollution is evident, these impacts of power shortage are unaccounted for

in any studies.

Fig 6: Effect of biomass cooking in Asian BC loading. a. shows the BC loading for 2003-

2004 b. when BC emission from biomass cooking is removed from a. Lighter areas

represent the concentration of Black Carbon. (Source: Ramanathan and Carmichael, 2008)

In rural South Asia, in addition to deforestation, habitat destruction, loss of biodiversity and

cumulative impacts of fuelwood collection from the forest; recently Black Carbon scientists in

the United States identified a very alarming environmental impact from biomass burning.

Biomass burning in rural parts of South Asia and some urban areas for heating and cooking emits

many air pollutants including Black Carbon (BC). Ramanathan and Carmichael (2008) define

Black Carbon (BC) as an important part of the combustion product commonly referred to as soot,

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a major absorber of solar radiant in atmosphere. In addition, this soot is dominant product of

inefficient combustion of biomass as energy source (Ramanathan & Carmichael, 2008). There

are numerous environmental issues associated with the BC – global dimming, atmospheric

warming, weakening monsoon and glaciers melting are few examples. Unlike carbon dioxide,

BC does not remain in the atmosphere for long period; therefore, its effects are for short period.

BC scientists have predicted that if BC from biomass cooking is controlled globally, pace at

which global temperature is rising can be slowed down, giving world more time to adapt to

climate change impacts. Furthermore, due to its short lifetime in atmosphere and potential to

travel long distance, scientific evidence shows that BC from South India has been transported up

to the Himalayan glacier. Once it settles on the glacier, it reduces glacier‟s solar radiation

reflectivity, known as Aledo, which in turn absorbs more solar energy resulting in accelerated

melting of glacier (Yasunari et al., 2010. Many technological intervention projects are being

implemented by NGOs and government agencies in South Asia to improve health and

environmental issues of biomass burning. Among these intervention projects are improved cook-

stove projects, biogas digester projects, and solar PV projects. However, the World Bank has

identified them as gap filling projects in transition from primitive energy source to modern

energy access (Heffner et al., 2010). Furthermore, it is also important to implement power

shortage mitigation projects (e.g. CFLs light distribution), which will increase energy efficiency

but the largest component of solution in developing countries must come from building

hydropower infrastructure capacity.

South Asia is very fortunate to have large hydropower potential. Harnessing this hydropower

potential holds key to solving the problem of South Asian power shortage and its negative

impacts.

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2.4 Hydropower Potential in South Asia

South Asia consists of large river systems: Ganges, Brahmaputra, Meghna, Indus, Godavari,

Mahanadi, and Narmada, these rivers gush down from many of its tributaries, which originate

high in the Himalayans (reported 6000 rivers just in Nepal). Due its fast descend from very steep

mountains to the Indian subcontinent, these rivers enable considerable hydropower potential.

Despite this huge potential, South Asia suffers the worst electricity shortages in the world. As

discussed before, power shortages negatively affect environment, economy and health of the

population in the region. Some of the environmental issues, such as Black Carbon can negatively

affect global climate change. Fortunately, South Asia‟s large hydropower potential offers

solution to these problems.

Table 1: Hydropower potential and percent currently exploited by South Asian countries

(Source: adapted from various Work Bank reports)

Country Estimated

Hydro-power

Potential

Percent

Currently

Exploited

India 149 GW 25%

Nepal 83 GW 1%

Pakistan 41 GW 14%

Bhutan 30 GW 1.5%

Bangladesh 0.76 GW 28%

Sri Lanka 2 GW 60%

Maldives N/A N/A

Total 305.76 GW 6.2%

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The data compiled from the various reports published by the World Bank group indicates that

there is huge hydropower potential in South Asia and much of this is still unexploited (Table 1).

Sustainable –one that takes in consideration both environmental and social dimension along with

economy- planning of hydropower development projects will bring economic prosperity and

solve the issue of power shortage in South Asia (Siddiqi, 2007). Development of hydropower

sector in South Asia also has climate and social co-benefits. Unfortunately, this potential remains

unharnessed mainly due to (A) lack of investment and (B) social and environmental impacts of

large hydropower dams.

2.5 Challenges to Hydropower Development in South Asia

(A) Lack of Investment: Despite numerous benefits to finance sector, developers, and to entire

region of South Asia (infrastructure development, economic growth potential, job creation,

environment and health issue alleviation) the region experiences very slow growth in

hydropower sector (Keong, 2005). In Nepal and Pakistan, political turmoil is one of the major

challenges in attracting foreign direct investments (FDIs) (Thavasi & Ramakrishna, 2009). If

these countries are to benefits from their hydropower potential, step towards betterment of

political situation must be taken immediately.

Hydropower development projects are expensive, require large investment and may entail many

risks. South Asian countries lack proper financial mechanism for domestic investment in any

kind of large projects, leaving Multilateral Development Banks (MDBs) the only source of

finance for major infrastructure development. However, investment risks (political, social and

environmental) have kept MDBs away from investing in the major hydropower projects in the

region. Lengthy and corrupt governmental approval processes and demands from local

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communities that are not related to project make project implementation very costly. A

framework to identify investment risks will assist in cutting unwanted project costs and will

assist in streamlining the government approval process. As a result, will draw investors to

develop urgently needed hydropower infrastructure in the region.

(B) Social and Environmental Impacts: Equally, important challenge in developing hydropower

sector in South Asia is the social and environmental impacts from hydropower dams. The World

Commission on Dams (WCD) has listed many social and environmental impacts: inundation of

terrestrial habitat; modification of hydrology; GHGs emission from reservoir; modification in

aquatic habitats; and fish migration pattern are major environmental concerns. On the social side,

resettlement due to flooding, change in land use pattern, increasing competition on water use and

effects on cultural heritage are major concerns. However, developers and financier along with

top critics of hydropower dam have agreed that these environmental and social issues can be

managed through design and implementation of etiquette management plans. The critics of

hydropower projects for long period have been raising voices for more stringent and legally

binding agreement to address these issues (Goodland, 2010). The WCD was established as a

response to the performance and outputs of large dams (Chintan and Shrestha 2005) (Mr. G S

Chintan led the claim filed against the World Bank on ARUN-III project). Further, Chintan and

Shrestha (2005) argued that main problems are not rooted the impacts of the hydropower dams

but arise from poor compliance, lack of comprehensive implementation, monitoring mechanism

and inadequate assessments of project impacts. The infamous example of poor compliance in

hydropower development project in the region is ARUN III project in eastern Nepal during mid-

90s.

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3.0 ARUN III: A lost opportunity for the region

The ARUN-III was a proposed 402 MW, US$ 1 billion hydropower project to harness the vast

hydropower potential of Nepal, with the goal to solve at the time and future electricity demand

(Dixit & Gyawali, 2010). The project was a step towards the development of Nepal, as exporting

of surplus electricity would have generated large amount of revenue for the Country. Prior to

ARUN-III, the largest hydropower project in Nepal was of less 70MW therefore, this was big

hope for people of the country.

The World Bank and the Asian development Bank, other DFIs, jointly financed the project.

Despite the open project bids, due to lack of capacity of local contractors there were no

qualifying contractors from Nepal or India. As a result, the bid was awarded to an Italian firm

(Bissell, 2003). The geographic location of the project was- the Arun Valley- was very attractive

to hydro engineers, for it had the ability to capture substantial power potential with run-of-the-

river system rather than large reservoir based system (Bissell, 2003). Run-of-the-river meant

reduced environmental and social impacts from the project. Construction of project was

scheduled to start in 1994. However, the Arun Concerned Group (ACG), a citizen advocacy

group, opposed the project raising the environmental and social concerns. Adding to it, the

discrediting of Sardar Sarovar project in the Narmada valley of India in 1990 fueled the negative

perception on large hydro dam in the country. This led to formal claim filed against the World

Bank jointly by ACG and the International Institute for Human Rights, Environment, and

Development (INHURED). The grounds for claims were based on the World Bank‟s five major

safeguard policies violation, which included the adverse environmental and social impacts of the

project (Bissell, 2003). Initially, general counsel of the bank led by Ibrahim Shihata responded

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with an argument that the claim was ineligible. Nevertheless, no formal protest took place from

the Bank; aware of the situation such controversial project cannot be deemed ineligible based on

technicality (Bissell, 2003). After a yearlong complications and inspection, the bank cancelled its

participation in the ARUN-III project by justifying that risks were too great to pursuit.

However, social and environmental assessment protocol tailored for hydropower projects could

have been identified these risks early in project design and managed it adequately. Such

assessment would have avoided undesired litigation that threatened the Bank‟s reputation and

placed Nepal under current power shortage. Although, there was an environmental study and

analysis carried out for the project that was several thousand pages in report, but it lacked

protocol to carry out the assessment study, as a result, failed to report many potential adverse

impacts and alternatives of the project. According to the United Nations University‟s EIA case

study, these include, but are not limited to; the magnitude of resettlement and the alternative road

access to the project with providing higher social benefits to nearby townships (UNU EIA,

2010). Further, the assessment lacked a „Term of Reference‟ and a proper scoping methodology,

which led to minimal level of public and NGOs consultation. Proper protocol would have

brought NGOs and concerned citizen group in consultation with the Bank earlier, in turn

avoiding the situation that the Bank faced. Therefore, MDBs must adopt a hydropower

development projects assessment protocol tailored to avoid such situations.

4.0 Safeguard policies in Multilateral Development Banks and Hydropower Projects

Environmental impact assessment (EIA) was first brought as part of the development aid process

in 1975 because of litigation faced by the USAID to enforce the Environmental Impact

Statements (EIS) on its loans and grants (Coleman, 1999). In subsequent years, numerous such

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litigations were faced by MDBs and aid agencies. In addition, environmental and social impacts

are major concerns for MDBs as they are mandated to invest in projects that must contribute to

the social and environmental wellbeing of a country, which in turn should decrease poverty and

improve livelihood (Faubert et al., 2010). As a response to this, many such institutions have

formulated environmental and social safeguards policies and have made EIA as integral part of

their operation.

The World Bank Group also has embarked “environmental and social safeguard policy” to

cornerstone sustainable poverty reduction during their operation. The primary objective of this

policy is to “prevent and mitigate undue harm to people and their environment during

development projects” (the World Bank, 2010). The World Bank has eleven safeguard policies

namely, Environmental Assessment, Natural habitats, Forests, Pest Management, Physical

Management, Physical Cultural Resources, Involuntary Resettlement, Dam Safety, International

waterways, Use of Country Systems, and Disputed Areas (the World Bank, 2010). Although,

mostly these policy are triggered in most hydropower development projects and may seem to

prevent and mitigate environmental and social impacts of hydropower projects. However, may

fail to do so because the policy and sourcebooks to follow them are designed to address the

issues arising during any World Bank project. Therefore, often these policies fail to capture and

more importantly fail to evaluate and monitor the implementation of management plans to

prevent and mitigate adverse effects of a project. The WCD and Dr. Thayer Scudder (former

senior World Bank resettlement consultant) have argued that in the past hydropower projects

financed by the Bank had negative environmental and social impacts, therefore, it illustrates that

these risks are yet to be adequately incorporated in the Bank‟s safeguard policy.

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Fig 7: Investment in Hydropower Project by the World Bank 1990-2008. It decreased in

1990s as results of high environmental and social risks; starting 2000, investment started

increasing due to power crisis in developing world (Source: Adapted from the Work Bank

group, 2009).

The Bank has taken initiative to invest in hydropower projects substantially in next few years

observing the rapid rise in electricity demand in the developing world, pressing social and

environmental impacts of power shortages, and attractive climate co-benefits of hydropower

projects (Fig 7). On the other hand, environmental and social impacts of hydropower projects

are alarming and existing the Bank‟s safeguard polices requires revisit to formulate a protocol

that is tailored for hydropower development projects.

5.0 Hydropower Sustainability Assessment Protocol

The Hydropower Sustainability Assessment Protocol (HSAP) is a framework for advancing

sustainable hydropower development and operation. International Hydropower Association

published final HSAP on November 2010. It is a knowledge-based framework developed by

taking in expert knowledge from representatives of developed and developing countries‟

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government, equatorial principles and development banks, social and environmental NGOs

(HSAF, 2010). The knowledge was gathered, discussed, researched, analyzed and negotiated

through the formation of Hydropower Sustainability Assessment Forum (the “Forum”) in March

2008. The Forum went through a rigorous process for 2 and half year to develop HSAP that

intends to adequately prevent and mitigate the environmental and social issues that may arise,

not only, during the development, but also, continuously manage them during operation.

Furthermore, the HSAP was developed to revisit already operational hydropower plants that lack

proper environmental and social management plans. In currently operational plants, HSAP can

design and implement environmental and management plans will prevent and mitigate adverse

impact in future.

Unlike, current category-based impact assessments that are carried out under the Bank‟s policy,

the HSAP have strict numerical grading system that provides unambiguous assessment report.

The report produced from this grading system clearly identifies importance level of project

impact prior to the project commencement, and reflects the performance of management plans

during the operation.

Fig 8: Major hydropower project decision points and the HSAP tools. It is designed to

ensure sustainable development (Source: Adapted from HSAF, 2010).

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The HSAP identifies environmental and social risks, and evaluates and measures performance of

management plans through four distinct tools namely, Early Stage, Preparation, Implementation

and Operation that are applied at major hydropower project decision points (Fig 8).

The Early Stage assessment tool is a preliminary strategic screening tool that identifies

environmental, social and economic risks and opportunities of a potential project. The Early

Stage is a tool that promotes early analysis in a project enabling awareness for knowledge gaps

that may exists in a project. Having an assessment prior to start of the project, also helps

drastically reduce cost for investors. Thus, encouraging investor to finance urgently needed

hydro projects such as those in South Asia.

Table 2: Environmental and social criteria that are assessed and managed by HSAP. In

addition to environmental and social impact assessment and management plans, social and

environmental issues specifically associated with hydropower projects are managed

separately. (Source: Adapted from HSAP, 2010)

ES - Early Stage P - Preparation I - Implementation O - operation ES-7 Social issues and Risks

P1- Communications and Consultation

I1- Communications and Consultation

O1- Communications and Consultation

ES-8 Environmental issues and Risks

P5- EIA and SIA I5- EMP and SMP O5- EMP and SMP

P-7 Hydrological Resource O5- Hydrological Resource

P-14 Resettlement I-10 Resettlement O-10 Resettlement P-15 Indigenous Peoples I-11 Indigenous Peoples O-11 Indigenous Peoples

P-17 Cultural Heritage I-13 Cultural Heritage O-13 Cultural Heritage P-18 Public health I-14 Public health O-14 Public health P-19 Biodiversity and

Invasive Species I-15 Biodiversity and Invasive Species

O-15 Biodiversity and Invasive Species

P-20 Erosion Sediment I-16 Erosion Sediment O-16 Erosion Sediment

P-21 Water Quality I-17 Water Quality O-17 Water Quality I-18 Waste, Noise and Air

Quality

P-22 Reservoir Planning I- Reservoir Preparation and Filling

O-18 Reservoir Management

P-23 Downstream Flow Regimes

I-23 Downstream Flow Regimes

O-19 Downstream Flow Regimes

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In the Preparation, which follows the commencement of the hydropower project, a detailed

assessment of social and environmental criteria is conducted. Unlike in the past, where EIA and

SIA were conducted without properly defining the scope (as in the case of ARUN III), with

HSAP, scope is clearly defined and management plans are designed based on knowledge from

the assessment, and these plans are strictly implemented, evaluated and monitored. In addition,

environmental and social issues specifically associated with the hydropower project –

resettlement, downstream flow regimes, water quality just to name few- are assessed, designed

and enforced separately (Table 2). Preparation is conducted before awarding construction

contracts to eligible contractors. Contractors must design and implement, if required,

environmental social issues management plans in order for to be awarded with the contracts.

This eradicates any possibility for delayed implementation of management plans.

During Implementation assessment tools assesses the implementation stage of hydropower

project, during which construction, resettlement, environmental and other management plans and

commitments are implemented. This knowledge-based management plans that are designed and

implemented early in the project will prevent and mitigate all adverse impacts that may arise

from hydropower projects.

The important aspect of the HSAP is the Operation assessment tool. Many past hydropower

environmental and social assessments lacked monitoring and evaluation components; as a result,

(despite assessment of issues, design of management plans, and implementing them) sometime

resulted in adverse social and environmental negative impacts. There are of few instances of

prolonged suffering of resettled communities, collapse of fish population and decline in water

quality (Richter et al, 2010). However, the HSAP 2010‟s fourth tool is designed with the view

that the facility is operating on a sustainable basis towards monitoring, compliance and

30 | P a g e

continuous improvement (HSAP, 2010). It is very important to have such tool part of a

hydropower operation as they tend to be in operation for centuries and management plans will

require updating and evaluating, and some even redesigning regularly. The HSAP‟s Operation

tool is designed just to do that.

Currently, both multilateral are reviewing the HSAP and equator principle financiers to evaluate

if the HSAP tools are in line with their environmental and social safeguard policies. If adopted

and endorsed, HSAP has potential to bring electricity to many poor South Asian countries that

are currently bearing the pain of power shortage. It is also expected to promote sustainable

hydropower development as the environmental and social issues arising from hydropower

project as embedded in HSAP through knowledge-based formulation process, which was assisted

by active world class NGOs such as WWF and Oxfam.

6.0 Climate Negotiation, Energy Security and Hydropower in South Asia

India‟s economic growth has certainly put strain on South Asia‟s energy demand. At the same

time, it has also helped India join the group of top five polluters in the World. India‟s rising

carbon dioxide emission is only going to swell in future (Fig 9), consequential of increasing

number of industries and rise of middle-income families (Kone and Buke, 2010). Currently,

India produces only 14% of the electricity from hydropower (the World Bank Climate Portal,

2010). Power shortage that region is facing, added by exhausting hydropower infrastructure and

almost non-existence regional power trade system, the India‟s percentage of electricity generated

from hydropower is only going to shrink to much smaller number in next few years.

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Fig 9: CO2 Emission Profile for All South Asian Countries from 1960 to 2004. Hydropower

can is crucial for India to stabilize its raiding rising CO2 emission. (Source: Adapted from

the World Bank Climate Portal, 2010)

More electricity will be generated by dirty coal that will emit even more carbon dioxide in the

atmosphere. Dilemmatically, India is will not have liberty – with stringent international climate

agreement lurking on the horizon- to release more carbon in the atmosphere.

India is already turning desperate by initiating talks on the Indo-Iran Trans Pakistan and the

Submarine Indo-Qatar oil pipeline, a region India does not see as reliable ally for energy security

(ESMAP, 2008). On the other side of the subcontinent, although Bangladesh sits on vast natural

gas reservoir, it is hard to picture Bangladesh offering India anything substantial; largely due to

their geopolitical history and rising Bangladesh‟s own energy demand.

This leaves India to turn to more renewable energy source such as solar, wind and hydropower.

Although, solar and wind technologies are going to prevail in few decades as a major contributor

to energy supply, till then it is very crucial, in term of continuing economic growth, for India to

meet electricity demand with hydropower. As India is the key economy for the region, it is in

the interest of most South Asian countries to support its economic growth. This makes India a

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large market for hydropower, which means faster return of investment- an incentive for

financiers.

7.0 Conclusion

One of the most challenging tasks faced by humanity in this generation, in standpoint of

sustainability, is to decouple economic growth from its environmental and social impacts.

Current economic growth in developing South Asia is their only ride out from the extreme

poverty, and vast hydropower potential regions holds is the ticket to that ride for many of these

countries. On one side, all hydropower development projects are perceived as projects that have

detrimental social and environmental impacts. On the other side, 15 years to 20 years delay in

development in hydropower has left the region with the worst power shortage in the world and

crumbling hydropower infrastructure. The delay occurred from an attempt to protect people and

environment from hydropower projects, but ironically same environment is being destroyed and

same people are being pushed deeper into the abyss of poverty due to intended consequences of

such action. Hydropower development project is not a “silver bullet” solution to all social,

environmental and economic problems the region is facing, but it is definitely a major leap

towards it. The newly formulated knowledge-based Hydropower Sustainable Assessment

Protocol has potential to decouple the hydropower development projects from its environmental

and social impacts. The four HSAP assessment tools recognize adverse environmental and social

impacts early in the hydropower project; these tools require contractors to design and implement

management plans early; and promote sustainable hydropower development projects. More

importantly, it will provide the electricity South Asia desperately needs to solve its social and

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environmental impacts arising from power shortage; continue powering its economic growth,

and provide renewable energy security for future.

Acknowledgements

This project paper originated from an M. Sc. Research project conducted at the McGill-UNEP

Collaborating Centre on Environmental Assessment. The work was completed with assistance

from the faculty members at the centre. The work involved internship with the United Nations‟

Environment Programme Regional Resource Centre for Asia and the Pacific.

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