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To mitigate a drinking water crisis in Kathmandu valley, the Government of Nepalinitiated the Melamchi Water Supply Project in 1997, which will divert water fromthe Melamchi River to Kathmandu city’s water supply network. In the first phase,the Project will divert 170,000 cubic meters of water per day (at the rate of1.97M3/sec), which will be tripled using the same infrastructure as city waterdemand increases in the future. The large scale transfer of water would have far-reachingimplications in both water supplying and receiving basins. This paperanalyzes some of the major changes related to local water management and socioeconomicsbrought about by the Project and in particular the changes in the localwater management institutions in the Melamchi basin. Our study shows thattraditional informal water management institutions were effective in regulatingpresent water use practices in the water supplying basin, but the situation willvastly change because of the scale of water transfer, and power inequity betweenthe organized public sector on one side and dispersed and unorganized marginalwater users on the other. The small scale of water usage and multiple informalarrangements at the local level have made it difficult for the local users andinstitutions to collectively bargain and negotiate with the central water transferauthority for a fair share of project benefits and compensation for the lossesimposed on them. The process and scale of project compensation for economiclosses and equity over resource use are at the heart of the concerns and debatesabout the Melamchi water transfer decision. The Project has planned for a one-timecompensation package of about US$18 million for development infrastructurerelated investments and is planning to share about one percent of revenuegenerated from water use in the city with the supplying basin. The main issues hereare what forms of water sharing governance, compensation packages, and waterrights structures would emerge in relation to the project implementation andwhether they are socially acceptable ensuring equitable distribution of the projectbenefits to all basin communities. In addition, these issues of the Melamchi projectdiscussed in this paper are equally pertinent to other places where rural to urbanwater transfer projects are under discussion.
