The $ 3000000000 Gamble

India and Pakistan are racing to outdo each other in completing power projects on either side of the LoC on the same river. Finishing second means losing the project. But now the two are going to fight out the war on Kashmir’s Neelam waters in international court. R S Gull reports

Begining of the project: Pic: Bilal Bahadur

Finally, battle lines are drawn. New Delhi and Islamabad have approached the international court of arbitration to help them solve their dispute over the 330-MW Kishanganga Power Project that India’s hydropower giant NHPC is setting up over Neelam (Kishanganga) river in Gurez, Bandipora. Islamabad has objections over the project and sees it a violation of the Indus Water Treaty that the two countries signed in 1960 with World Bank’s help.

India nominated Peter Tomka, a Slovak diplomat and sitting judge (vice president) of the Hague based International Court of Justice and Lucius Caflisch, a Swiss expert in international law to represent its case in the Kishanganga project dispute. Tomka was formerly a legal advisor to the Slovak foreign ministry while Caflisch is a professor at the Graduate Institute of International Studies in Geneva. Pakistan has already named Bruno Simma of the International Court of Justice, and Jan Paulsson, the Norwegian head of an international law firm, as its arbitrators in the Court of Arbitration that will be set up to resolve its differences with India under the water sharing treaty.

Indus Water Treaty permits arbitration by a seven-member bench. It will have two members each nominated by the two countries and three neutral umpires – one to preside over the bench, second a legal expert and third a technical expert. The two countries are expected to decide the three umpires on July 7 and if a ‘consensus’ fails, they will have to use a lottery system to appoint the trio. In that case, the choices are UN Secretary-General versus Chairman World Bank for the head of the bench, Chief Justice of US Federal Court versus Lord Chief Justice of England for legal expert and a nominee from Massachusetts Institute of Technology, US versus Imperial College, London for the technical expert. This process is expected to take till October.

Kishanganga project is under construction. NHPC has already allotted the EPA contract to the Hindustan Construction Corporation (HCC) that has set up a consortium with the British Halcrow Group Ltd for implementing the Rs 3642.04 crore (September 2007 price level) project (including interest during construction and interest-free sub-debt of Rs 469 crores). NHPC sources suggest that by the end of March 2010 they have already spent Rs 269.96 crore.

The EPA contract to be completed within 84 months (starting January 2009) envisages constructing a 37-meter-high rock-filled dam and a 23.50 kilometre head race tunnel to take water to three turbines of 110 MWs each for generating 1350 million units of energy in a 90 percent dependable year. The power house will be located in Kralpora village of Bandipora. Waters from a fast flowing Neelum – forming de-facto LoC from Teetwal to Gurez – would be stored at Gurez and diverted to Bandipora power station to generate energy.

The water will then go into the Bonar Madhumati and eventually to Wullar lake. It is the water diversion part of the project that Pakistan is mainly objecting to.

Pakistan believes the inter-tributary transfer is a violation of the Indus water sharing treaty and is worried that the diversion will leave thousands of acres of its rice fields, fed by Neelam on its side, dry, and impact Mangla Dam and the viability of its upcoming Neelam-Jehlum power project.

The Kishenganga project has undergone a series of turns and twists after J&K government first conceived the project. It was well before the start of militancy when the state tasked NHPC for a survey of the project. After the survey, the state-owned Power Development Corporation (PDC) was asked to work on its implementation. The first major issue was improvement and widening of the road from Sumbal to Sunderwani belt on which the work started in 1992. By 1997, it had become a full-fledged racket forcing State Vigilance Organization (SVO) to register FIR 1 of 1997. The PDC allotted 1222 works to different contractors after placing the advertisements in newspapers with “zero circulation”. SVO investigation found only 157 (out of 1222) on records. Among the 157 only 48 were found genuine.

By October 26, 1998, the charge sheet was filed and it was only in 2007 that the court started framing charges against 216 persons including contractors and officials for misappropriation of more than Rs 2 crore in various pre-construction jobs. The swindled amount was part of the Rs 15 crore that the state government spent on basic works of the project, mostly roads and bridges.

A sum of Rs 3.80 crore were drawn against non-existent works. The government, by then, was hunting for consortiums to implement it. And it had got them as well.

Soon after Dr Farooq Abdullah came to power in 1996, he signed a series of MoUs with various foreign consortiums. On such MoU was signed on November 14, 1997, and later revalidated on June 27, 1998, with Kishanganga Group of Contractors that consisted of the Swedish company, Skanska International and few domestic companies.

As per MoU, the foreign consortium would arrange 85 percent of the project costs from foreign donors and the state would arrange the balance capital locally. Skanska had in fact approached IMF and the Development Bank of Sweden to arrange the lion’s share of over Rs. 2,700 crore that the project would require. However, it could not take off as central government refused to offer counter-guarantee.

A tired Abdullah finally handed over a number of projects to the NHPC for execution on July 20, 2000 and Kishanganga was one of them. But the inherent crisis in the design lost a decade. It started with a rebellion within Gurez itself.

The basic blueprint envisaged a 962.50 acre, 73-meter high dam that would displace 961 families in seven hamlets of Gurez, the only population of  Dard-Shin race left on this side of the LoC. Residents said it would devour 25 villages besides six summer high altitude habitats for shepherds and eight camping sites. The state government had issued acquisition notices to seven villages – Badwan, Wampora, Khundeyal, Fakirpora, Dawar, Mastan Khopri, and Markot – to vacate.

For Gurez it was the issue of survival. Two blocks making Gurez had a total population of 25000. Already over 8,000 residents have fled Gurez for better avenues. The project was displacing another 10,000. Many people believed that conversion of the Gurez valley into a dam would destroy rare inscriptions in Kharoshthi, Brahmi, Hebrew, and Tibetan.

The dam would snatch the last refuge of the Dard-Shin tribal people, who, many claim to be of pure Aryan race. Located on the historic Srinagar-Gilgit-Kashgar route, Gurez till partition was part of Gilgat state. The residents would pay their taxes at Drass, the only area in this part of Kashmir that shares geography, language, culture and customs with Gurez. Both the places have Shina speaking Dards, the ancient culture that is still a virgin subject to anthropologists, archaeologists, and linguistic experts. Apart from these two areas, the language is spoken in Chilas and Gilgit (PaK).

One of the most beautiful spots of Kashmir (it is not on state’s tourism map), Gurez is separated from Kashmir Valley by the north Kashmir mountain range that runs west from Zojila Pass. It touches Nanga Parbat on one side, Drass and Sonamarg on other and even touches Lolab valley of Kupwara. For over half of the year during winters, it is cut off from rest of the world. On the 85-km long Bandipore-Dawar road that passes through over 11, 672 feet high Razdan Pass, there is no life for around 70 kilometres – between Pethkote and Koragbal. There are army and Border Roads Organisation camps at three spots – Tragbal, Razdan and Zadkuri.

The objections were not taken seriously until the defence ministry joined the chorus saying it could do more harm to their deployment.

In April 2006 the central government “reconfigured” the project by reducing the dam height to 37 meters without altering energy output. Earlier it was a storage project with a live storage of around 173.50 million cubic meters. It was converted into a run of the river project with a live storage capacity of only 8 million cubic meters which is even less than the 8.87 million cubic meters of pondage that the Indus Water Treaty permits. The new design would displace only two villages and save enough funds for rehabilitation by reducing the costs.

But the project still lacked economic viability. In July 2007 it was supposed to cost Rs 2239 crore but the costs escalated by 68 percent when NHPC invited bids for its execution. Taking 5.4 meters diameter tunnel to 24 kilometres in Bandipora is a tall order. Even the geology and the remoteness would shoot up costs. Initially, NHPC asked state government to give away its claims over the paltry royalty of 12 percent of total generation which would turnaround the project but Srinagar refused to force the energy major to approach the central government. On December 26, 2008, the Cabinet Committee on Economic Affair approved a revision in its cost from Rs 2239 crore to Rs 3642 crore.

A number of villages in Bandipora – Kralpora, Lawaypora, Matrigam, Sonarwani, Harteng, whice are losing a substantial part of their land in the project are opposed to the project as well. Compensation for their land (around 1000 kanals) has been fixed so low that they may spend it within a few months after they sell the land.

Concerns of Gurez valley and the defence forces were addressed and NHPC was given a fair deal for implementing the project. But that did not end the mess for the project. Pakistan has objections to the project and now it has gone for international arbitration.

After series of talks between the Permanent Indus Commissions of the two countries, New Delhi on the advice of the then chief minister Mufti Sayeed suggested Pakistan in June 2005 to let Kishanganga be a JV project between NHPC and WAPDA (Pakistan’s power and water authority). It was apparently conveyed through backchannels and rejected.

Islamabad’s objections to the project lay in the “intelligent” design. It diverts Neelam waters to Bandipora where, after generating electricity, it falls into Wullar Lake through Bunar Madumati Nullah, circumventing around 100 kilometre of its natural course as Jehlum will carry the diverted waters to Jehlum-Neelam confluence at Domail, in Muzaffarabad outskirts. The additional water would raise the level of Wullar and provide more discharge to NHPC twin Uri projects downstream where it would run an additional turbine to increase generation. Officials believe added water would make NHPC richer by 312.62 million units a year as a generation in two Uri powerhouses would go up. Many see the design compensating the losses J&K incurred after abandoning the Tulbul Navigation Lock (Wullar Barrage) project under Islamabad’s pressure.

But Pakistan has more than one concern. It believes inter-tributary transfer was a violation of the water sharing treaty. If it takes place, it will force a shift in crop pattern between Gurez and Muzaffarabad, leave part of the Mangla Dam un-utilized as a diversion would deprive it of 27 percent discharge of the Neelam river and finally devour viability of its upcoming Rs 8450 crore 969-MW Neelum-Jhelum (also called Jagran) project.

Pakistan claims the inter-tributary diversion will make existing irrigated cropped area of 133209 hectares to suffer besides the power project (which can undergo a generation loss of around 11 percent in summer and 27 percent in winter) for want of required quantity of water.

After talks failed twice on the project and Islamabad continued threatening to take recourse to arbitration by World Bank or approach the International Court of Justice, the two sides met again in 2008. In fact a joint team from two countries visited PaK areas in August 2008. “They (Islamabad) had claimed that over 100,000 hectares of land is in agriculture use. But, the team found most of the land under maize cultivation there which will not get affected by the diversion of Kishenganga,” Prof Saif ud Din Soz, the then union water resources minister said. New Delhi consistently maintained that its satellite pictures disprove Islamabad claims.

The unresolved dispute did not prevent the two countries from investing, hoping that the project that completes first would get the first right to use Neelum waters under the treaty. Both are working overtime regardless of the fact that ultimately only one of the two projects can operate.

Faced with serious setbacks initially, Islamabad awarded the US $2.16 billion contract of setting up its project to a Chinese consortium consisting of China’s Gezhouba Water and Power Company and China National Machinery and Equipment Import and Export Corporation (CMEC) in February 2008.  Envisaging 28.5 kilometre tunnel, 1100 Chinese engineers would work on the project very close to the LoC and complete it within eight years.

The project envisages diversion of the Neelum river waters to a 47-meters high concrete gravity dam at Nauseri. The dam will create a head pond of 8 million cubic meters which will allow a peaking reservoir of 2.8 million cubic meters. Two tunnels of 43 sq metre cross section will take the water for 15.1 kilometres and join each other to make a 82 sq metre cross section tunnel that after crossing Jhelum river around 380 meters below its bed will feed the underground powerhouse at Chatter Kalas, 22 Km South of Muzaffarabad, having four units of 242 MW each. The project reportedly complete to the tune of 12 percent is designed to generate 5.15 billion units of energy a year. It is chasing a deadline of December 2015, almost a month ahead of Kishanganga that is slated to get completed in January 2016.

That is perhaps why HCC has to complete the project in seven years only so that NHPC gets a priority over the first use of waters over WAPDA’s 969-MW project.

Interestingly, Pakistan has kept PaK government off the project on the pattern of Mangla Dam. WAPDA has levied additional surcharge of 10 paisa per unit to create additional money for the project but the royalty with Muzaffarabad is yet to be decided. Given the seismic nature of the terrain, WAPDA is yet to get a re-insurer.

The additional worry in New Delhi is that over 2000 Chinese engineers would be working very close to LoC for next eight years. On security basis, New Delhi has decided against offering any power project to any Chinese company either in North East or J&K. The union cabinet in January 2007 has decided that any foreign investment in power sector in J&K, Himachal Pradesh, Uttarakhand, Sikkim and Arunachal Pradesh would be taken at par with telecom and civil aviation proposals that require MHAs security clearance. The decision came within a year after two contracts in Himachal and Arunachal were denied to Chinese companies.

Till recently, it was supposed to be a race with time. But the arbitration has changed the order of the game. Experts say that a stay by the court of arbitration on the construction of the project would hit hard the NHPC interests.

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