Policy Update
Ninchen Tamang
Background
The Mahakali Treaty of 1996, formally the “Treaty between His Majesty’s Government of Nepal and the Government of India Concerning the Integrated Development of the Mahakali River including Sarada Barrage, Tanakpur Barrage and Pancheshwar Project”, was signed in New Delhi on 12 February 1996 and entered into force on 5 June 1997. It runs for 75 years, with a review mandated every ten years or earlier if either side requests it. The treaty also established a joint Mahakali River Commission to oversee implementation and resolve disputes (Government of India [GoI] and Government of Nepal [GoN], 1996).
The treaty brought three previously separate matters into a single framework: the 1920 Sarada arrangement, the politically contentious Tanakpur Barrage, and the still-unbuilt Pancheshwar Multipurpose Project (PMP), under the stated principle of equal entitlement to the river’s waters. This grouping was the treaty’s central political mechanism. Tanakpur was the major point of contention: India had constructed the barrage unilaterally in the 1980s, while a 1991 MoU had already generated significant political backlash in Nepal (Bagale & Adhikari, 2020).
Pancheshwar, by contrast, remained a paper project, packaging it with Tanakpur and the comparatively less contentious Sarada entitlements effectively required Nepal’s parliament to accept a difficult compromise over Tanakpur in exchange for a future share of a much larger potential benefit.
Three decades on, the treaty has only partially delivered on its promise. Sarada and Tanakpur have been operational for years, while Pancheshwar remains without a mutually agreed Detailed Project Report (DPR). Thus, although both sides formally accept the principle of ‘equal sharing’, competing technical interpretations have produced materially unequal entitlements.
Nepal has argued that while electricity benefits may be shared equally, irrigation and flood-control benefits accrue disproportionately to India. Consequently, Nepal proposed investment costs to be divided on a 70:30 basis during informal discussions(Giri & Tamang, 2026). This has reinforced Nepal’s long-standing perception of structural asymmetry in the treaty’s implementation.
Source: adapted by the author from Bagale & Adhikari, 2020
Functioning
The treaty operates through quantified entitlements, project-specific obligations and bilateral institutions, with Nepal’s water entitlements arising separately from two distinct structures on the river: the Sarada Barrage and the Tanakpur Barrage. Under Article 1, the Sarada Barrage entitles Nepal to 28.35 m³/s (1,000 cusecs) during the wet season and 4.25 m³/s (150 cusecs) during the dry season. India must additionally maintain a minimum downstream flow of 10 m³/s (350 cusecs) to sustain the river ecosystem (GoI & GoN, 1996).
The Tanakpur Barrage, by contrast, carries a materially larger dry-season entitlement and an energy component absent from the Sarada arrangement. Nepal receives the same wet-season flow of 28.35 m³/s, but a higher dry-season allocation of 8.50 m³/s (300 cusecs), reflecting Tanakpur’s later negotiation and its more contentious political history. Tanakpur also entitles Nepal to 70 million kWh of electricity annually, supplied free of cost, with India responsible for constructing the transmission infrastructure up to the Nepal-India border (GoI & GoN, 1996).
Article 4 requires India to supply 10 m³/s (350 cusecs) for irrigation in Nepal’s Dodhara-Chandani area. Article 5 gives Nepal’s water requirements ‘prime consideration’, while Article 7 prohibits either country from adversely affecting the river’s natural flow except through bilateral agreement (GoI & GoN, 1996).
Pancheshwar is the treaty’s principal development instrument, involving storage, hydropower, irrigation and flood control. The two power stations are to have equal capacity, with energy shared equally, while costs are allocated according to benefits (GoI & GoN, 1996).
Article 9 establishes the Mahakali River Commission with equal representation to monitor implementation, evaluate projects and address differences. Unresolved disputes may ultimately be referred to arbitration. Thus, while the treaty provides a relatively sophisticated institutional framework, its effectiveness depends on political confidence, technical cooperation and implementation by both governments.
Performance
The Mahakali Treaty (1996) has produced limited but tangible outcomes, particularly through the integration of the Tanakpur arrangements. Nepal receives seasonal water supplies, minimum downstream flow and 70 million kilowatt-hours of electricity annually, although irrigation infrastructure remains incomplete. The treaty also establishes equal entitlement to Mahakali waters, subject to protecting existing consumptive uses (Bagale & Adhikari, 2020).
However, the treaty’s centrepiece, the Pancheshwar Multipurpose Project (PMP), remains unrealised as of August 2026. Conceived as a joint storage project for hydropower, irrigation and flood control, PMP has faced prolonged disagreements over its Detailed Project Report (DPR), benefit-sharing and cost allocation.
The Joint Project Office for Pancheshwar Investigation (JPO-PI) was established jointly in Kathmandu in 1999 and conducted studies until 2002, but closed without reaching an agreement. The Pancheshwar Development Authority (PDA) was established in 2014, and India’s state-owned Water and Power Consultancy Services Ltd., (WAPCOS) was engaged to prepare the DPR. It submitted a draft in 2016, reducing the proposed capacity from 6,480 MW in Nepal’s original 1995 DPR to 4,800 MW (Sharma, 2016).
As of August 2026, the DPR remains unfinalised. Nepal and India were set to hold their first bilateral water resources meeting in four years in September 2026, with the Pancheshwar project on the agenda alongside other Mahakali Treaty matters (Giri & Tamang, 2026).
The central constraint remains disagreement over how benefits and existing uses should be measured. Nepal questions whether monsoon-period irrigation through India’s systems constitutes existing consumptive use, whereas India considers it historical use. Disputes also persist over the re-regulating structure, powerhouse capacity, irrigation benefits and cost allocation (Bagale & Adhikari, 2020). Differing national priorities and unresolved interpretations of proportional benefits have prevented technical assessments from evolving into a jointly accepted implementation plan (Anil, 2025).
Similarly, arrangements to supply 10 m³/s to Nepal’s Dodhara-Chandani area under Article 4 remain incomplete. Bagale and Adhikari (2020) note that the withdrawal arrangement was never finalised after India linked it to Pancheshwar’s completion and later stalled on the agreed joint survey. As of 2026, Nepal has begun preparatory work in its section of the canal, while India has yet to construct its side (Bhatta, 2025).
The Mahakali Treaty has proved stronger as a diplomatic framework than as an operational mechanism. The continued functioning of the Mahakali River Commission, technical and high-level exchanges, joint data sharing and confidence-building measures have kept bilateral dialogue alive. Yet, the treaty has failed to deliver major operational outcomes: Pancheshwar remains unresolved, financing and benefit-sharing remain contested, and construction has not begun (Anil, 2025). Overall the treaty sustains engagement but has struggled to translate its principles into implementable projects. Addressing this gap will require clearer procedural mandates, binding timelines, and stronger safeguards for resettlement and the environment.
Impact
The Mahakali Treaty remains the primary framework governing India–Nepal cooperation over the Mahakali River. By integrating the Sarada, Tanakpur and Pancheshwar arrangements, it established principles of equal entitlement, protection of existing consumptive uses, joint development, benefit-sharing and dispute settlement. It also brought the politically contentious Tanakpur arrangement into a broader bilateral framework (GoI & GoN, 1996). These provisions have clarified rights and responsibilities on paper while providing an institutional basis for negotiations, data exchange and technical consultations between the two governments.
However, many of the treaty’s anticipated benefits depend on projects that remain unimplemented, most notably the Pancheshwar Multipurpose Project (PMP). Prolonged delays in approving a mutually acceptable design and implementation plan, along with unresolved issues concerning technical design, financing, water allocation and benefit-sharing, have limited the treaty’s practical impact. They have also weakened confidence in bilateral cooperation and reinforced perceptions in Nepal that the treaty’s promised benefits remain unrealised.
If constructed according to proposals put forward to date, Pancheshwar could generate substantial regional benefits alongside significant social and environmental costs. The 2016 draft project documents envisaged a 4,800 MW Pancheshwar project and a 240 MW Rupaligad re-regulating dam, with improved dry-season flow regulation, expanded irrigation and reduced flood risk in Nepal’s Far West and neighbouring Indian districts (Sharma, 2016). These outcomes could strengthen energy security, agricultural productivity and regional infrastructure. However, estimates indicate potential displacement of roughly 60,000 people and adverse impacts on land, livelihoods, ecosystems and cultural heritage (Stockholm International Water Institute [SIWI], 2020). Questions concerning resettlement, compensation, ecological safeguards and equitable benefit distribution remain unresolved, leaving the project’s overall impact uncertain.
The treaty also has immediate social and environmental implications. Article 7 permits local communities on both sides to use up to 5% of the Mahakali’s average annual flow at Pancheshwar, but does not specify how this limit should be measured, enforced or protected during low-flow periods (GoI & GoN, 1996). Consequently, customary activities such as small-scale irrigation, fishing, river-bed material collection and traditional river crossings remain inadequately protected from extraction, ecological degradation and infrastructure development.
The treaty has important normative and institutional effects, but its transformative potential remains constrained by the non-implementation of major projects, particularly Pancheshwar. Realising its long-term legitimacy will require transparent decision-making, enforceable benefit-sharing, credible resettlement and compensation measures, and robust ecological safeguards.
Emerging Issues
The Kalapani-Lipulekh-Limpiyadhura territorial dispute directly affects the treaty’s implementation because the treaty never precisely defines the river’s source. This ambiguity affects both its territorial scope and the technical basis for Pancheshwar. India and Nepal maintain different claims over the areas surrounding the river, making the source a question not only of geography but also of which territory the treaty governs.
India maintains that Kalapani lies within its territory and that any revision to established maps should proceed through bilateral dialogue, describing Nepal’s revised claims as historically unfounded and warning against the ‘artificial enlargement of territorial claims’ (Bhattacherjee, 2020). Nepal, meanwhile, holds that Limpiyadhura, rather than Kalapani, is the river’s true source under the 1816 Sugauli Treaty. It formalised this position through its revised political map in 2020, which was subsequently ratified by Parliament as a constitutional amendment.
The unresolved boundary has concrete implications for Pancheshwar. Since the catchment area and territorial jurisdiction near the river’s source remain contested, the two countries lack an agreed baseline for the joint technical surveys required for the project’s Detailed Project Report. The dispute is therefore not merely a parallel political irritant but a structural obstacle embedded in the treaty’s unresolved definitional gap.
A second issue concerns institutional effectiveness. The treaty’s dispute-resolution mechanism has not functioned as intended. Although the Mahakali River Commission was mandated to oversee implementation and resolve disputes, recent analysis describes the standing commission as an institution “the treaty promised in its ninth article and never delivered” (Belbase, 2026). Nepal-India joint institutions under the treaty have likewise been reported as functioning ineffectively (Anil, 2025). In practice, coordination has shifted among ad hoc bodies, including the Pancheshwar Development Authority, successive teams of experts and a Joint Expert Group.
Third, climate variability, flood management and early-warning cooperation require greater attention. The treaty lacks a detailed framework for real-time hydrological data exchange, dam-operation coordination, emergency releases and village-level flood warnings. Transboundary floods continue to affect lives, livestock, property and crops, while formal cross-border information exchange remains underdeveloped (Pandey et al., 2023).
Finally, environmental and social safeguards need stronger institutionalisation before any final investment decision. Concerns include displacement, biodiversity loss, downstream ecological changes, reservoir emissions, seismic vulnerability, public consultation and access to remedy. SIWI estimates that around 60,000 people could face displacement under the proposed project configuration, while noting differences in the quality and comparability of environmental assessments and public consultations between the two countries (SIWI, 2020).
The treaty continues to face shortcomings in transparency, accountability, inclusiveness and rule-based implementation, reflecting the difficulty of managing a shared river through predominantly political and nation-centred approaches.
Way Forward
With recent political and leadership changes in Nepal, a new door of opportunity has opened up for both the countries to work on a mutually beneficial framework especially with regard to the shared rivers. India, in particular, should avoid being perceived as overly imposing and instead emphasise cooperation, assurance, mutual security and equitable partnerships, especially given its long and strategically sensitive borders with Nepal.
With regard to the Mahakali Treaty, both governments should strengthen the Mahakali River Commission, the body mandated by the treaty, while tasking the Pancheshwar Development Authority (PDA) and technical experts with developing a joint, auditable methodology for calculating hydropower, irrigation, flood-management and environmental-flow benefits. The framework should clearly identify existing consumptive uses and link benefit calculations to project-cost sharing, as required under Article 3.
Environmental and social considerations should be integrated before any major decision is taken under the treaty. Both governments should assess environmental impacts, dam safety, seismic risks, livelihood losses, land acquisition, compensation and resettlement. Public consultation should continue throughout the project cycle rather than being limited to one-time hearings. The PDA should establish accessible consultation offices, provide information in Nepali and relevant local languages, create an independent grievance-redress mechanism, and develop livelihood-restoration and community-benefit funds for affected populations.
Flood resilience should also advance independently of the Pancheshwar decision. Joint real-time hydrological data sharing, interoperable early-warning systems, regular evacuation drills and direct last-mile communication with vulnerable settlements can reduce transboundary flood risks while strengthening trust. Such measures would also promote more transparent, accountable and inclusive basin-level governance.
The treaty’s future depends on moving from prolonged negotiation towards institutionalised cooperation, transparent benefit-sharing and project-level accountability. A mutually acceptable Pancheshwar framework, supported by credible social and environmental safeguards, could help restore confidence and translate the treaty’s principles into tangible benefits for both countries.
References
Government of India, & Government of Nepal. (1996, February 12). Treaty between His Majesty’s Government of Nepal and the Government of India concerning the integrated development of the Mahakali River including Sarada Barrage, Tanakpur Barrage and Pancheshwar Project. Ministry of Jal Shakti, Government of India. https://www.jalshakti-dowr.gov.in/static/uploads/2024/02/MAHAKALI_TREATY_19961.pdf
Ministry of Jal Shakti, Department of Water Resources, River Development and Ganga Rejuvenation, Government of India. (n.d.). Pancheshwar Multipurpose Project. https://www.jalshakti-dowr.gov.in/offerings/schemes-and-services/details/pancheshwar-multipurpose-project-wMwETNtQWa
Stockholm International Water Institute. (2020). Large dams and human rights obligations: The Pancheshwar multipurpose project. International Centre for Water Cooperation. https://siwi.org/publications/large-dams-and-human-rights-obligations-the-pancheshwar-multipurpose-project
Bagale, D. R., & Adhikari, K. D. (2020). Mahakali Treaty: Delay in implementation and resulting impacts from Nepal’s perspective. Water Policy, 22(4), 658–669. https://doi.org/10.2166/wp.2020.141
Pandey, C. L., Joseph, J., Deshar, R., & Niraula, P. (2023). Transboundary flood resilience: Insights from Narayani and Mahakali Basins. International Journal of Disaster Risk Reduction, 86, 103535. https://doi.org/10.1016/j.ijdrr.2023.103535
Giri, A., & Tamang, S. (2026, August 7). Nepal, India seek breakthrough in stalled Pancheshwar project. The Kathmandu Post. https://kathmandupost.com/national/2026/08/07/nepal-india-seek-breakthrough-in-stalled-pancheshwar-project
Anil, A. S. (2025, June 29). Mahakali River Treaty: A critical analysis of India-Nepal river diplomacy. Nepal Institute for International Cooperation and Engagement (NIICE). NIICE article https://niice.org.np/archives/11378
Belbase, D. (2026, August 19). Mahakali-Pancheshwar: The number nobody will fix. New Spotlight Magazine.
https://www.spotlightnepal.com/2026/08/19/mahakali-pancheshwar-number-nobody-will-fix
Bhattacherjee, K. (2020, May 20). Nepal’s new political map claims India’s territories. The Hindu.
Sharma, R. D. (2016, March 7). Pancheshwar project will be tallest dam in world. The Himalayan Times.
https://thehimalayantimes.com/business/pancheshwar-project-will-tallest-dam-world
Bhatta, B. (2025, June 8). It’s Mahakali irrigation phase III and the canal runs dry. The Kathmandu Post. https://kathmandupost.com/money/2025/06/08/it-s-mahakali-irrigation-phase-iii-and-the-canal-runs-dry
About the Contributor
Ninchen Tamang is a Research & Editorial intern at Impact and Policy Research Institute (IMPRI). She holds a Master’s degree in Political Science, with primary research interests spanning geopolitics, international relations, foreign policy, and South Asian studies.
Acknowledgement
The author extends sincere gratitude to the Impact and Policy Research Institute (IMPRI) team for their expert guidance and constructive feedback throughout the process. I also extend my sincere thanks to Khusi and Shivanshi for their constructive reviews and editorial support.
Disclaimer
All views expressed in the article belong solely to the author and not necessarily to the organization.
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