Hydropower Benefit Sharing in Pakistan

A Legal Framework


By Barrister Aemen Zulfikar Maluka

1.1 A proposed road map for the inquiry:

This report is split into three parts. Part 1 will review the state of the current Pakistani legal framework as it relates to providing benefits or compensation, monetary and non-monetary to the local people residing in and around dam and power plant locations. The shortcomings of the current regulatory framework and public management culture will be highlighted and this will be followed in Part 2 by a discussion of possible international good practices in law, regulation and public sector management to put forth a more accountable and transparent culture of providing for the welfare of the local communities where hydropower infrastructure and dams are situated.

After the perusal of the various international regimes in Part 2, the report will in effect try to and possibly be in a better position to answer the following questions in Part 3 of the Report.

  • Does the legal culture or the lack thereof in the context of community compensation, tort and environmental law in Pakistan allow the setting up of an entirely new benefit sharing regime mimicking those of the examples gleaned upon in Section 2?
  • What are the possible pre-conditions, which need to exist for the smooth functioning of these benefit-sharing laws whether or not providing a monetary advantage meant to be directly conferred upon the people of the affected area?
  • What internal fail-safe mechanisms of accountability and transparency will have to be incorporated into these laws in order to ensure that their operations are not hindered by inter-governmental conflict and industrial greed?
  • What mechanisms for adjudication will have to be provided for in advance with in the legislation to mediate and arbitrate a possible dispute between the people and the developer?
  • What is the perceived role of the state-owned power provider (WAPDA) and the State (Federal and Provincial Governments) in ensuring that the promises and undertakings made by the developer are put into tangible form?
  • Would kind of penalty would the failure of the developer to implement these benefit sharing mechanisms fairly and with in reasonable time, attract? Would such disputes go to the local courts or be dealt through other dispute resolution procedures also provided for with in the Pakistani Benefit Sharing Legal Framework?
  • How will non-monetary benefits sharing work as a sustainable option for the people of the conflict torn areas where there are chances of internal tribal strife?
  • How will monetary benefits sharing work for dam projects, which are spread over into three or four categories? How are the beneficiaries determined and their location demarcated in this case?
  • Should the firms, which come from abroad, be asked to make mandatory investments in the environment in terms of training and job creation? How wills this impact upon Pakistan being a cost-effective location for investment? Would the taxes liable to be paid by the developer to the state be diverted to the benefit sharing activities or the developer would continue contributing to both? If there is no legislative direction for the same in the legislative amendments, will there be a call for a review of the tax legislation as relates to the dues payable by the developer/owner of plant?
  • Many of these areas have extremely religious and conservative cultures and complex social arrangements which are opposed to female education and job creation, which can occur as incidents of positive benefit sharing investment in the area. This may cause further resentment and complications against the developer who might now be perceived as “meddling” with the local culture. Before providing for non-monetary benefit mechanisms for the same it is proposed that a thorough inventory of the social needs of these areas be taken up.
  • What stakeholders would need to contribute to such a framework? Ideally these would be the developer, the plant owners, the local people of the area and the federal and provincial governments.
  • How can it be ensured through the framework that the local peoples are actually incurring benefit? Will the legislation provide for a periodic accountability mechanism to look into the progress of the same?
  • Can the Council of Common Interests Play a role here in ensuring benefits are being conferred here properly especially where the plant is located in and spreads out to, two or three provincial jurisdictions?
  • Can the powers of the CCI be extended to deal with these issues? What about the situations where the CCI does not represent the people in an area? What can be done for the people in that case to secure their interests against the plant owners and the state?

1.2 Preface:

The current electricity crisis in Pakistan is largely a result of a lack of hydropower infrastructure and operations. One reason for this is that the suitable locations for the setting up of Hydroelectricity infrastructure and dams are generally in far off areas in the Northern parts of Khyberpakhtunwa, Gilgit and Baltistan. Not surprisingly there is a tendency for massive unrests to emerge in these locations whenever the government announces the building of a dam or a hydropower plant. The most recent of these scathing criticisms have come from the Kashmiri and Gilgit-Baltistani political lobby and have been aimed at opposing the Federal Government’s decision to construct the Diamer Bahsha Dam and the Bunji Dam by declaring then as evidence of State Insensitivity of the to the displacement of tens of thousands of the local residents. This is not the first time however that such protests have taken place with the local people and politicians voicing their mistrust and resentment for the Federal law and polices as they pertain to the operations of hydropower plants in less economically fortunate areas. A common complaint is the lack of any governmental concern to alleviate the problems of the settlers and residents in and around hydropower plants and dams to take any tangible measures to compensate the affectees of such operations for the use of their land and environment.

Indeed Pakistan has lagged far behind in implementing and infusing into its law and policy, environmental sustainability and community well being. As there is no clear legal framework which would provide for, in essence, the residents in and around such areas who may not be the primary beneficiaries of these dams but most probably the ones to suffer the most from the negative externalities arising from the plant and dam operations in the project-affected area. There are no laws to make the developer and operator of the plant or dam legally accountable for pollution and land use and no positive obligations are placed on the same to work towards the betterment of the local residents.

A review of the International legal framework as it pertains to benefit sharing especially in the context of hydropower reveals that they have well established environmental and community compensation legal regimes in place which not only provide for mandatory duties on local authorities, the State and the developers to provide for the betterment of the local communities but also venues to finance litigation and the recovery of damages against the misuse of their surroundings by causing ecological disruption in the area, the distortion of the local capital, chronic collective stress, socio-economic disruption due to halt in the trade of natural resources and even feelings of stress, anxiety and feelings of alienation by the local people in the community.

Local communities in Canada, USA and the Australia have been able to get compensation against power developers in the past for long-term resource loss, decrease in job creation and even the perceived long term negative impacts on community mental health in the long run. Unfortunately in Pakistan there is no concept of compensation for environmental nuisance and redressal for social and economic externalities for the poverty stricken local communities in these areas. There is no legal precedent where the courts have taken environmental law action let alone mandated an action for the benefit of a local community whenever there has been a complaint of nuisance, pollution, damage to community health or misuse of surrounding land areas. Ironically Pakistani law is silent on yet another aspect of “tort” which is committed against these local residents which is the severe devaluation in the value of land. Many times the dams, which are built, cause a forced displacement of the local people who are given minimal compensation for loss of their land. In the context of Pakistan it is often said that this aspect of resettlement has been addressed by the Pakistan Land Acquisition Act (1894) (discussed later).

In the end what is basically happening here is a reprisal on behalf of the local communities which is the reason the plans to make the Kalabagh dam were ultimately shelved as the gulf between the provincial and the federal governments increased considerably causing a major loss of trust and a culture of blame due to the lack of an accountable, transparent and responsible regulatory and public management culture.

The regulators seem to be content with the current taxation system where the developer or plant owner pays tax revenue, which is supposed to be compensation to the State and not the People of the area. For this reason the local communities in the Khyberpakhtunwa region, and the Gilgit-Baltistani areas which are key areas of hydropower creation have shown resentment to any further development in their areas of such plants because not only do they feel marginalized when it comes to job creation but is to share part of the benefits generated by dam operation with these communities. In addition, in the case of dam-induced forced population displacement, benefit-sharing mechanisms are generally considered as one of the most important means required for complementing cash compensation. Therefore, one of the key elements to be taken into account in compensation policies is the sharing of part of the benefits generated by dam operation with affected communities.

Furthermore as will be discussed down below while there is evidence of monetary provisions for the benefit of these people they cannot technically be said to be aimed directly at the people. Instead these are merely tax provisions and revenue sharing mechanisms the larger benefit of which generally accrues to the Federal and Provincial treasuries. Arguably these taxes and funds paid in may benefit the people indirectly in the long terms but have no tangible and direct, short term benefit for the same.

1.3 A note about the legal and constitutional setup of Pakistan as it relates to Hydropower sector

The Islamic Republic of Pakistan is a Federal republic with four provinces, one territory and one capital-territory. The legislative branch is composed of a National Assembly and a Senate. The country has gone through considerable turmoil and democratic governments generally do not have a long life in this Jurisdiction on account of recurring military takeovers and internal political unrest. In 1999, a military coup brought General Pervez Musharraf to power and the country’s constitution was suspended. Later it was restored in stages from 2002 onwards. It was amended in 2003 and after the restoration of a civilian democratic regime in 2009, talks have been underway in 2010 to give the provincial governments a considerable say in the power projects being installed under their administrative jurisdictions through the 18th amendment constitutional package. This would mean that while the impetus of installing hydropower projects in provinces would still be in the hands of the federal government, there would be a constitutional requirement to consult the concerned Province before the construction or installation of any such projects in the Province. This would arise from an amended article 157(1) of the Constitution, which would actually allow a provincial government to install and negotiate the building of hydropower projects with foreign firms with little interference from the Federation. This is a positive step as this could eliminate the complaint coming from the provincial governments that Federal arrangements for the construction of the such plants and dams are too discriminatory and compromising against their communal interests. Once the Provincial governments can negotiate with a potential foreign or local Hydropower developer on their own, they can perhaps opt for better ways and means with which they developer can guarantee community benefit sharing and job creation in as a part of his project undertakings.

1.3.a) WAPDA is the state authority in charge of developing and operating the country’s hydel generation facilities and provides the second largest employer in Pakistan outside the federal government. Since the 1960s, WAPDA has executed a number of large hydroelectric projects like the Tarbela Dam and the other Ghazi Barotha dams. Due to the nature and location of many of these hydropower plant or dam locations they sometimes come under the administration and revenue regimes of two different provinces. One example is the Ghazi Barotha dam was constructed in the mid-nineties and due to its location has come to be located with in two different provinces, that is, the North-West Frontier Province (NWFP) and Punjab Province.

1.3.b) The Pakistan Land Acquisition Act (1894 with subsequent amendments) provides displaced populations with compensation for their property at market value. Market value for the land being compulsorily acquired is determined by the provincial Land Acquisition Department and by the Land Acquisition Collector and generally draws upon past market prices .It is worth noting that Pakistan adopted World Bank’s Operational Directive 4.30 as it pertained to new compensation and resettlement management practices to Pakistan during the Ghazi Barotha Project in the mid-nineties which provided for community participation and a widely consultation with the stakeholders in the planning and implementation of resettlement. However there is no evidence of legislation, which has been enacted in line with the same based on the notions of “community” participation in deciding about the future of the residents being affected.

The new Policy For Power Generation Projects (2002) seems to be more promising in terms of endorsing a “win-win” situation for all stakeholders in process of dam and plant building. How effectively this has been pursued in practice and in absence of proper legislative and constitutional safeguards insisting on consent and will of the local people in any such changes is questionable however. The 18th amendment reshuffle between the powers of the Provincial and the Federal Governments seems like a more promising option though to become the basis of effectively negotiated and implemented benefit sharing.

1.4 Article 161 of the Constitution of Pakistan

The most commonly cited constitutional provisions which are supposed to form the premise of hydropower benefit sharing are 161 (2) of the Constitution of Pakistan where it is stated that, ‘The net profits earned by the Federal Government, or any undertaking established or administered by the Federal Government from the bulk generation of power at a hydro-electric station shall be paid to the Province in which the hydro-electric station is situated’. This is can be then indirectly construed to mean that the monetary profits or royalties which arise from the construction and operations of the same will paid to the local/provincial government.

The article 161 (2) further explains that ‘For the purposes of this clause “net profits” shall be computed by deducting from the revenues accruing from the bulk supply of power from the bus-bars of a hydro-electric station at a rate to be determined by the Council of Common Interests’[1]. This is often found to be nuance in areas like Gilgit and Baltistan which have little or no say in the co-ordination of the Council of Common interests due to their disputed territoriality.

The criticism of this framework is that beneficiaries of these royalties will then not be the local residents of this area but the government alone. The Gilgit and Baltistani people are a good example because while technically the chosen location of the dam might come under the jurisdiction of the NWFP government, the direct affectees of the same remain the people of Gilgit and Baltistan who have little or no representation in the Pakistani Senate or National Assembly.

The need is to push for a legal framework which enables actual and direct benefit sharing with the people of the affected areas .The fate of the Kalabagh damn and the millions of rupees lost in planning for the same only to halt work in the name of local reprisal and fear of political pressure is only but one example how inadequate this legal framework is for balancing the interests of the hydropower foreign investor, the government and of course the people.

1.5 Problems with the application of Article 161

The aim and ambit of section 1 of this legal report takes into account the current shortcomings with the Pakistani Legal Framework in particular the Article 161 (2) of the 1973 constitution of Pakistan.

As discussed above Article 161 of the 1973 Constitution of Pakistan makes explicit provisions for the allocation of royalties from natural gas production and generation of hydroelectric power. It stipulates that for hydroelectric power that net profits earned by the federal government shall be paid to the province in which the hydroelectric station is situated[2]. Therefore the current mechanism under Article 161 is by no means simple and straightforward as evident from the discussion below.

The consequent sparse population distribution of both NWFP and the Kashmiri/Baltistani areas raises significant development challenges. There are serious issues here as far as the skill and education deficit in these areas is concerned as well. Therefore even though the protest of the local politicians at what is perceived as exploitation of their natural resources by the federal government does not seem to sit well with the federal authorities that must bring in new workers and laborers from other provinces. A common criticism is that production infrastructure for the same has always been installed under the federal legislation, which provides for and effectively prefers a large number of non-local national and foreign workers and technicians. While the locals are given roles as unskilled labor, due to the skills shortage in the province, any sustainable hydropower sharing legislative framework for the future should be more focused upon the Private Investing Firms or the federal government should provide locals the training to carry out the requisite tasks as a part of their negotiation with the local representatives.

The problem with royalties being paid out under Article 161 is the issue of non-clearance and backlog of royalties owed to the provincial governments by the federal authorities. There is as such no political or legal impetus on behalf of the same to compel the federal government to pay out this money for the benefit of the people.

The local resentment has turned into armed violence, guerilla warfare and the emergence of nationalist sentiments amongst the local populations, which has caused the issuance of bomb threats and disruption in plant operations. The same can be well remembered from the Kalabagh dam incident. However things are further complicated by the attitudes of the local Sardars and Tribal chiefs in this area who are unfortunately more concerned at losing their strong feudal hold on these areas should the local masses attain some education and even access to the most basic facilities. This is one possible issue, which needs to be delicately covered in any possible legislative framework providing for hydropower benefit sharing.

Furthermore in the event that such royalties are infact collected from the private firms working in these areas and paid up by the federal agencies to the provincial governments, the local populations are extremely skeptical about who will really benefit from the money. From past experiences it has not been the people who benefitted from these funds but a large financial drain was recorded as going towards other supposedly large-scale infrastructure projects, which has yet to reach full completion beyond initial dialogue.

In 1986 the NFC (The National Finance Commission) constituted a committee under the chairmanship of A.G.N. Qazi to determine the rate of net profits on hydropower, the calculation of which had created a lot of controversy until now. The committee was comprised of members of WAPDA, the federal and NWFP governments. It came up with the so-called A.G.N. Qazi formula which was approved by the CCI in 1991.The problems between the provincial and federal governments started when a presidential order was passed by President Ghulam Ishaq Khan in the year 1991 which allowed NWFP to recover its back dated royalties but after 1992 this was capped at 6 billion on annual payments. There have been considerable problems ever since as provinces have sought to recover their royalty arrears from WAPDA.

1.7 Political action so far

There have been sharp criticisms and political reactions from national politicians and parties, and time and again a need has been expressed to reach a negotiated solution of hydropower benefit sharing with the local people.

In the past Parliamentary committees headed by Pakistan Muslim League President Chaudhry Shujaat Hussain (2004) and by former-Senate Chairman Wasim Sajjad (2005) were mandated to address the question of provincial autonomy in terms of profit and revenue distribution and sharing. The recommendations of these communities were at best noble but lacked a solid premise which would pave the way for legislative amendments which would actually address the problems of arbitrary National Finance Commission awards, equitable distribution of federal resources to these provinces on the basis of poverty, social and educational backwardness, unemployment and under-development levels and proper and transparent functioning of the Council of Common Interests.

Some substantial recommendations of such committees reviewing the benefit provisions under Article 161 actually included the maximization of provincial representation on the decision boards of the private and state owned power firms operating in the province; setting up local population job quotas; a commitment by these firms to introduce a host of infrastructure-development and confidence-building strategies for the direct benefit of the local population.

1.8 Conclusion

The possible positive outcomes of enforcing a Hydropower benefit sharing legal regime would involve sustainable and long term development in the region and promote trust and co-operation through taking direct measures to promote the provision of health, education, water and sanitation and other services to all parts of the province as part of their development commitment during the setting up and promoting of hydropower infrastructure, plants and dams. Furthermore the implementation of the above can bring about possibly participatory, development, which is based on consensus and promotes local ownership without planting ill sentiments amongst the local population that such development is being imposed from outside forces.

Pertaining to Hydroelectric power in Particular the most promising venues for effective hydropower generation are situated in NWFP, which is also the location of one of the largest dams in Pakistan, i.e. the Tarbela Dam. This framework has only escalated federal-provincial disputes, as well as of inter-provincial rivalries and grievances due to the rather defective allocation of its mechanisms and policies.

It has been seen in Part 1 of the report that the current regime (Article 157, 161, 2002 Power Policy, Land Acquisition Principles and the much awaited 18th amendment) would appear to form a very simple and straightforward mechanism for the allocation of royalties and in essence the so-called benefit sharing in the context of the Pakistani Legislation but in practice it has been fraught with problems. Therefore in the light of the above discussion it becomes mandatory to look at international regimes of benefit sharing mechanisms (Part 2 of the Report), which are supported by a solid legal framework providing for such monetary and non-monetary “benefits” which can actually be directed at the local populations.

The Choice between Monetary and Non –Monetary Benefit Mechanisms

The concept of benefit sharing figures prominently as an option for the decadent polity like Pakistan due to an overall lack of sound taxation and revenue laws and their subsequent enforcement ensuring that the revenue collected is equitably redistributed to the residents of a certain vicinity. With in the international legal framework the concept has gained an advanced praxis as a part of Integrated Water Resources management. The principle idea of the concept is to share the benefits arising from the development of the water resources with the local populations. The aim and ambit of this study of course less concerned with the laws relating to transboundary sharing (although they might provide a possible food for thought as far as interprovincial sharing of water resources is concerned in the case of Pakistan) and more with the concept of benefit sharing. Benefit sharing itself has two dimensions of its own which mean that one can be attributed to the monetary benefits and another can be said to relate to non-monetary benefits. Also the nature of these benefits are not just restricted to populations affected by Dam locations but also relate to the operations of other hydropower generating and storage facilities as they can also create negative externalities for the people living in the vicinities.

As far as monetary benefit sharing mechanisms are concerned, they have been identified as those mechanisms which consist of sharing the monetary flows generated with in hydropower production, consumption and storage with the affected communities. These can take form of property taxes, equity sharing / full ownership, revenue sharing, preferential rates and development funds.

Non-monetary benefit sharing would entail law and policy features responsible for the integration of project benefits into local development strategies. These objectives can be achieved by mandating an undertaking from the investing parties based upon livelihood restoration and enhancement of the standards of life for the local communities through initiatives aimed at community development, catchment development .It is arguable however whether the same would entail job creation and compulsory training, although International Water Agreements and Legal frameworks have often included a clause or a commitment for education and training of the affected populations.

One option for Pakistan can be of course revenue sharing with the local or provincial authorities, which can be arranged through royalties tied to the output of the project (e.g. power generation), or through water charges. The amounts can be either settled through negotiations between the local/ provincial authorities and the promoter or investor as defined in the legislation. Pakistan does not have a very positive experience of the same as has been discussed in Section 1 of the report. The Pakistani legal regime has not shown any practical manifestation whatsoever in terms of preferential electricity rates which can be offered to persons of the affected areas and very often these areas are the worst hit by power cuts.

While there are ample opportunities, particularly in Pakistan to tax the investor and infrastructure operator through property and production taxation, the state legislation does not provide clearly about this money being invested upon the local people. Instead the money simply goes into the federal and provincial treasuries which means that the local populations are left out again. For this reason while advocating a more non-monetary and sustainable approach to benefit sharing there is going to be an effort here to ensure that the NWFP and Gilgit Balitistani, and Baluchistan authorities a greater degree of autonomy over the redistribution of the benefits. However, they will also share the risks and responsibilities of the venture with the investor in order to balance out the interests of the investor. These funds can be channeled once legally mandated by the power of hydropower investment law towards subsidized, power sales and water charges may be established to foster economic development in the project-affected area. The funds can be set up to provide additional long-term compensation to project-affected populations in far off areas. The legislation should be an impetus to enable a sustainable, fair and balanced partnership between the people and the local populations.

For the benefit of Pakistan and the in the interests of development as they pertain to the development strategy element of a comprehensive compensation policy there are three possible methodologies which can be gleaned for international legal frameworks. The first one is the dimension of livelihood restoration and enhancement. This might include creating sustainable value in the area through employment creation, training and academic contribution to the local populations. This would essentially point towards contribution towards the local social capital. Since the aim of the dams being built is not simply hydropower generation chances are that employment and business opportunities can also be offered with in the agricultural, fishery, tourism or recreational sectors.


Appendix 1- Summary of International Provisions and Frameworks from Countries and International Financial Institutions

European Union Laws about Stakeholder participation in benefit sharing schemes and mechanisms. 1-Stakeholder participation: Directive 85/337/EEC of June 27th 1985, recently amended by Directive 97/11/EC, which came into force on March 14th 1999, imposes on member states, among others, to develop procedures for public participation in order to promote transparent decision-making processes.

2- Transparency of decisions in stakeholder decision making in benefit sharing: Directive 90/313/ECE on freedom of access to information concerning the environment requires that information which is normally held by publicly accountable bodies be made available on request to the public.

Draft North American Agreement on Transboundary Environmental Impact AssessmentStresses upon the importance of some ethical principles, such as the precautionary principle, public participation and optimality through legal and administrative provisions in terms of hydropower ventures between private investors and the state.

North American Agreement on Environmental Co-operation (binding the

United States, Canada and Mexico) Articles 6 and 7

Contains provisions concerning public access to

Information (e.g., art 6 and 7), as well as co-operation actions aiming at optimality of decision making for Hydropower projects.

Canadian LawLaw and policy mandating development of numerous recreational fishing outfitters on the periphery of reservoirs. Aquatic biomass produced in reservoirs in northern temperate zones is higher than the terrestrial wildlife biomass that is available for harvesting by the local population as a non-monetary benefit.IndiaIndia has benefitted from its legal framework and national policy, which establishes a uniform hydropower benefit sharing and development policy across all of its States uniformly. The policy is aimed at establishing a local area development fund for adversely affected communities and this fund is the equivalent of 2% of project revenues. A multi-stakeholder committee headed by a government official and comprise of local community representatives is said to manage the fund with in the upcoming framework.

Basically the new hydropower policy will incorporate a provision where 2% of the revenue from hydropower projects will be allocated to local area development funds in addition to the 10% allocated to the province. This is said to cover for the costs for long-term local development and welfare improvement schemes in the project impact zone.


Colombia Brazil


Benefit Sharing takes the form of transfers of part of the revenues from hydropower projects to municipalities or provincial entities.

Norway: this is done through monetary Benefit sharing: revenue sharing, equity sharing, development funds, property taxes and preferential electricity rates. Revenue transfer is done through the Paix des Braves Agreement between the Government of Québec and the Grand Council of the Crees in Canada. This agreement is an important recognition of the rights of Indigenous communities to have a say in the management of natural resources on their ancestral lands.

This legislation explicitly recognizes that project-affected people, as part of the populations of municipalities in which water resources are exploited, must receive a share of the project benefits, over and above mitigation and compensation measures that are included in project design.

Columbia: 3% of revenues from all hydropower projects are transferred annually to the watershed agency to fund watershed management activities working with the basin communities. Development funds can also be set up to provide additional long-term compensation to project-affected populations (Columbia Basin Trust in Canada and the Lesotho Fund for Community Development)


Vietnam’s Electricity Law (2004) and Environment Protection Law (2005).

Constitutional basis and premise

To promulgate laws that establish protection of biodiversity must, “… be implemented based on the assurance of the rights and legitimate benefits of local communities” (LoEP, Article 30), and making “… localities within river basins jointly responsible for protecting water environments … and ensuring benefits for local residential communities”, (LoEP, Article 59).

  • Article 4 of the Electricity Law (2004) calls to, “… develop sustainable power sector based on optimal development of all sources…”
  • Article 1 of the revised Law on Environment Protection (2005) that came into effect in July 2006 – which defines sustainable development for all sectors of the economy.
  • The Constitution of the Socialist Republic of Vietnam (1992) makes resource management subject to market mechanisms for stable, long-lasting resource use and to move away from sole reliance on State budgets. Revenue sharing is a market mechanism to internalize social and environment costs of infrastructure projects in the tariff.
  • Under this framework there are three forms of benefit sharing suited to people adversely affected by resource development projects.
  • Equitable sharing project outputs and services (like water and energy services from dam projects)
  • Entitlement for those affected by hydropower projects to receive extra resource access entitlements to offset permanent loss or reduction of resource access in the form of advanced access and preferential rights.

Other recent legal provisions:

  • From Article 3 of PMO Decision 187 (1999), On Renovation of the Organization and Recent hydropower EIAs in Viet Nam (like the Song Bung 4 EIA update 2006), identify affected people in the reservoir impact zone; displaced people and the resettlement impact area; downstream and upstream impact zones, in which impacts will be mainly on riverine fisheries and other reduction in resource access; and the project construction and auxiliary lands impact zones
  • Provincial Peoples’ Committees (Pecs) already have a range of legal instruments and institutional mechanisms to draw upon for this purpose, like the current arrangements for state and provincial programs (e.g. Program 66, 133 and 135).
  • Politburo Resolution 41-NQ/TW, 2004 on environmental protection in the period of accelerated national industrialization and modernization and PMO Decision. The action plan calls for several measures, including a new law on environment tax by 2008, as well as measures to “encourage the participation of private sectors and adopt mechanisms to encourage enterprises of all economic sectors to provide environmental protection services …”.
  • Law on Environment Protection (LoEP, 2005) is a financing vehicle to consider for benefit sharing. While it is yet to be implemented the LoEP stipulates that Environmental Protection Funds will be set up at local, sector and central levels, financed in part by, “ … funds from organizations and individuals for prevention and restriction of adversely environmental impacts of their production, business and service activities” Article 115), and the State shall, “encourage enterprises, organizations and individuals to establish environmental protection funds”.
  • Water Resource Law (1998) may be very relevant, especially any clarification about how enterprises (including hydropower projects) will contribute to water resource protection financing in future, and how the existing water resources utilization fees collected from enterprises are targeted.
  • Decision 176, 2004, on approving strategy for power industry development (Article 11) 24 that stresses the aim … “to provide budget capital support for projects on electrification in rural, mountainous areas… (And) in service of economic development as well as hunger eradication and poverty alleviation in these areas”, and households by 2010 and 2020, respectively; and places priority on hydropower development.

Ecuador : In 1998,  the NGO Fundación Antisana, the Government of Ecuador, the municipality of Quito, and the Quito water company launched ‘FONAG’ – an initiative to collaborate on the design and development of a water fund for conservation projects and improved watershed management. Now the FONAG trust fund contract, commits the national Quito Electric Company to an annual contribution of 0.5% of profits.

BrazilOne of the Top 3 world investors of hydropower dams

  • Problem of post-relocation in a scenario similar to Pakistan. Failure of one time compensation mechanisms but legal measures to compel power generation companies and dam owners to ensure continuity of financial support .The regime is still deemed unsatisfactory due to the complaint that the money does not reach the people.
  • The Constitution of the Federal Republic of Brazil of 1988 warrants that the States, the Federal District, Federal administrations and municipalities participate in the results of exploitation of hydraulic resources for the purpose of generation of electric power.
  • Under Law 7990 (December 28, 1989) and Law 8001 (March 13, 1990), a financial compensation for the use of water resources must be paid by companies authorized to produce hydroelectric power, which operate plant with a capacity larger than 10 MW. Under Law 800.
  • Law 9433 (1997), which outlines the national, water resources policies and guidelines and introduces the concept of payment for water use.
  • In 2000, Law 9984 created the National Water Regulatory Agency and increased from 6% to 6.75% of the revenues (based on a reference tariff) the amount to be paid by utilities, the additional 0.75% being the payment for water use.

World Bank

Operational Policies on Indigenous People and Involuntary Resettlement.

Operational Policy 4.10

  • Bank-financed projects are designed to ensure that the Indigenous Peoples receive social and economic benefits that are culturally appropriate and gender and inter-generationally inclusive
  • Indigenous Peoples Plan (IPP) – The borrower includes in the IPP arrangements to enable the Indigenous Peoples to share equitably in the benefits to be derived from such commercial development; at a minimum, the IPP arrangements must ensure that the Indigenous Peoples receive, in a culturally appropriate manner, benefits, compensation, and rights to due process at least equivalent to that to which any landowner with full legal title to the land would be entitled in the case of commercial development on their land.

Operational Policy 4.12 – Involuntary ResettlementWhere it is not feasible to avoid resettlement, resettlement activities should be conceived and executed as sustainable development programs, providing sufficient investment resources to enable the persons displaced by the project to share in project benefits.

Displaced persons should be assisted in their efforts to improve their livelihoods and standards of living or at least to restore them, in real terms, to pre-displacement levels or to levels prevailing prior to the beginning of project implementation, whichever is higher.

International Finance Corporation: The Performance Standard 5:

Land Acquisition and Involuntary Resettlement (enhanced focus on compensation and not benefit sharing in the shape of negotiated settlements which can usually be achieved by providing fair and appropriate compensation and other incentives or benefits to affected persons or communities, and by mitigating the risks of asymmetry of information and bargaining power.

Asian Development Bank

Involuntary Resettlement Safeguards

Improve, or at least restore, the livelihoods of all displaced persons through … (iv) additional revenues and services through benefit sharing schemes where possible.

Provide physically and economically displaced persons with needed assistance, including the following: (i) if there is relocation, secured tenure to relocation land, better housing at resettlement sites with comparable access to employment and production opportunities, integration of resettled persons economically and socially into their host communities, and extension of project benefits to host communities; (ii) transitional support and development assistance, such as land development, credit facilities, training, or employment opportunities; and (iii) civic infrastructure and community services, as required.

African Development Bank

Involuntary Resettlement Policy

To ensure that when people must be displaced they are treated equitably, and that they share in the benefits of the project that involves their resettlement.

Access to benefits is put forward as one of the “major issues” that should be considered in the integrated environmental and social impact assessments of Bank-supported projects, including irrigation, water supply, and hydropower projects.

The Bank requires the identification of the specific groups that are not benefiting from the project, however no details are provided with regard to the required corrective measures.

Inter-American Development Bank

The Involuntary Resettlement PolicyThe involuntary physical displacement of people caused by an IADB project aims to minimize the disruption of livelihood of people living in the project’s area of influence, by avoiding or minimizing the need for physical displacement, and ensuring that when people must be displaced they are treated equitably and, where feasible, can share in the benefits of the project that requires their resettlement. 

International legislation                                       Main provisions & Objectives

Legislation on Revenue Transfers (Brazil)

Legislation on Revenue Transfers (Colombia)

PROHA (Ecuador)

Legislation on Energy and Water Resources (Norway)

Columbia Basin Trust (Canada)

Hydro-Québec Approach on Partnerships (Canada)

Hydro-Québec Approach on Partnerships (Canada)

Paix des Braves Agreement (Québec, Canada)

Post Resettlement Development Funds (China)

Western Region Development Program (China)

Legislation on Revenue Transfers (Nepal)

Lesotho Fund for Community Development

Providing additional long-term compensation to affected populations

Establishing a long-term provincial development fund

Establishing a partnership with local communities

Monetary compensation for lost assets and loss of access to resources

Livelihood restoration and enhancement (Sustainable agricultural and non-agricultural employment)

Community development (Housing; access to primary services such as schools and health; access to financial services; domestic water supply; roads and public transportation; rural electrification; markets and meeting places; and access to common resources such as forests).

Catchment development (Custodianship of catchment resources; reforestation, afforestation, planting of fruit trees; and environmental enhancement for wildlife resources)

Monetary benefit sharing schemes (revenue sharing; development funds; equity sharing; property taxes; and preferential electricity rates)

Providing additional long-term compensation

Revenue transfers to local authorities

Revenue transfers to provincial and local authorities

Establishing a partnership with local communities

Equity sharing

Providing additional long-term compensation

Establishing a long- term provincial development fund

Preferential electricity rates

Revenue sharing Equity sharing Development fund Property taxes

Providing additional long-term compensation

Revenue sharing Development fund

Establishing a partnership with local communities

Revenue sharing Equity sharing

Benefit sharing set up Stages for Pakistan

  • Stakeholder participation
  • Compliance
  • Enforcement/mechanisms
  • Compensation policy
  • Outstanding social issues
  • Social impact assessment
Possible stakeholders in the process:
  1. Developers: developers bring capital as well as technical and managerial expertise to build and operate the project.
  2. Project beneficiaries: Most project beneficiaries are generally located far away from the dam site and expect to benefit from the services provided by the dam at the lowest price or fee possible, or even for free.
  3. Local communities, project-displaced and other affected people: dam construction and operation affects to various degrees the uses of water resources and other resources as well as ways-of-life of provincial and local populations.
  4. The State: many institutions are concerned by dam projects, e.g., land use and resource management, manpower, health or economic development agencies. State has the responsibility to establish legal guidelines for the use of natural resources and taxing them.

Possible provisions to take into account when drafting the Pakistani National Law on Hydropower (Monetary & Non-Monetary Benefit-Sharing)

  • Costs for electrification of resettlement communities in project capital budgets
  • Targeting communities living in the project impact zone with rural electrification funds
  • Off-grid supply in areas uneconomical to connect to the grid
  • Additional measures to enhance electricity access for the poorest households
  • Organization for implementation of equitable electricity access at state and provincial
  • Types of measures for enhancing resource access and livelihood opportunity
  • Procedures to identify local preferences for additional entitlements
  • Provincial level support to granting entitlements to enhance resource access and livelihood opportunity
  • Types of measures supported by revenue sharing
  • Establishment of a central reserve fund by the electricity regulator (ERAV)
  • Establishment of project-specific revenue sharing funds
  • Mechanisms for payments into revenue sharing funds
  • Financing formula for calculating payments into revenue sharing funds
  • Functions and duties of the benefit sharing Councils
  • Composition of benefit sharing Councils
  • Preparation and contents of the fund Charter and annual reports
  • Determination of parties eligible to apply for revenue sharing grants
  • Principles for allocating revenue-sharing among communes in the project impact zone
  • Principles for administration of grants
  • Fund administration costs and anticorruption measures
  • Criteria for determining successful grant applications inter-provincial rivers or affecting more than one Province
  • Harmonizing with planning for local infrastructure investment and rural development extension services
  • Harmonization of benefit sharing funds with project-specific funds for water resources and environment protection
[1] The mechanism for allocation of hydropower revenues is provided in Article 161 of the Constitution, as seen above. The Article’s explanatory notes elucidate upon ‘”net profits” as being computed by deducting from the revenues accruing from the bulk supply of power from the bus-bars of a hydro-electric station at a rate to be determined by the Council of Common Interests, the operating expenses of the station, which shall include any sums payable as taxes, duties, interest or return on investment, and depreciations and element of obsolescence, and over-heads, and provisions for reserves.’ The Council of Common Interests (CCI) did not meet until 1991, and it was actually the National Finance Commission, which agreed a formula for allocation of hydropower profits

[2] The National Finance Commission follows Article 161 when it decides the allocation of natural gas and oil royalties. These do not go into the Federal Consolidated Fund (from which the Divisible Pool is derived), but form a separate fund, which after deduction of fixed percentage collection charges by the federal government is returned to the province of origin

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