The site

Kulekhani watershed is located 50 km southwest of Kathmandu. It is the source for the Kulekhani reservoir that supplies water to hydropower plants downstream. The 92 MW Kulekhani hydropower plant is the only storage-based plant in the country, providing about 17% of the total hydroelectricity generated in Nepal. A third stage, currently under construction, will generate 45 MW in the near future. There are about 8000 households with over 45 000 residents in eight villages in the catchment. Most households depend on agriculture and livestock. Intensive agriculture for commercial vegetable production and paddy rice is increasing. Community forests in the watershed are well protected and forest cover has increased over the last two decades.

The issues

The reservoir depends on water from the 12 500 hectare watershed. The four months of monsoon account for around 80% of annual precipitation. Within the watershed there are settlements and a mosaic of different land uses. The upstream land-use pattern directly affects the water storage capacity of the reservoir. Sedimentation, caused by intensive agriculture and land disturbance, is the main problem for hydropower plants in Nepal. Kulekhani hydropower plant also faces the problems of high sedimentation in the rivers and low dry season flow. Economic losses associated with siltation in the reservoir are very high. While many check-dams were built along rivers to reduce siltation in the reservoir there had been no program to encourage upland communities to practice more conservation-oriented farming and there were no incentives provided by the hydropower plant to the community forest users for improving the forests.

Legislation mandates all hydropower plants to pay royalties to the central government. Twelve percent of the royalties are returned to the district that houses the power plant. However, there was no acknowledgement of the role of upland communities and forests in providing hydrological services.

Environmental services and the people involved

Environmental services

Decreased sedimentation in the lake and increased dry season flow in the rivers

People who provide the services

8599 households of 46 197 people in the catchment area

People who benefit from the services

Nepal Electricity Authority

People who act as intermediaries between the providers and the beneficiaries

Winrock Nepal

The amount of water in the lake determines the amount of electricity that can be produced. Siltation not only reduces the volume of water in the lake, thereby affecting power generation, but the cost of regular de-siltation is also significant. Most of the sedimentation comes from agricultural land in the catchment. The protection of forests by community forest users contributes to reducing siltation.

The dry season is very long, about 8 months, and hence hydropower generation is at its lowest before the rainy season that starts in mid-June . If water flow can be increased during the dry season there will be higher power output, too. Protection of forests and carrying out less intensive agriculture (that is, with less soil disturbance) by upstream people can help achieve these two increases.

The rewards

In 2003, RUPES started to work with upland communities and the Kulekhani hydropower company to foster a win-win situation based on an environmental services’ mechanism. Programs were implemented to enhance awareness about environmental services among the local communities and other stakeholders and to promote conservation farming in the uplands. The Kulekhani Watershed Conservation and Development Forum was established to facilitate communication between different stakeholders and to promote conservation. The forum succeeded in developing an environmental services payments’ mechanism based on the Local Self-Governance Act 1999 and the Decentralization Act 1992. 

At district level, for the first time in Nepal, a Hydropower Royalty Distribution and Use Directive (2005) was issued by Makwanpur District Development Committee, allocating 50% of royalties it received from the central government to 12 hydropower-plant-affected villages (eight in the uplands, two surrounding  the lake and two downstream). An Environment Management Special Fund (EMSF)was established under the Makwanpur District Development Committee that oversaw the distribution and allocation of the royalties for the villages. Continuing work includes a review of national policy on royalties from hydropower plants; and a review of the role, responsibility and involvement of major stakeholders (sellers and buyers of environmental services). At the time of writing, a national policy workshop was being planned.


Ensuring the proper use of reward money is a challenge compounded by political instability and conflict at local level.

While there was a need for continued support as requested by Makwanpur District Development Committee, the project was halted owing to funding problems. A post-scheme study revealed that the momentum developed during development was waning and the environmental services’ scheme money was being diverted to other activities (mainly construction of new roads) that lead to further degradation in the catchment. However, the payment for environmental services’ initiative in Kulekhani has become a learning site for many national and international visitors.


  • International Centre for Integrated Mountain Development

A regional intergovernmental learning and knowledge sharing centre serving the eight regional member countries of the Hindu Kush Himalayas - Afghanistan, Bangladesh, Bhutan, China, India, Myanmar, Nepal, and Pakistan – and based in Kathmandu, Nepal, which aims to assist mountain people to understand these changes, adapt to them, and make the most of new opportunities, while addressing upstream-downstream issues.

Contact for more information 

Dr Laxman Joshi, LJoshi@icimod.org