The Indus Water Treaty was signed in September 1960 after nine years of negotiations between India and Pakistan, brokered by the World Bank, which too is a signatory. It is the most durable treaty between the two countries but has come under considerable pressure in recent years as bilateral relations plunged to an all-time low due to tensions related to terrorism and Jammu and Kashmir.
The involvement of the World Bank in the negotiation process of the Treaty began in September 1951, when Eugene Black, the then President of the World Bank, wrote to Prime Ministers, Jawaharlal Nehru and Liaquat Ali Khan, to invite both states to engage in talks pertaining to the Indus waters. After nine years of intense negotiations, the historic an agreement was signed on September 19, 1960.
The Treaty allocates the Western Rivers (Indus, Jhelum, Chenab) to Pakistan and the Eastern Rivers (Ravi, Beas, Sutlej) to India. At the same time, the treaty allows each country certain uses on the rivers allocated to the other.
The role and jurisdiction of the World Bank is spelled out. The World Bank, being a signatory of the Treaty, assumed two roles under the Treaty. The first related to the financing of the water works in both India and Pakistan. Under the Treaty, the World Bank agreed to provide financial and logistical support in the formation and functioning of the Indus Basin Development Fund.
Moreover, Pakistan required funds for the creation of canals that would transfer water from the Western rivers to Pakistan. India refused to provide financing for this. In light of this, the World Bank helped arrange for external financing for Pakistan. This culminated in the signing of the Indus Basin Development Fund Agreement in Karachi, on September 19, 1960. This Agreement was a treaty between Australia, Canada, West Germany, New Zealand, the United Kingdom, the United States with the International Bank for Reconstruction and Development (IRDC) and Pakistan who agreed to provide Pakistan a combination of funds and loans. This fund was administered by the World Bank.
The second and main function of the World Bank is regarding the dispute resolution mechanism of the Treaty. Under Annexures F of the Treaty, the role of the World Bank comes in the appointment of the Neutral Expert. In the absence of an agreement between Pakistan and India on the Neutral Expert, the Bank, has the authority to appoint the Neutral Expert. However, the Bank is obliged to consult with both parties, prior to making such an appointment. Such an appointment by the Bank is made following the receipt of a request for the appointment of a Neutral Expert, either jointly from both Indus Commissioners or from one Commissioner.
Under Annexure G of the Treaty, the Bank also has a role to play in the empanelment of the Court of Arbitration. In the absence of an agreement between the Parties, the three umpires of the Court of Arbitration will be selected by individuals listed in the appendix to Annexure G. These individuals themselves will be selected by drawing lots from a list provided in the appendix and these lots will be drawn by the World Bank. The individuals selected from drawing lots will be responsible for selecting the three umpires of the Court of Arbitration.
The role of the World Bank became crucial in 2016, when Pakistan made a request for arbitration. Within a month, the Bank submitted a request to Pakistan and India that they appoint a Neutral Expert to deal with these same matters.
The “Request for Arbitration” was transmitted to and received by India on August 19, 2016. The “Request for Neutral Expert” was transmitted to and received by India and Pakistan on 6 September 2016. Thus, Pakistan’s request precedes India’s.
The Bank’s initial response to these two separate requests was to carry out its assigned role under both Annexure F (for a Neutral Expert) and Annexure G (for the Court of Arbitration) of the Treaty. However, after much back and forth in the selection of the candidates for the Neutral Expert and the Court of Arbitration, on December 12, 2016, the Bank’s President decided to “pause” the dispute resolution mechanism of the Treaty. The dispute resolution mechanism of the Treaty remained “paused” for more than five years, which denied Pakistan access to redressal mechanisms under the Treaty.
In April 2022, the World Bank announced that it had decided to “resume the two separate processes requested by India and Pakistan in relation to the Kishenganga and Ratle hydroelectric power plants.”
The drawing of lots for the appointing authorities for the umpires had taken place in 2016. The two umpires, apart from the Chairman of the Court, were selected by the appointing authorities. The World Bank resumed the two processes by appointing the Chairman of the Court of Arbitration and the Neutral Expert on October 17, 2022. Pakistan had appointed its two arbitrators but India refused to do so.
The proceedings before the Court of Arbitration began on January 27, 2023, in Hague, but were boycotted by India. India’s External Affairs Spokesperson Arindam Bachi stated, “I do not think they (World Bank) are in a position to interpret the treaty for us.”
A plain reading of the Treaty suggests that the role of the World Bank is only procedural in nature, in that it is merely tasked with assisting in the empanelment of the Court of Arbitration and the appointment of the Neutral Expert. The World Bank has said as much by stating that,
“The World Bank Group has a strictly procedural role under the Indus Waters Treaty and the treaty does not allow it to choose whether one procedure should take precedence over the other.” said Senior Vice President and World Bank Group General Counsel Anne-Marie Leroy in 2016. She went on to state, “What is clear, though, is that pursuing two concurrent processes under the treaty could make it unworkable over time and we therefore urge both parties to agree to mediation that the World Bank Group can help arrange. The two countries can also agree to suspend the two processes during the mediation process...”
This statement was followed by the Bank “pausing” the dispute resolution mechanism of the Treaty for more than five years. The World Bank’s unwillingness to fulfill the seemingly “procedural” role led to a stalemate on the resolution of the disputes that resulted in irreparable damage to Pakistan. In these five years, India was allowed to complete and inaugurate the Kishenganga dam, whereas Pakistan was not allowed to access the dispute resolution mechanism of the Treaty to address its grievances. This was the case even after Pakistan repeatedly asked the World Bank to fulfill its role under the Treaty and proceed with the appointment of the Court of Arbitration.
Moreover, in the statement made by the World Bank itself, the Bank stated that the two countries can agree to suspend the two processes to make room for negotiations. Even after making such a statement, the Bank proceeded with “unilaterally pausing” the dispute resolution mechanism of the Treaty whereas there was no such agreement between the countries.
This forces one to think of the impact of a “seemingly” procedural role of the Bank. The role of the Bank may be strictly procedural, but the Bank’s decision on when and if to fulfill the role has dire consequences for both countries, as has been seen in the past five years. It needs to be realised that the Treaty is silent on what the situation will be if the Bank decides not to fulfill its role under the Treaty. As such, there is no alternative to the Bank acting according to the mandate of the Treaty. This means that if the Bank decides not to act, there is no alternative provided in the Treaty for the Bank’s role. The Bank’s inability to act causes a stalemate.
The problem lies in the Bank understating its role and the impact of its actions. It is time that the strength and impact of the Bank’s role is recognised so that neither country is adversely impacted as was Pakistan in the last six years.