Application of hydro-economic modelling to river basin development planning and management in Nepal

Kamala River Basin (sub-basin of Koshi Basin) within Nepal. We integrate a hydro-economic model (HEM) and cost-benefit analysis (CBA) to evaluate water resource development strategies under contrasting rural development scenarios. Scenarios illustrate outcomes in 2040 arising from three uncertain driving forces: (1) sectoral focus of development; (2) downward responsiveness of governance; and (3) quality of agricultural knowledge and innovation systems. The HEM optimizes net benefits from agriculture and hydropower within water, land, and institutional constraints, while the CBA assesses costs, timelines, and long-term viability of combinations of groundwater; small storages; Kamala Irrigation Project revitalization; and Sunkoshi–Kamala inter-basin diversion. Groundwater and small storage options have favourable benefit-cost ratios but cannot maximize land and water resource use. Revitalizing the Kamala Irrigation Project and implementing a Sunkoshi–Kamala inter-basin diversion could triple net benefits in agriculture and hydropower. However, economically viable water infrastructure portfolios (internal rate of return ≥6 % or ≥9 %) require concurrent, timely and effective investment (respecting strict cost-benefit bounds) to increase crop yields, agricultural extensification and intensification. Allocating 20 % of river flows for environmental uses does not significantly undermine economic benefits. • Rural development scenarios reveal divergent water demand futures in Nepal. • Uncertain water demand challenges long-term infrastructure planning. • Hydro-economic analysis identifies economically feasible supply portfolio. • Feasibility requires participation in agriculture and effective program delivery.