This paper explores the negotiations and the emerging socio-political relationships and alliances that were formed to reach a series of water-sharing agreements between upstream and downstream communities, in order to secure water required for continued urbanisation of the downstream town. The research focused on the socio-political actors and users of the Dhulikhel drinking water supply system of Nepal. Primary data was collected through key informant interviews, focus group discussions and

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... keholder workshops to explore the development of the negotiation process and the agreement, and the role of different actors. The qualitative data was analysed through narrative and discourse analyses. During the negotiation process, political leaders from both communities were involved in the formation and acceptance of the agreement. The long- term negotiation that started during the 1980s culminated in a series of agreements, the last of which formally introduced cash incentives to the upstream community in 2011. The downstream urban community has been paying NPR one million per annum to the upstream community for their continued role in the sustainable management of the water catchment. The paper provides insights into the shifting power relations between local rural and urban socio-political actors who play a vital role in water access negotiations, and fundamentally influence the potentials and effectiveness of incentive-based mechanisms to secure water needs.