Power politics
A country is being offered its largest ever infrastructure grant, but is torn between accepting it or not. The donor nation appears more eager to give the money than the recipient to take it.
That, in a nutshell, is what is happening to the $500 million Millennium Challenge Corporation (MCC) grant from America to upgrade Nepal’s power grid and highways. Political leaders opposed to the MCC have weaponised it to strike at rivals to such an extent that they cannot now backtrack – even though generated power is already being wasted because of the lack of transmission capacity.
The tussle over the MCC in Nepal has geopolitical undercurrents because of growing Sino-US tensions. Frequent visits to Kathmandu by US functionaries are an indication of just how important the project is for Washington – even though its official line is that it is up to Nepal to take it or leave it.
The US Assistant Secretary for South and Central Asian Affairs Donald Lu and his deputy Kelly Keiderling are both in Kathmandu this week to meet Prime Minister Sher Bahadur Deuba and other leaders. These visits follow a 4-day trip in September by Fatema Z Sumar, Vice President of Compact Operations at the MCC.
The Americans seem genuinely mystified about why a country like Nepal that needs all the help it can get to develop its infrastructure, and which stands to lose billions in wasted hydroelectricity in the coming years because of the lack of transmission lines, should be so hesitant about their grant.
Officially, the US Embassy said in a statement this week that Lu and Keiderling were in Kathmandu as part of a regional trip to discuss ‘climate change, Covid-19 response and strengthening democracy’. The MCC was pointedly not mentioned.
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Lu has been posted before in New Delhi, and is a South Asia hand. Diplomatic sources say MCC is definitely going to figure prominently in his discussions here, which will be a follow-up to the short interaction Prime Minister Deuba had with US President Joe Biden in Glasgow two weeks ago during COP26. Deuba also met the deputy chief of the MCC Alexia Latortue, and told her that he and the leaders of his five-party coalition supported the MCC moving ahead.
On his return from Glasgow, Deuba told the press that he and Maoist leader Pushpa Kamal Dahal had written to the Americans assuring them that they would push MCC ratification. Dahal subsequently backtracked, saying he had only agreed to amendments to the contract. One source said Dahal told party insiders he did not want the controversy to weaken the coalition, and cost votes in elections.
The private sector has warned that Nepal faces huge losses if the five-year compact is not approved. “We will lose Rs142 billion annually if we do not upgrade our infrastructure for power distribution, the MCC is designed to help us with that,” says Dinesh Shrestha of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).
At present, Nepal is generating 2,000MW of energy, but in the next three years this figure will soar to 4,500MW, not taking into account power generation from smaller plants. Peak demand is at 1,500MW which is increasing by 20% every year. Even then, Nepal will have excess of 4,700MW by 2025, which it risks wasting unless there are new transmission lines – with or without the MCC.
Most of the $500 million MCC grant is earmarked for the Kathmandu-Hetauda-Butwal 400kVA transmission line to distribute electricity from existing and new hydropower plants in central and eastern Nepal, and also connect to a high-capacity line to Gorakhpur so Nepal can sell surplus monsoon electricity to India.
Says hydropower investor Gyanendra Lal Pradhan: “If the Kathmandu-Hetauda-Butwal transmission line is not built under the MCC, investors will have folded, and even banks that have backed the projects will be in deep waters. It will be tragic for a country with such immense hydropower potential.”
It has been four years since a coalition government consisting of the Nepali Congress and Maoists signed the MCC contract in Washington, which is awaiting ratification by Nepal’s Parliament. In her last visit, the MCC’s Fatema Sumar said the US was not prepared to wait indefinitely for Nepal to gets its act together.
“Countries knock at our doors all the time for capital, as it is getting harder and harder to obtain development funds,” Sumar said in Kathmandu in September. “We are holding $500 million for Nepal. We cannot wait forever. When will it be the right time for Nepal?”
The project was held hostage by prolonged political infighting first between Prime Minister Oli and Dahal, and now between radicalised members within the ruling coalition. With the 2023 elections approaching, leaders who were themselves responsible for using the MCC against rivals do not want Parliament ratification to affect their poll prospects. Dahal’s explanation to his party that he wants the MCC pushed to after elections proves this.
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