MCC ball in Nepal’s court

“Countries knock at our doors all the time for capital, as it is getting harder and harder to obtain development funds. We are holding $500 million for Nepal. We cannot wait forever. When will it be the right time for Nepal?”

Fatema Z Sumar, Vice President of Compact Operations at the Millennium Challenge Corporation (MCC) appeared mystified about why a country like Nepal that needs all the help it can get to develop its infrastructure, should be so hesitant about the grant her government is offering.

Sumar was on the final day of her four-day visit to Nepal on Sunday, speaking at an engagement with opinion makers. There was a litany of questions from across the table, and Sumar sounded like someone who is getting somewhat jaded answering the same questions over and over again in Kathmandu.

“No, the MCC is not part of the Indo-Pacific Strategy and there is no US Army involvement.”

“This is a treaty between two countries and has gone through the Obama, the Trump and now the Biden administrations.”

“In order to make this a treaty, the Nepal government wanted to ratify it through Parliament. So, we are waiting for that.”

Sumar was a former assistant secretary for South and Central Asia at the US State Department before joining the MCC. Her family is Malaysian Indian, so she understands the region well, but she was hearing in Nepal some of the same political rhetoric that led to the Sri Lankans cancelling the MCC last year for being ‘against the national interest’.

MCC makes three types of grants: compacts, threshold programs and concurrent compacts for regional investment. Nepal’s grant is a five-year compact agreement with the MCC that allows an eligible country to fund specific programs targeted at reducing poverty and stimulating economic growth.

The concept of the MCC is to make US development assistance ‘smarter’, and to study a country’s bottlenecks so that catalytic investment can allow it to take an economic leap. A panel of Nepali and American experts concluded in 2017 that increasing hydropower transmission capacity and upgrading highways would be most cost-effective, at a time when the country was suffering 12-hour daily power cuts.

When a country applies for a grant from the MCC, the board examines its performance based on 20 policy indicators, and selects based on policy performance. The MCC says its grants are given to country-driven and country-led investments and infrastructure priorities for achieving sustainable economic growth and poverty reduction, and Nepal qualified.

So far MCC has approved $13.7 billion in compacts and $631 million in threshold programs worldwide. After Sri Lanka pulled out, Nepal is the only South Asian country on the list of MCC-approved compacts.

“The $500 million we are holding for Nepal is money not given to other countries which need to get out of poverty,” said Sumar’s colleague Jonathan A Brooks at the interaction. Although Brown said he had no idea where the confusion about the MCC having a military component comes from, a comment by US Under Secretary of State David J Ranz in 2019 that the MCC was indeed a part of the US Indo-Pacific Strategy did a lot of self-inflicted damage.

Sumar and Brooks fielded other questions that had become familiar to them during their stay in Kathmandu with answers like: the agreement with Nepal prohibits army involvement, security issues are totally for Nepal government to oversee, the compact has no provisions that contradict Nepal’s laws, the project is not above Nepal’s Constitution, and international law would apply to resolve any disputes.

A major chunk of the $500 million MCC grant will go to build the Kathmandu-Hetauda-Butwal 400KV transmission line to distribute 3,000MW which will come on stream in the next three years from new hydropower plants. The line will also connect to a high-capacity electricity corridor to Gorakhpur so Nepal can sell surplus monsoon electricity to India in future.

This week, the Nepal Electricity Authority (NEA) signed an agreement with the state-run Power Grid Corporation of India (POWERGRID) for the Butwal-Gorakhpur cross border transmission line extension in anticipation of the MCC project being completed.

Sumar has seen several changes in government after she started coming to Nepal for the MCC. Prime Minister Sher Bahadur Deuba and his predecessor K P Oli were both in favour of the MCC, but other Communist partners in the ruling coalition are against it.

As a descendant of an immigrant family herself, Sumar says she understands that poverty is not insurmountable, and can be prevented with the right government investment at the right time. She calls herself a “development diplomat”, and feels that economic growth built on better infrastructure would also bring Nepal stability.

“The MCC will create many thousands of jobs for Nepalis at a time when the pandemic is creating losses of jobs and livelihoods,” she says, adding that when President John F Kennedy launched a major global drive to help developing countries in the early 1960s, Nepal was one of the first countries to receive the support.

The criteria Nepal fulfilled to receive the MCC grant was its democratic polity, guarantees of basic freedoms, and protection of human rights. Sumar underlined the fact that the MCC would also help Nepal put renewable energy infrastructure in place that could be an example for a world coming to terms with climate change.

The MCC project has become a victim of extreme political polarisation as opponents to K P Oli used the MCC to unseat him, and now it threatens to split the ruling coalition. The anti-MCC rhetoric had been so effective in convincing the cadre and public that it is anti-national, that even supporters in Deuba’s Nepali Congress, Oli’s UML and other public figures and intellectuals are afraid to speak in favour.

Social media is full of posts that say Nepal will become ‘another Afghanistan’ if Parliament ratifies the MCC. But now that Sumar and her MCC team has left, the ball is back in the court of the political class in Kathmandu to ensure that Nepal has the capacity to distribute the electricity it generates in future.