MCC row damages Nepal's credibility

It is the biggest amount granted to Nepal for a specific project by a bilateral development partner. But the Millennium Challenge Corporation (MCC) project has become the centre of a row between two factions of the Nepal Communist Party, and stalled proceedings at the Central Committee meeting of the ruling party last week, raising questions about Nepal’s credibility.

The major chunk of the grant is supposed to be spent on the Kathmandu-Hetauda-Butwal 400KVa transmission line which will eventually evacuate electricity generated from hydropower plants on the Budi Gandaki, Trisuli, Kali Gandaki, Marsyangdi, Kosi, and Tamakosi corridors. Another component will go for upgrading key highways.

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Hitendradev Shakya, a transmission line specialist says this power link will form the backbone of Nepal's national grid. "It is imperative that Nepal starts building this, with or without American aid," he says.

Hydropower projects that will produce a total of 330MW power are under construction in Rasuwa and Nuwakot on the Bhote Kosi, and a further 500MW of electricity will come from schemes under construction. Transmission lines for 220KVa have already been built to feed the power to Kathmandu Valley, but these will only serve power plants under construction. More transmission lines will be needed for future power plants, and also for possible export to India. If not, electricity generated, especially during the monsoon, could go waste.

The Nepal Electricity Authority (NEA) has already made Power Purchase Agreements (PPA) to buy about 6,000MW of electricity from private operators, but the transmission lines to distribute it are lagging behind. NEA wants another transmission link to bring power from plants on the Tama Kosi to Kathmandu and to eastern Nepal via Hetauda, and export the surplus to India through Butwal.

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However, at the NCP Central Committee last week there was intense debate between those for and against the MCC. Some prominent leaders like Bhim Rawal, Deb Gurung and Yogesh Bhattarai objected to the MCC on grounds that it was a part of the US Indo-Pacific Strategy that they see as being directed against China.

The meeting could not come to an agreement, and decision on it was passed to the party secretariat. Some said the sabre rattling in the Central Committee was just populist posturing to appear nationalist.

The MCC was established in 2004 by the US Congress to help developing nations reduce poverty through financial aid. In August 2017, the MCC Board in the US approved a $500 million grant to Nepal to improve Nepal's energy and road infrastructure.

Experts say that arguing about a bilateral project already agreed upon could raise questions about Nepal’s credibility in the international arena. Whether or not MCC is a part of America's Indo-Pacific Strategy is an old debate, and Minister for Foreign Affairs Pradeep Gyawali has maintained it is not. He visited Washington DC last year and met Secretary of State Mike Pompeo to push the project forward.

"Either the leaders should give alternatives, or stop objecting to this grant,” says economist Biswa Poudel.

This year several high-profile American officials have visited Nepal, including the Indo-Pacific Commander Philip A Davidson, Deputy Assistant Secretary Joseph Felter, and Deputy Assistant Secretary of State for South Asia David J Ranz. The visits have bolstered the view that the MCC is indeed a US move to counter China’s Belt Road Initiative in Nepal. In fact Ranz actually admitted to the Nepali media that it was.

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Last June, a report by the American Department of Defence identified the Indo-Pacific Strategy as a military move to project American power in the Pacific and Indian Oceans and a pillar of American foreign policy in the region.

However, international relations expert Tika Dhakal believes the MCC should be separated from American military strategy: "It is not beneficial for Nepal to be a part of the military gameplan of a foreign power, and America should not include MCC under its Indo-Pacific strategy."

The other sensitivity to Nepal is that the transmission line link to India could make Nepal even more dependent on its southern neighbour. "No aid comes without strings attached. But the Nepal government should be clever enough to use aid like this for its own benefit,” Dhakal says.

Another controversy surrounds a clause in the agreement that the project must be ratified by Nepal's Parliament. The Cabinet had planned to table it in the House last year, but ex-Speaker Krishna Bahadur Mahara did not include it in the list of subjects, allegedly on purpose.

Khadga Bahadur Bista of Millennium Challenge Nepal Development Committee says that if it is not approved in the ongoing winter session of Parliament, the project may be dropped. "It is due to start end-June 2020. If Parliament does not approve it now, it will be difficult to stick to that date.”

Even those in favour of the MCC say Nepal should not have accepted the clause about Parliament ratification. The other sticking point may be to get India’s prior approval for the 400KVa transmission line. The MCC Compact states that if the project is not finished in five years, the money goes back to the US treasury, and the delays could scuttle the project.