To be or not to be on the MCC

Billions invested by Nepalis in the hydropower sector will be in danger if transmission lines are not built

On 28 February, we will come either to the finish line or the starting line of the US-funded Millennium Challenge Corporation (MCC) project to upgrade Nepal’s infrastructure.

The $500 million that the MCC is offering Nepal as a grant for the development of transmission lines and upgrading the road network needs to be ratified by that date.

There has been a lot of debate in Nepal’s cybersphere and the political arena that is spilling out into the streets with rallies. The points of view are highly polarised, and we left logic behind a long time ago — we are now debating on emotion and rhetoric.

When King Mahendra wanted the Chinese to build the Arniko Highway connecting Kathmandu to Lhasa in the 1960s, there was a similar debate about whether or not it was a good idea. India and China had just fought a war, and the Cold War was at its height.

Many worried that the trans-Himalayan highway would give direct access to our northern neighbour to the heart of Nepal and down to the plains, while others felt that this would be the route to open trade and commerce between Nepal and China.

King Mahendra pushed ahead and built the Arniko Highway, and six decades later, it is a major artery for bilateral trade and cultural relations.

Similarly in the early 1980s there was intense domestic and international debate on the development of the Arun 3 hydropower project that would have not only met all of Nepal’s energy demand at the time, but also allowed export of surplus energy to India.

After much acrimonious debate, the World Bank pulled out of financing this project. This pretty much put an end to the development of major projects in Nepal for many decades, even while Bhutan took advantage of harnessing its water resources.

By negotiating with India, it used revenue from electricity exports to enhance the quality of life of its people, and raised per capita income. Decades later, we in Nepal are still trying to catch up in harnessing our own water resources, and develop our hydropower potential.

Once again, we as a nation and people, stand at the point of deciding whether to accept the $500 million MCC grant for the development of transmission lines and the enhancement of our road network or not.

The people who need to examine the facts and make this decision are political leaders who we have trusted with our vote and put into Parliament. The decision they make must be for the wellbeing of all Nepalis, and Nepal as a nation, now and into the future.

I am a banker and I can tell you that as per the guidance and direction of Nepal Rastra Bank and the government of Nepal, the banking industry as by mid-December 2021, had invested Rs215 billion in energy projects across Nepal.

We need to increase this to 7% of the total loan portfolio by April, then to 9% by 2023 and 10% by 2024. This translates to 1,920MW of installed capacity, with construction licenses for 7,870MW. Of these, 214 projects are by private producers for 6,970MW, and foreign investment for 900 MW.

In addition, another 37 projects for 2,576MW and 1,200MW of Investment Board Nepal (IBN) projects have applied for construction licenses. By the end of this fiscal year alone, we anticipate installed capacity to grow to 3,300MW.

The nation’s focus on harnessing our river resources and generating energy is working, we are well on the way to being a major energy producing nation. This means that currently, Rs215 billion of the bank deposits of the citizens of Nepal are already invested into these projects through loans, and the amount will increase exponentially in the years ahead.

The hard-earned deposits of millions of Nepalis are the main source of funding for the development of these projects. We stand at a point where we have to firstly stimulate domestic demand and consumption of electricity, and secondly facilitate the export of electricity to our neighbours.

The common and critical factor for both these goals is the need for transmission lines across Nepal, that can effectively and efficiently evacuate the electricity from these projects, and get the power to the internal or external markets to spur the economy.

If we do not start to put the needed transmission infrastructure in place to do this, then the turbines will spin uselessly, wasting the electricity generated with phenomenal losses. Nepal’s entire financial sector will be in peril if the hydropower sector faces such loss from spilled energy.

I do not know if Nepal should ratify the MCC and take the $500 million grant, that is for our elected leaders to decide. But I do know that if we do not get the needed transmission lines in place at the earliest then the savings of millions of Nepalis that the banking sector has been directed to lend to the hydropower sector will be in troubled waters.

Many thousands of Nepalis who have invested in shares of hydro projects may also stand to lose if the transmission lines are not built. Politicians who have directed the banking sector to invest such a large quantum of the Nepali peoples savings in the energy sector must have a plan on how to get the power we generate to market.

As a banker, all I can say is whether we take this $500 million grant from the MCC or take loans from somewhere else, we need to get the funds to build these transmission lines.

February 28 is only two weeks away. Nepal’s leaders need foresight and courage to make the correct decision for the future. It is a choice between darkness and light, deprivation and prosperity.

Anil Shah is a concerned Nepali, and a banker. Excerpts from NNSD post.

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