MCC: damned if we do, damned if we don’t

For many outsiders, Nepal must seem like a riddle, wrapped in a mystery, inside an enigma. Indeed, even Nepalis seem to think so. 

In 2017, a Nepali Congress-Maoist coalition government led by Prime Minister Deuba concluded an agreement in Washington DC for a $500 million US-funded Millennium Challenge Corporation (MCC) compact to upgrade Nepal’s electricity grid and highways.

Signing it was Finance Minister Gyanendra Bahadur Karki. Deuba is now prime minister again in a coalition once more with the Maoists, and Karki is the minister for law and parliamentary affairs. And four years later, the MCC is still stuck because of a clause in the agreement requiring that it be ratified by Nepal’s Parliament.

Ever since it was signed, the MCC was weaponised by squabbling parties and factions in Nepali politics, who in turn are heavily influenced by global and regional geopolitical rivalries between India and China on the one hand and between the US and China on the other. 

After K P Oli became prime minister following the 2017 elections, he strongly backed the MCC. But his rivals in the Communist Party of Nepal (CPN) including Maoist leader Pushpa Kamal Dahal, and dissidents from his own UML, used provisions in the MCC that they saw as being anti-national against Oli, and ultimately brought him down.

Since 13 July, Deuba has led a coalition made up of the Maoist Centre (MC), the breakaway CPN (United Socialist) and the Janata Samajbadi Party (JSP) which are all opposed to the MCC. Baburam Bhattarai was prime minister in 2012 and he is now a high-ranking JSP member.

The MCC has become such a political hot potato that Deuba could not even include it in the coalition’s common minimum program unveiled by the five coalition partners on 9 August.

Deuba now finds himself in the peculiar position where his main ally on the MCC is perhaps Oli, the main opposition leader. But things are not so clear cut even within Oli’s UML: some members, including Bhim Rawal who refused to join Nepal’s United Socialists, is still one of the most vociferous critics of the MCC.

Nepal’s chronic political instability has brought development to a standstill, pandemic response is erratic, but the most concrete collateral damage has been on the MCC which would have helped upgrade Nepal’s power grid with a new high-capacity 400kV transmission line between Hetauda-Damauli-Butwal, a distance of 315km.

In the next three years, more than 3,000MW of electricity will be added to Nepal’s national grid, more than doubling generation capacity. The new lines will allow this power to be distributed within Nepal, and also for export surplus monsoon power to India through the Butwal-Gorakhpur corridor. Despite its hydropower potential, mismanagement and poor governance means that Nepal presently spends Rs20 billion a year importing nearly half its power demand from India.

If the MCC power line is not built, much of the electricity being generated in future will be wasted. The Nepal Electricity Authority (NEA) has already signed power purchase agreements with private companies to buy up to 2,500MW in the next few years, and those  investments are also at risk.

The anti-Oli faction in the CPN led by Pushpa Kamal Dahal and Madhav Kumar Nepal were so effective in building up public opinion against the MCC that cadres from Communist factions right down to the grassroots are now dead set against it because they believe it is part of America’s Indo-Pacific Strategy to encircle China. 

The MCC’s vice-president Fatema Z Sumar arrives in Kathmandu on 9 September amidst street protests. Deuba has been trying to get Oli on board the MCC and cobble together enough votes to get Parliament ratification, which would destabilise the coalition even before it can complete forming a government.

Deuba tried to placate his partners last week by approving an absurdly worded letter from the Finance Ministry to the MCC, asking if the agreement undermined Nepal’s sovereignty — as if it was for the Americans to decide even if it was.

The MCC agreement is hotting up even as the Deuba government walks the geopolitical tightrope between India and China. It set up another committee to investigate a border pillar issue in Humla even though a previous committee has said there has been no encroachment by China. And more than a month after the death of a Nepali on the Mahakali wire bridge, it finally sent a tepid diplomatic note to New Delhi last week.

The NEA has to start working on a Plan B in place in case the MCC is not ratified so that future electricity generation can be evacuated to consumers. 

Read also: Putting the MCC in context, Jeevan R Sharma and David Seddon