Due to anti-US sentiments stoked in China, Nepal may have to forgo a $500m grant by the Millenium Challenge Corporation to construct power transmission lines.
A US-funded programme to spread clean power across Nepal and its neighbours is in danger of cancellation after “anti-imperialist” protests in the capital Kathmandu on Wednesday.
Nepal’s prime minister Sher Bahadur Deuba cancelled a parliamentary vote on the proposal as demonstrators set fire to draft copies of the agreement outside the building – before police dispersed them with water cannons and tear gas.
The US grant was worth half a trillion dollars and would have enabled 300km of transmission lines to be built across Nepal. These lines would link the hydropower stations with customers from India and Nepal. This renewable energy would reduce imports of polluting and costly fossil fuelled power.
There are concerns, particularly among two governing Communist parties that the programme will increase the US’ power over Nepal and bring it into a geopolitical conflict with China. These parties oppose the grant in parliament and encourage their supporters to protest against it.
The US accuses China of inciting these fears. There are strings attached to the program, but they are meant to promote good governance. None of the conditions have any military implications.
If the Nepalese Parliament does not approve the grant before 28 February, the Millenium Corporation (MCC) will consider cancelling the grant at its next board meeting which will be held in March.
Vijay Kant Karna, chair of Nepal’s Centre for Social Inclusion and Federalism told Climate Home this would be “very unfortunate”. He added: “We really need these transmission lines. Our hydroelectricity system will be severely affected in a year or so. We will not be able to export to India.”
The MCC was set up by George W Bush’s US government in 2004. It is funded by Congress and is independent from USAID and the State Department. It provides grants to the developing world, and is now more climate-focused.
In 2014, the MCC’s board of directors accepted the Nepalese government’s request to develop a grant. Deuba, who was previously prime minister, signed the details in Washington in 2017.
The deal was for $630m. The MCC would contribute $500m and the Nepalese government $130m. Around $400m of the MCC’s money would be spent on transmission lines and substations, with $50m going on road maintenance and the rest on administrative costs.
Manjeet Dhakal works as a Climate Analytics analyst in Kathmandu. He stated that Nepal has been producing electricity from hydropower for more than 100 years, but that during the winter dry seasons, when the rivers are weaker, it still needs to import electricity from India’s fossil fuel-powered plants.
Nepal has 0.6GW of hydropower capacity and aims to scale up to 5-15GW of renewable electricity (including hydropower) by 2030. According to one study, it could achieve 34 GW.
One barrier to growth is that private companies, which develop about half of Nepal’s hydropower, don’t want to invest in transmission lines as they are not profitable, Dhakal added.
“Transmission lines are very, very important so the electricity generated from one location can be connected to the national grid and the cross-border grid,” he said.
Dhakal said that funding for road maintenance would allow rural Nepalis to access information and resources, and thus be better equipped to adapt to climate change. This funding is not for building new roads but improving existing roads.
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However, this grant has been controversial. In May 2019, the US State Department’s deputy assistant secretary of state for South Asia, David Ranz, visited Nepal and told journalists that the MCC compact would boost regional connectivity which is “another critical aspect of our goals in the Indo-Pacific strategy”.
This mention of the “Indo-Pacific strategy” was seized upon by opponents of the MCC, who claimed it showed that the US was using Nepal in its geopolitical battle with China. Nepal has a long history of “non-alignment” – staying out of disputes between its powerful neighbours China and India and ideological adversaries like the US and Soviet Union.
Karna says that the Chinese government in Nepal and its allies in Nepal have created fear through a campaign to disinformation on social media. “They have created a new narrative that MCC is not an infrastructure project but is part of a global American security strategy so that America wanted to create anti-China activities in Nepal.”
The US state department has accused China of having “actively fomented or encouraged or funded or facilitated” a disinformation campaign against the MCC. The Chinese state-owned news site Global Times called this a “baseless slander”.
In the same article though, the Global Times added: “The MCC is nothing more than a pact with the geopolitical purpose of targeting China.”
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Karna said that China has a lot to influence the powerful Communist parties of Nepal. Two of them are junior partners in coalition government.
These parties are led by veterans of the civil war, Pushpa Kamal Dahal and Madhav Nepal, who see the US as “imperialist” and China as an ally, Karna said.
Both have opposed MCC, even though Dahal supported it in the past. Dahal encouraged his supporters to protest against the grant which led to the clashes on Wednesday with police.
Protester Santosh Pradhan said that the MCC was similar to the British East India Company which colonized much of South Asia in pursuit of commercial profit. “Just like the Indians were looted by the East India Company for 300 years, we don’t want that same story for Nepal,” he told World Is One News.
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Karna stated that it is politically expedient for Dahal to oppose the MCC. Both can present themselves as nationalists against US imperialism in November elections.
There are conditions to the MCC compact. To ensure that it is supported by all parties, the compact must be ratified in parliament. Its critics say this violates Nepal’s constitution, in which only laws and treaties – not grants – need to be approved by parliament.
The compact says Nepal must form an “independent and capable” electricity regulator to ensure generators get fair access to the transmission network. Karna stated that this was also requested by the World Bank, IMF, and Asian Development Bank. The government is currently working on this reform.
It states that India must build its section of the cross border power lines. This it did in October 2021. It also includes anti-corruption measures and auditing provisions. It also states that Nepal must increase its road maintenance expenditures.
Pro-MCC prime minister Deuba originally planned to seek a vote in parliament on the MCC, but he changed his mind last minute. According to The Indian Express, he may strike a coalition deal for KP Sharma Oli (an opposition leader who is less hostile to the MCC), according to The Indian Express.
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Deuba, Dahal and others assured the MCC that they would approve the grant in September 2021. However, they requested more time. The MCC gave a deadline of 28 February 2022 – and a spokesperson told Climate Home they intended to hold the government to it.
“Ultimately, it is Nepal’s decision whether or not to accept this grant from the American people,” the spokesperson said.
Joe Thwaites from the Washington-based World Resources Institute is a climate finance analyst. He said that the MCC would not like its work to end in vain.
He said, however, that Congress is responsible for evaluating the effectiveness of MCC. “So if they’re sitting on $500m that hasn’t been dispersed then there will be questions about ‘why hasn’t that gone out?’” he said. “I don’t think anyone’s going to want to sit on money for too long when it could go elsewhere.”
In December 2020, the MCC’s board of directors cancelled a $480m grant for Sri Lanka after a new government led by Gotabaya Rajapaksa won an election arguing that the MCC was a threat to the Asian country’s sovereignty.
Source: Climate Change News