Why is the US struggling to give US$500 million to Kathmandu? Ask Nepal’s China-friendly Maoists
Millennium Challenge Corporation grant would fund road and power projects, but sceptics see it as an attempt to rival Beijing’s growing belt-and-road clout
Wrangling over the issue has raised doubts about the survival of Prime Minister Sher Bahadur Deuba’s ruling coalition
Nepal’s Prime Minister Sher Bahadur Deuba is facing an uphill battle to get parliament to approve a controversial US$500 million grant from the American government to build electrical power lines and upgrade roads in the impoverished Himalayan country.
While the infrastructure is urgently needed, the question of whether to accept the donation has become caught up in big power politics with the United States and China jostling for influence in the landlocked nation.
Some of the strongest opposition to the grant comes from Nepal’s Maoists, who have traditionally been close to Beijing, and other parties in Deuba’s coalition government. They say accepting the money could draw Nepal into the US security orbit to the detriment of China and undermine national sovereignty.
Deuba, who leads the centrist Nepali Congress, has been struggling to persuade his coalition partners to come on board with the plan, telling them late last month, “This grant is necessary for Nepal’s development. There’s nothing in it that goes against the national interest. It’s within the law of the land.”
But ceaseless wrangling over accepting the US grant has deepened Nepal’s political divisions and raised doubts about the survival of the coalition led by the veteran politician. Deuba, 75, was named to the post last July by Nepal’s Supreme Court in an attempt to end months of political upheaval.
The grant from the US Millennium Challenge Corporation (MCC), set up by US President George Bush in 2004 to help fight terrorism post-9/11, would be spent on constructing a 400KV electricity transmission line to carry power to the Indian border and on improving roads. Power plants are already being built that will triple the 1,400MW of electricity Nepal produces and transmission lines are required to carry it. The lines would also allow crucial load-sharing with Indiaand be critical in meeting expanding domestic power demands.
But the critics see the deal, agreed four years ago on condition of parliamentary approval, as an attempt by Washington to counter China’s growing economic and political clout in the buffer country of 30 million people squeezed between India and China.
“This whole issue has become so extraordinarily politicised. The
parties are deeply divided,” said Lok Raj Baral, executive chairman of
the Nepal Centre for Contemporary Studies.
While the US has announced no deadline, it has indicated that the clock is ticking. US Assistant Secretary of State for South and Central Asian Affairs Donald Lu said in November that, “This is a great project where Nepal will be able to generate US$143 million annually after its implementation. That will be a great opportunity.”
But it was Nepal’s “sovereign decision”, Lu added, and “if Nepal doesn’t take the grant, we’ll spend the money in some other country. It’s OK with us.”
Deuba, who has a reputation of leaning toward the West, has promised the Americans he will get the grant passed as soon as he can.
After years of talking, Nepal and the MCC signed the pact in 2017, just months before Kathmandu joined China’s Belt and Road Initiative. The MCC is a US foreign aid agency that has partnered with nearly 30 countries on US$13 billion worth of projects.
The plan sounds straightforward but it has become a political football. Opponents assert the grant is part of the US Strategic Framework for the Indo-Pacific to combat China’s more muscular stance and say Nepal, with its non-aligned foreign policy, can’t be a party to such an agenda. While supporters deny the grant draws Nepal into the US security framework, a comment by a senior US visiting government official reported by local media that the MCC was indeed a part of the Indo-Pacific Strategy strongly undermined the claims.
MCC vice-president Fatema Sumar insisted on a damage-control visit to Nepal in September that the grant came with no strings attached and was “solely development-oriented”. She added the money would generate thousands of jobs at a time when Covid-19 had devastated livelihoods and the economy. But her trip failed to assuage the critics who say the belt and road is purely infrastructure-driven while asserting the MCC deal could lead to US troops on Nepal’s soil. Beijing pledged big investments for electricity, roads and telecoms as well as for a trans-Himalayan railway.
Even before Kathmandu signed up to the belt and road, China’s influence in Nepal was growing to the dismay of India which has had a long history of cooperation and cultural ties with Kathmandu but has sometimes been resented as a meddling big brother. Since Nepal joined the belt and road, China had “become very visible” in seeking to sway decision-making in Nepal, Baral said.
“There’s no doubt China does not want the MCC to go ahead. It has already conveyed as much to the top political leadership,” a Nepal government official, speaking on condition of anonymity, told the Nepali Times.
According to Nepalese media, in recent weeks, Chinese officials have had a string of video and in-person chats with political leaders, including with Maoist Centre chair Pushpa Kamal Dahal, the ex-rebel chief who goes by the nom de guerre of Prachanda or “the fierce one”. Dahal is part of Deuba’s coalition but strongly opposes the MCC grant without changes he says are vital to assure Nepal’s primacy in all contractual and territorial matters.
Nepal’s media also reports Chinese officials have spoken to former prime minister KP Sharma Oli, leader of the moderate opposition Communist Party of Nepal. Oli backed the MCC accord while in power but since his replacement by Deuba has been non-committal. Right now, just 61 Nepali Congress lawmakers and 13 members of the Democratic Socialist Party (LSP) can be counted as backers of the deal in the 271-member parliament. Many legislators who were supporters have fallen silent and the issue has become so charged those voicing support are sometimes branded “traitors”.
“China has already sent the message it will not sit idly if the development activities in Nepal undermine its interests here,” Nepal’s former ambassador in Beijing, Mahendra Bahadur Pandey, told the Nepali Times. “China has been concerned about the MCC from the very beginning, and views it with suspicion.”
The MCC bill has been registered in the parliament secretariat but Speaker Agni Prasad Sapkota, who belongs to the Maoist Centre and is reported by Nepal’s media to be close to Beijing, has said the grant won’t move forward on his watch. Deuba has been sounding out Oli on forging cross-party support. Oli commands 121 seats. But there is no love lost between them as Oli sees Deuba as having helped engineer his fall. There are also suggestions Deuba’s coalition partners could be “weaponising” the MCC row to push him out of power in a bid to force early general elections ahead of the planned November-December 2022 timetable.
China, whose pockets are far deeper than rival India’s, has been helping construct mega-infrastructure projects in Sri Lanka and the Maldives, expanding its influence in a region that was traditionally India’s strategic and diplomatic backyard.
Back in February 2021, Sri Lanka, which is also part of the belt and road, opted not to accept a US$480 million MCC grant to upgrade transport and other infrastructure, claiming the MCC was a part of a strategy by the US to use the Indian Ocean island for military and strategic purposes. They said accepting the deal would put Sri Lanka in the crosshairs of a dangerous US-China rivalry.
Backers of the grant warn rejecting the MCC money could imperil other aid and investment flows not only from the US but from other countries and multilateral institutions. The supporters also note the question of Nepal participating in the belt and road was never so closely scrutinised as the MCC agreement.
“Nepal has to choose if it wants to be like Sri Lanka that cancelled the MCC agreement … or like Mongolia, another landlocked country like Nepal, which has been implementing it,” said Harish Bansh Jha, visiting fellow at the Observer Research Foundation, a New Delhi think tank. “The ball is in Nepal’s court as it has to decide if it wants to live with or without the MCC,” he said.