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Why a $500 mn US development grant sparked mass protests, threatens Nepal’s ruling coalition

Critics of the MCC grant, which aims to upgrade Nepal’s infrastructure, say it threatens sovereignty.

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New Delhi: A $500 million US government aid grant to upgrade Nepal’s infrastructure has kicked up a storm in Kathmandu by prompting hundreds of protesters to take to the streets and jolting the ruling coalition headed by Prime Minister Sher Bahadur Deuba of the Nepali Congress party.

As police fired rubber bullets and tear gas on protesters who opposed the grant — they say it would endanger Nepal’s sovereignty — the controversial Millennium Challenge Corporation-Nepal (MCC-Nepal) pact was tabled in Parliament Sunday. 

The MCC, signed by the US and Nepal in 2017, is yet to be ratified by Nepal’s parliament, and faces stiff opposition mainly from the two Communist parties, the Maoist Centre and the Unified Socialists, that are part of the coalition government.

However, the main Opposition party, Communist Party of Nepal (Unified Marxist–Leninist) decided to help the government in tabling it in parliament Sunday.

As some lawmakers fear clauses under the grant agreement threaten Nepal’s national interests, Washington, which has repeatedly sent top officials to Nepal over the past six months, has assured that the MCC only aims to assist Nepal’s development activities.

Last week, US ambassador to Nepal, Randy Berry, said on Twitter that Washington supports free speech and public discourse regarding the MCC, but that violence is never acceptable. 

The Nepali parliament has until 28 February to ratify the grant agreement. Failure to ratify the agreement would result in financial loss for Nepal’s power producers, cause PM Deuba to lose face internationally, and cast a shadow on other foreign grants.


Also read: As Nepal seeks stability under new PM Deuba, there is hope he will ‘balance ties’ with India


The MCC-Nepal pact and delayed ratification

Millennium Challenge Corporation is an independent US government foreign aid agency that offers five-year grant agreements, known as MCC Compacts, to low and lower-income countries.

In September 2017, MCC signed an agreement worth half a billion US dollars with Nepal — the largest grant the South Asian country has ever received at one time.

The MCC-Nepal grant aims to develop a major electricity grid in Nepal and boost economic growth through improvements in highway connectivity. 

It aims to fund two 400KV (kilovolt) transmission line projects — Lapsiphedi-Ratmate-Hetauda and Lapsiphedi-Ratmate-Damauli — which would benefit the country whose highest-capacity cross-border transmission line is currently charged at 220KV. A major electricity grid could distribute power not only in the domestic market but also help in exporting it to India. 

In July 2019, then-finance minister Yubraj Khatiwada, who was part of ousted PM K.P. Sharma Oli’s government, presented the grant agreement in parliament for its passage. 

In October 2019, however, the MCC stopped releasing funds under the pact as the Nepali parliament failed to ratify it. 

The previous K.P. Sharma Oli government was keen on ratifying the grant by a new deadline – June 30, 2020 – but failed to do so as anti-Oli factions within the party — Communist Party of Nepal (Unified Marxist-Leninist) — were against it.

Ironically, the issue has returned to the table of Sher Bahadur Deuba, Nepal’s current prime minister who had signed the pact in 2017 during his previous tenure as PM. He is keen to ratify the grant, even if it comes at the cost of splitting the coalition, local media has noted.

Deuba has been serving as Nepal’s prime minister since last July, after Oli’s ouster. 

Opposing the grant, a ‘Chinese hand’ 

The grant has become a politically divisive issue that threatens to split Deuba’s coalition government.

Deuba’s Nepali Congress party (NC) and minor coalition partner Janata Samajbadi Party (JSP) support the project. However, key coalition partners, the Communist Party of Nepal-Maoist Centre (CPN-MC) and the Communist Party of Nepal-Unified Socialist (CPN-US), oppose it.

The main Opposition party, Communist Party of Nepal (Unified Marxist–Leninist) (UML), has been on the fence over the issue — it was earlier opposed to the US grant but decided to help the government in tabling it in parliament Sunday.

According to a report by Nepali Times, the Maoist Centre’s Pushpa Kamal Dahal held a “hush-hush” virtual meeting earlier this month with Song Tao, the top official from the international department of the Communist Party of China (CPC). 

The report also noted that last November, Chinese officials had talked to senior Communist leaders in Kathmandu to actively dissuade them from giving the US grant a green light.

According to a research paper by Kathmandu School of Law’s Hari P. Chand, Beijing fears the US grant could undermine its Belt Road Initiative (BRI), which Nepal is a part of.

Can the grant be amended?

In August 2020, amid several delays of ratifying the grant, a six-member task force recommended that the government ratify the grant with necessary amendments and modifications “in favour of national interest”.

This is also the demand of the anti-MCC grant protesters, some of whom the local media have termed “Maoist cadres”, who have emerged on the streets once again. 

However, the US Embassy in Kathmandu has rejected the prospect of an amendment or adjustment to the grant.

“The US Embassy continues to stand ready to provide clarifications where necessary. In August 2017, Nepal and MCC negotiated the Compact in good faith. The Compact negotiations included careful analysis of each compact provision by representatives of Nepal and MCC,” it told Kathmandu Post in an email response.

If the grant is not ratified, power producers in Nepal stand to lose Rs 142 billion annually. 

More so, Deuba might lose his credibility on the international stage, having given his word to ratify the grant to MCC vice president Fatema Sumar, US assistant secretary of state for the Bureau of South and Central Asian Affairs Donald Lu and MCC deputy chief executive officer Alexia Latortue.

Some experts have also suggested that aid from multilateral agencies like the World Bank, the International Monetary Fund and the Asian Development Bank, could also come under question if the MCC-Nepal pact is not ratified.

(Edited by Saikat Niyogi)


Also read: Nepal still ‘topsy-turvy’, its political system prone to not being stable: Ex-Indian envoy


 

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