A giant step towards ending Nepal’s ‘India-locked’ status
2 The 2016 transit and transport treaty (April 19)
APEX Series
EVOLVING NEPAL-CHINA RELATIONS
1 Post-1950 turning points (April 5)
2 The 2016 transit and transport treaty (April 19)
3 China’s relations with political parties (May 3)
4 Defense ties (May 17)
5 Nepal and BRI (May 31)
The four-month-long blockade imposed by India in 2015-16 was a wake-up call for Nepal to diversify its India-centric trade and transit arrangements. Political parties as well as the general public were of the view that there should be no delay in pushing for transit access for third-country trade via China.
The then government led by CPN-UML’s KP Sharma Oli was determined to strike an agreement with China. PM Oli had dispatched then Foreign Minister Kamal Thapa to Beijing for talks on a possible transit treaty between the two countries. But reaching an agreement was not easy.
First, China wanted to avoid projecting the transit agreement as a response to the Indian blockade. China was seeking assurances that Nepal would not backtrack from negotiations after the end of the blockade and a rapprochement with India. Second, Nepal also needed to convince India that a treaty with China was not targeted against it.
In December 2015, Thapa held talks with high-level Chinese officials and reached a tentative agreement. “We tried to persuade India that the treaty was not aimed against it and that China was also obliged to provide port access to a landlocked country like Nepal,” says a senior official involved in the negotiations.
India did not object to the treaty, at least not openly. But some Indian officials expressed displeasure and argued that transit from Chinese ports is not feasible for Nepal due to distance- and cost-related issues. “We signed a treaty with China not only because of the Indian blockade, but largely because it was a geopolitical necessity for Nepal. The treaty remains a fundamental survival strategy for Nepal,” says former minister Thapa.
Earlier, in the 1960s King Mahendra had introduced the approach of a balanced foreign policy
The ’89 itch
There had been efforts to diversify trade and transit following the 1989 Indian blockade as well. “In a cabinet meeting at the time, King Birendra had made two important proposals, namely strengthening national capacity for storing essential items for three months, and looking north for alternate transit routes. But they were totally forgotten after the restoration of multi-party democracy in 1990,” recalls Thapa, who was also a minister in the royal cabinet of 1989.
Earlier, in the 1960s King Mahendra had introduced the approach of a balanced foreign policy, ending the era of ‘special relations’ with India. Nepal was a strong advocate for the rights of landlocked countries. Although there were talks about diversifying trade even back then, Nepal had no substantial discussion with China about alternate international transit facilities. But after Nepal started making noise about diversification, India became serious about providing it with better trade and transit facilities. In 1966, India provided separate space at the Kolkata port for cargo to and from Nepal.
But Nepali politicians paid no attention to trade diversification after 1990, which further deepened our dependence on India. Only after the months-long agonizing blockade of 2015-16 did the issue resurface, ultimately leading to the signing of Nepal-China Transit and Transport Treaty, which has been hailed as an historical accord.
No progress in implementing the treaty was made during the premierships of Pushpa Kamal Dahal and Sher Bahadur Deuba. Negotiations on giving a final shape to the treaty protocol were initiated only after the left alliance won a thumping victory in the 2017 elections and Oli once again became prime minister. Now, preparations are underway to sign the treaty protocol during President Bidhya Devi Bhandari’s upcoming visit to China starting April 24.
China has agreed to open for Nepal seven transit points—four sea ports (Tianjin, Shenzhen, Lianyungang and Zhanjiang) and three land ports (Lanzhou, Lhasa and Xigatse)—for third-country export and import. Under the agreement, China will be obliged to permit trucks and containers ferrying Nepal-bound cargo to and from Xigatse in Tibet. The two sides have also agreed that Nepal would have access to Chinese territory from the six checkpoints.
From us, not them
Following this trade and transit agreement, India has offered additional ports to Nepal, arguing that the Indian ports are more cost-effective than the Chinese ones. In 2016, India gave Nepal the right to use the Visakhapatnam port for third-country trade, in addition to the Kolkata port which Nepal had been using for a long time. The Indian side has frequently highlighted the additional benefits Visakhapatnam offers to Nepal.
Although Nepal and China have signed the transit treaty, it is a hard reality that Chinese ports are much farther from Nepal than Indian ports, the nearest one being about 4,000km from Kathmandu. By contrast, the distance between Visakhapatnam and Kathmandu is about 1,500km.
Similarly, the driving distance between Kolkata and Raxaul is 748 km. Of late, India has also offered Nepal the use of the Dhamra seaport in the state of Odisha. Nepali officials have conducted a preliminary feasibility study of the Dhamra port, which is about 956km from Biratnagar. Another option is the Chittagong seaport in Bangladesh.
Onus on Nepal
Experts argue that although Chinese ports are far, Nepal can still benefit from their use in the long run. They say the current burden of cost and distance could be significantly reduced with proper infrastructure in place. Efforts are underway to build road and railway connectivity with China. Negotiations are underway for a railway line between Kathmandu and Keyrung—President Bhandari is reportedly pushing this issue in her discussion with President Xi in Beijing—on what is the traditional trade route between Nepal and its northern neighbor. Infrastructure development along this route, however, started taking place only in recent decades.
Nepal and China are also holding talks about the possibility of reopening the border at Tatopani, which has been closed since the 2015 earthquake. The Rasuwagadi-Kerung border point, currently the only operational trade route between Nepal and China, has been developed as an international crossing point with the goal of connecting China with the larger South Asia.
As such, when the Tatopani border comes back into operation, Nepal will have two viable trade routes to China. The trade and transit treaty between Nepal and China has, at least in principle, put an end to India’s monopoly on Nepal’s supply system.
Although the agreement is unlikely to reduce Nepal’s dependence on India in the near future, it will come in extremely handy in case the southern neighbor imposes another blockade. With a viable trade route open with China, a blockade on Nepal might not even be an option on the table.
After the signing of the transit treaty with China, India has given Nepal more options. Ideally, Nepal can now choose the ports—both Indian and Chinese—that are most cost-effective. There are obvious reasons why two-thirds of Nepal’s trade is with India: geographical proximity and a well-connected border. Officials, however, say that highly-profitable trade with East Asian countries like Japan and South Korea could be carried out via Chinese ports.
Politicization of humanitarian aid
Soon after a devastating windstorm swept across the districts of Bara and Parsa on the evening of March 31, security forces, other government agencies and the general public rushed to the affected areas to mount rescue operations. Adequate manpower was necessary to take the injured to hospitals and provide support to those who lost family members. All political parties should have employed their cadres to support government agencies, but only a few did. Instead of collaborating on rescue efforts, cadres of different parties competed to gain public and media attention.
Top leaders of major parties including Prime Minister KP Sharma Oli, Nepal Communist Party Co-chairman Pushpa Kamal Dahal and Nepali Congress President Sher Bahadur Deuba rushed to the devastated villages for inspection. Some senior leaders reached the affected areas with bags of food grains and fruits. Security forces were compelled to give greater priority to these leaders’ safety than to relief efforts.
Social media were filled with suggestions to leaders to avoid such visits and allow government agencies to do their tasks. As in the past, top leaders pledged aid but only a small amount has been deposited so far. This suggest the real purpose may have been to attract future voters.
It is uncertain when the victims will get the money. And it’s not just the aid pledged by the political parties; there are several cases where even the promises made by the government have gone unfulfilled. Victims are in immediate need of temporary shelter, food, medicine and clothes, but past experiences show that they have to go through endless red tape to receive aid.
Not just national organizations but even international bodies have exposed the excessive politicization of aid and relief materials in the aftermath of a crisis
Gorkha earthquake
Relief efforts in the aftermath of big natural disasters in the past one decade have been heavily politicized. Such politicization of aid was much more pronounced after the Gorkha earthquake in 2015, which claimed more than 8,000 lives and injured or displaced thousands more.
Following critical media reports and widespread complaints, the National Human Rights Commission (NHRC) had monitored aid distribution in some places. The monitoring found dirty politics at play, which led the NHRC to publicly urge the government and other stakeholders to prevent the politicization of aid distribution to quake victims. The constitutional body also asked the government to ensure that victims can access aid directly without having to beseech the politicians acting as middlemen. A parliamentary committee had also found excessive politicization in the distribution of relief materials in some districts.
“We have been closely following the process of relief distribution and urging concerned stakeholders to stop the politicization of aid, but we have not been able to completely curb such tendencies,” says Mohana Ansari, a commissioner at the NHRC. “The politicization of aid and relief materials was even more evident in Bara and Parsa this time. It is unnecessary for everyone to reach the spot; victims can access relief materials through government agencies later. Now that a federal setup is in place, the government should undertake relief and rehabilitation with this reality in mind,” says Ansari.
Not just national organizations but even international bodies have exposed the excessive politicization of aid and relief materials in the aftermath of a crisis. A report published by Amnesty International in June 2015 reveals how humanitarian aid was used as a political instrument. It says, “There are reports of discrimination in the distribution of relief, including on the basis of caste and gender, as well as political favoritism and patronage without regard to actual need. This is a particular risk where one party is dominant, where a VDC is demographically heterogeneous with different religions, castes or ethnic groups represented, lacking a coherent and fair decision-making mechanism, and where local political actors compete for status through the provision of relief.”
Unspent aid
On 3 October 2017, a settlement in then Makha Village Development along the Arniko Highway was completely swept away by a landslide. A district-level trust fund was set up, in which people willing and able to help could deposit money. Within three months, approximately Rs 3 billion was collected from national and international donors. When the Chief District Officer started the process of aid distribution, there was a clash of interest among major parties. Cross-party lawmakers tried put pressure on the administration not to hand out money without their consent, painfully delaying the decision-making process.
While the Nepali Congress argued that land should be purchased for each family seeking aid from the government, the then CPN-UML claimed adequate research on the affected people had not been carried out. And the then CPN (Maoist Center) said money from the trust could not be given before the government provided aid of its own. All these were populist agenda meant to gain voters’ sympathy. The money deposited in the trust has still not been provided to the victims.
“Earlier, the administration failed to hand out aid because of disputes among political parties. Now, the bureaucracy is the biggest hurdle in aid distribution,” says Yubaraj Puri, a local journalist, who is closely following the matter. “I have seen many cases where political parties distribute aid and relief materials so as to influence voters. They provide aid during a crisis and come election time, they seek support claiming that they were the ones who helped,” says Puri.
Myriad problems
There is rampant politicization in rescue and rehabilitation process after any natural calamity. Yet another problem is that political parties try to distribute aid only to those victims who are party sympathizers. For example, if the NC distributes relief materials, it is unlikely to provide aid to those who vote for the Nepal Communist Party, and vice versa. There is also a tendency or providing relief materials along religious and caste lines.
Lack of coordination among various aid providers is another matter of concern. Similarly, in the aftermath of a disaster, people start collecting money but there is no proper study of whether the money is being rightly spent. The government needs to introduce clear legal provisions to regulate rescue and rehabilitation so that genuine victims can access humanitarian support promptly.
Two divided houses
The Nepal Communist Party is now a formidable political entity, with absolute hold over the federal government as well as six of the seven provincial governments. It also controls most local level units. And yet it is a divided house. Although it has been a year since the CPN-UML and the CPN (Maoist) formally united, old divisions have been hard to bridge. The trust deficit between the leaders from the two former parties remains strong. And even senior leaders in the ex-UML party suspect Co-chairman and Prime Minister KP Oli of striving to cut them to size ahead of the next general convention.
According to insiders, Oli wants to maintain the status quo to retain his hold. “Of the 45 standing committee members, 13 are hardcore Oli supporters who are either in government or in top party positions. Oli does not want to change this favorable setup,” says a senior NCP leader, requesting anonymity. Other senior leaders like Pushpa Kamal Dahal, Madhav Nepal and Jhalanath Khanal would like to tweak this status quo to their own advantage going into the general convention.
If the divisions within the NCP are largely the product of party unification, those within the Nepali Congress have older origins. After the passing of Girija Prasad Koirala in 2010, no single leader has been able to command the party well. Current Congress President Sher Bahadur Deuba has lost the trust of the party’s rank and file following a humiliating defeat in the 2017 elections under his watch. The 73-year-old Ram Chandra Poudel still harbors hopes of getting to lead the party, if not the country, by outwitting Deuba. Challenging them for party leadership will be the Koirala faction that continues to believe in the “natural right” of a Koirala to lead the NC.
But no top NC leader “seems keen on reforming the party in terms of ideology and organizational structures,” says Puranjan Acharya, a political analyst who closely follows the NC’s internal dynamics. “They only want to appoint their near and dear ones in key posts to strengthen their hold.” As in the NCP, so in the NC.
Race to the bottom
Both the ruling Nepal Communist Party and the main opposition Nepali Congress are beset by troubling internal disputes that don’t augur well for the two parties or for the country
Power tussles continue to hinder unity of the ruling communist party
On the first anniversary of the formal merger between the CPN-UML and the CPN (Maoist), intra-party rift in the unified Nepal Communist Party (NCP) has further widened as rival factions grapple to cement their hold.
Due to the tussle between the three main party factions—led by Prime Minister and Co-chairman KP Sharma Oli, senior leader Madhav Kumar Nepal and Co-chairman Pushpa Kamal Dahal ‘Prachanda’ respectively—pressing unification issues are yet to be resolved. Other senior leaders such as former Prime Minister Jhala Nath Khanal, Bam Dev Gautam and Narayan Kaji Shrestha are also displeased at what they see as their systematic sidelining.
The likes of Yogesh Bhattarai and Ghanashyam Bhusal are also publicly criticizing party leadership for its supposed failure to maintain internal democracy. But there is essentially a three-way competition among Oli, Dahal and Nepal as other leaders do not have much hold in party structures to challenge them ahead of the party’s next General Convention.
According to insiders, Oli wants to maintain the status quo to retain his hold. “Out of 45 standing committee members, 13 are hardcore Oli supporters who are either in government or in top party positions. Oli does not want to change this favorable setup,” says a senior NCP leader, requesting anonymity. “Right now PM Oli’s only goal is to keep Dahal happy so as to forestall any problem in government functioning,” says the leader. There is also a lack of coordination between the party and the government. Further, Oli wants to weaken other factions by picking leaders close to him in district- and local-level structures.
Now, it seems that there is convergence of mind between Oli and Dahal on party- and government-related issues. Dahal’s first plan is to gradually amass power both within the government as well as in the party by appeasing Oli. So he supports all of Oli’s decisions without consulting other party members, says a leader. However, the real test of Oli-Dahal bonhomie will come only after a year and a half because there has been a ‘gentleman’s understanding’ between the two leaders to share power after two and a half years of government formation. Dahal will then seek the post of either party chairman or prime minister, say leaders.
Other senior NCP leaders are also displeased at what they see as their systematic sidelining
According to insiders, Oli wants to maintain the status quo to retain his hold
Another game Dahal is playing, according to leaders, is creating distance between Oli and Madhav Nepal. “When Dahal meets Nepal he talks about Oli’s monopoly and when he meets Oli he advises him to be firm and bold,” says a senior leader close to Nepal. To take over party leadership or government, Dahal needs either complete support of the Oli faction or support from the leaders of both the Nepal and Oli factions.
The Madhav Kumar Nepal-led faction, however, is struggling to keep its strength intact. This faction believes it will benefit from possible friction between Oli and Dahal. It complains that leaders close to it are deliberately sidelined in party structures, in selection of ministers and in other political appointments. When the party’s Standing Committee picked the province in-charge, assistant in-charge, chairman and secretary, Nepal had registered a note of dissent.
So, the only priority of the Nepal faction is to keep its position intact because there are fears that Oli and Dahal could poach its leaders. This faction is closely watching the unfolding Oli-Dahal dynamics. Of the 77 districts, the Nepal faction commands almost half the districts committees. A leader from the Nepal side says his faction is no threat to Oli and the real threat to the prime minister comes from Dahal.
NCP Central Committee member Bishnu Rijal says discussions are underway to manage differences but there is still a lot of uncertainty. “The main problem is that top leaders accepted big responsibilities after party unification but then failed to carry out those responsibilities,” he says. “Due to mismanagement, even the province-level committees are not functioning effectively,” he adds.
Last year on May 17, the two parties had decided to unify after their successful electoral alliance. Besides pending organizational issues, a political document outlining party ideology is yet to be settled owing to differences between the former UML and the Maoists. In the initial months, the UML was not ready to recognize the ‘people’s war’. Later, it was mentioned in the political document but differences over the exact wording remain. It has been more than six months since the document was finalized and submitted to the two co-chairmen. Similarly, the taskforce formed to resolve unification disputes was dissolved, and the final word on the merger was left for Dahal and Oli to decide.
The ‘Grand Old Party’ in no less of a mess
The main opposition Nepali Congress, which is supposed to question the government and hold it to account, is also mired in internal disputes.
The seed of animosity among party President Sher Bahadur Deuba, senior leader Ram Chandra Poudel and Krishna Prasad Sitaula was sown after the party’s humiliating defeat in the 2017 parliamentary elections. And differences between them continue to grow. The rift, according to leaders, has serious repercussions. Soon after the elections, both the Poudel and Situala camps had urged Deuba to take moral responsibility for the defeat and step down. Deuba did not pay heed.
First, the party has failed to play the role of effective opposition in the parliament. There are no discussions and preparations in the party about taking a uniform and consistent position on key national issues. Leaders cite certain examples to highlight the party’s chaotic state. When the government struck the 11-point agreement with secessionist leader CK Raut, NC Spokesperson Bishwa Prakash Sharma and party President Deuba welcomed it. The very next day, the party changed its position and there were separate versions coming from top leaders.
Similarly, when the government decided to ban the activities of the Biplab-led Maoist party, NC President, while speaking with reporters in Biratnagar, welcomed the decision. Later, the party urged the government to resolve the issue through talks. These two instances clearly show that the party is divided and struggling to make its stand clear on key national issues.
Second, as the largest opposition party, the NC has failed to bring other parties outside the government together to exert pressure on the government to correct its mistakes. There is no coordination among party leaders on how to play an effective role in the parliament. Third, strengthening the party organization is the need of the hour but that is not happening; instead the rift at the top is percolating to the grassroots level, affecting party functioning.
Verbal wars between top leaders have escalated too. A few weeks ago, party President Deuba publicly said that Shekhar Koirala does not have ‘any status’ in the party, warning him not to speak against him. In response, Koirala said he was born in a family with solid political culture and would not stoop to Deuba’s level.
“None of its top leaders seems keen on reforming the party in terms of ideology and organizational structures. They only want to appoint their near and dear ones in key posts to strengthen their hold,” says Puranjan Acharya, political analyst who closely follows the NC’s internal dynamics.
There was a tussle among rival factions over the appointment of the party’s disciplinary committee. Lately, disputes have surfaced over appointments to the Kendriya Karya Sampadan Samiti, a party committee entrusted with vital decisions in the absence of the Central Working Committee. After a long debate, Deuba, Poudel and Situala have reached a tentative agreement.
With the continuing tussle among the three leaders, another senior leader Shekhar Koirala is busy shoring up support for his own likely bid for party president ahead of the next general convention. Of late, leaders from the Koirala family— Shekhar, Shashank and Sujata—are coming closer.
Party disputes do not end here. There is growing dissatisfaction among district presidents as well. In the third week of December last year, the party’s Mahasamiti meeting was held in order to resolve intra-party disputes and amend the party statute to adapt to a federal setup.
Among others, the Mahasamiti meeting endorsed a provision that all party leaders should be elected from the grassroots level for them to be eligible as general convention representatives. However, the Central Working Committee rejected the decision and endorsed a provision whereby CWC members would nominate themselves as convention representatives. The CWC meeting took the decision on a majority basis and the Poudel faction registered a note of dissent.
Around four dozen district presidents have been putting pressure on party leadership to correct this erroneous decision. “We will launch a signature campaign in all 77 districts to call for a special general convention if our demands are not fulfilled,” says NC leader Madhu Acharya who is coordinating the gathering of the NC district presidents. “We demand inner-party democracy be maintained and all leaders face party elections to become convention representatives,” says Acharya.
Within one year, the party will have to conduct its 14th general convention to elect new leadership. Deuba is fighting for party president again. Sitaula and Poudel are already in the race. Of late, Shekhar and other members of the Koirala family also seem interested. So there is a sort of competition to discredit each other ahead of the general convention, which is unlikely to stop in the coming days.
Turning points in Nepal-China relations
1 Post-1950 turning points
APEX Series
EVOLVING NEPAL-CHINA RELATIONS
1 Post-1950 turning points (April 5)
2 The 2016 transit and transport treaty (April 19)
3 China’s relations with political parties (May 3)
4 Defense ties (May 17)
5 Nepal and BRI (May 31)
Nepal and China formalized their age-old bilateral ties by establishing diplomatic relations on 1 August 1955. Since then, the relationship has evolved through different stages, without any major hiccups. And although formal bilateral relations were established only in 1955, there were close contacts between the two peoples much before that.
In the first part of our APEX Series ‘Evolving Nepal-China Relations’, we explore some turning points in bilateral relations after the 1950s. “There is an element of consistency in Nepal-China relations ever since diplomatic ties were established during King Mahendra’s direct reign. India has invested a lot in every major political change in Nepal, but for some reason it is China that every new Nepali government or regime feels more comfortable dealing with,” says Ramesh Nath Pandey, a former foreign minister.
One year after the establishment of diplomatic relations, Nepal and China signed the Economic Assistance Agreement on 7 Oct 1956 during the reign of Prime Minister Tanka Prasad Acharya, laying the foundation for further economic cooperation. Under the agreement, China pledged Rs 60 million to Nepal. Observers say the visits to China by then PM Acharya in 1959 and by BP Koirala in 1960 were vital in creating an environment of trust between Nepal and its northern neighbor.
Until the 1950s, connectivity between the two countries was rather poor. In this light, China signed an agreement in 1961 to construct a 112-km highway linking Kathmandu to the Nepal-China border in Kodari. This was a vital step towards breaking Nepal’s total dependence on India. For over six decades, this highway served as Nepal’s only viable trade link with China.
High-level visits to China
- Prime Minister Tanka Prasad Acharya (1956)
- Prime Minister Bishweshwar Prasad Koirala (1960)
- King Mahendra (1961)
- Prime Minister Kirti Nidhi Bista (1972, 1978)
- King Birendra (1973, 1982, 1987, 1993, 1996, 2001)
- Prime Minister Girija Prasad Koirala (1992, 1993)
- Prime Minister Manmohan Adhikari (1995)
- Prime Minister Sher Bahadur Deuba (1996)
- King Gyanendra (2002, 2005)
- Prime Minister Pushpa Kamal Dahal (2008, 2017)
- Prime Minister Madhav Kumar Nepal (2009)
- Prime Minister Sushil Koirala in (2014)
- President Ram Baran Yadav in (2010)
- Prime Minister KP Oli in (2016, 2018)
High-level visits from China
- Premier Zhou Enlai (1957, 1960)
- Deng Xiaoping (1978, in his capacity as Vice Premier)
- Premier Zhou Ziyang (1981)
- President Li Xiannian (1984)
- Premier Li Peng (1989)
- President Jiang Zemin (1996)
- Premier Zhu Rongji (2001)
- Premier Wen Jiabao (2012)
Broader interests
Border issues are always a threat to bilateral relations. But Nepal and China resolved their border issue amicably in 1961. Since then, there has been no major border dispute between the two neighbors, which has contributed to peaceful ties. (Although some minor border disputes remain.) In 1962, when India and China fought a war, Nepal decided not to take sides. It took the same stance in 2017 when its two neighbors were locked in a dispute over the contested territory of Doklam. On both occasions, China supported Nepal’s position.
When King Birendra proposed that Nepal be declared a ‘zone of peace’ in 1975, China was the first country to support it. After that China initiated several projects in Nepal such as the Kathmandu-Pokhara highway, Pokhara-Butwal highway, an agricultural tool factory, etc. From the mid-1980s, the Chinese government, under the Economic and Technical Cooperation Program, has been giving Nepal grant assistance to implement mutually acceptable development projects.
Import of military hardware from China in 1988 is considered one of the most important milestones in bilateral relations. Nepal had bought some military hardware, including anti-aircraft guns, from China, which caused outrage in New Delhi and it responded by imposing a blockade on Nepal. India argued that Nepal was not free to import weapons from third countries without its consent. Because of the blockade, Nepal had to import many essential items from China.
When Nepal was a monarchy, China worked closely with the palace to safeguard its security interests in Nepal, mainly related to Tibet. The abolishment of the monarchy in 2008 marked a turning point in China’s policy on Nepal. After 2008, China started cultivating relations with various Nepali political parties and became more vocal about its security interest. Similarly, ahead of the Beijing Summer Olympics in 2008, Tibetan refugees living in Nepal staged large demonstrations, which led China to work actively on its Nepal policy.
New party plays
“The post-conflict political transition in Nepal coincided with large-scale anti-China protests between March and August 2008 by Tibetan refugees living in Nepal—the most organized demonstrations in the past 50 years,” writes Nihar R. Nayak, a research fellow at the Institute for Defense Studies and Analyses, in his book Strategic Himalayas. “In 2008 Tibetan separatists in fact tried to cross the border into the TAR to disrupt the journey of the Olympic torch to the Mount Everest and the summer Olympic Games in Beijing. This forced China to redraft its Nepal policy.” After 2008, China began showing active interest in Nepal’s political affairs, mainly in provinces, and the frequency of high-level visits from China to Nepal increased drastically.
The signing of the Transport and Transit Treaty between Nepal and China in 2016 against the backdrop of India’s undeclared blockade was another important development. The treaty, at least in principle, has paved the way for Nepal’s use of Chinese ports and other routes for third-country trade, and ended Indian monopoly on Nepal’s supply system.
Nepal and China signed a Memorandum of Understanding on the Belt and Road Initiative (BRI) on 12 May 2017, which marked another milestone in bilateral relations. The major thrust of the MoU is to promote mutually beneficial cooperation between Nepal and China in economy, environment, technology and culture. Negotiations are underway between the two countries to finalize projects under the BRI and their investment modalities.
A joint military exercise between Nepal and China that began in 2017 was another big development. The military drill named Sagarmatha Friendship was a clear indication of growing ties between Nepal Army and the People’s Liberation Army.
In recent years, another major dimension of bilateral relation has been growing Chinese investment in Nepal. China is now the largest source of Foreign Direct Investment in Nepal, topping the list of FDI contributing nations in fiscals 2015-16, 2016-17 and 2017-18, with growing pledges from Chinese companies in hydropower, cement, herbal medicine, and tourism.
Former foreign minister Pandey says Nepal should have a dynamic China policy considering the changing face and status of China in the global arena. “We in Nepal need to carefully take stock of the situation and benefit from our two rising neighbors. For this we need diplomatic finesse and our embassies abroad need to be awakened. We have to rise above partisan politics, which has sadly led to the decay of all our vital state institutions,” he says.
How likely is the unification of the two largest Madhesi parties?
Delay in constitution amendment, a life sentence to lawmaker Resham Chaudhary for his role in the 2015 Tikapur killings, and an 11-point agreement with the secessionist leader CK Raut seem to have brought two Madhes-based parties, the Rastriya Janta Party Nepal (RJPN) and the Federal Socialist Party Nepal (FSPN), closer.The unification process is in its initial phase. The RJPN has recently formed a talk team led by Rajendra Mahato with four other members, namely Brikesh Lal, Ramesh Yadav, Keshav Jha and Sunil Rohit. The FSPN had already formed a talk team led by Rajendra Shrestha five months ago. Unification may take some time, but leaders of both the parties claim sincere efforts to that end have been made since their electoral alliance in 2017.
A few factors have contributed to bringing them together. Madhesi leaders say they had expected Prime Minister KP Oli to push the constitution amendment proposal. With no progress, the RJPN withdrew its support to the government and pressure is building on FSPN Chairman Upendra Yadav to speak up about the amendment.
Ram Sahaya Yadav, FSPN General Secretary, and other senior party leaders are of the view that if the two-point agreement the party signed with the government is not implemented, there is no point in staying on in the government. As a result, Upendra Yadav is gradually hardening his stance on constitution amendment. He recently said, “The prime minister has assured us that he won’t renege on his promise. But there is a limit to our patience.”
Leaders of both the FSPN and the RJPN aver that only a united party can put enough pressure on Kathmandu to amend the charter. Says Professor Surendra Labh, a Janakpur-based political analyst, “Grassroots cadres see ongoing efforts as inadequate. They feel a need for more concerted pressure on the government to see the amendment through. This thinking seems to have brought the two parties closer.”
'The prime minister has assured us that he won’t renege on his promise. But there is a limit to our patience'
Upendra Yadav, FSPN Chairman
Chaudhary irritant
The Kailali district court’s decision to hand down a life sentence to RJPN lawmaker Resham Chaudhary has served as another unifier, with both parties considering it a political case that should have never gone to court. Immediately after the Kailali court issued its verdict, the government reached an 11-point agreement with CK Raut, who was behind bars for championing an independent Madhes. The Madhes-based parties were irked that the government did not consult them and suspect the move was aimed at weakening them.
“The deal with Raut prompted the FSPN and the RJPN to expedite unification,” says a Madhes observer. Leaders of the two parties fear Raut could emerge as a strong political force in Madhes and pose a threat to them. Labh says although talks of unification between the FSPN and the RJPN had begun earlier, the 11-point deal with Raut was an additional spur. Leaders and Madhes watchers also point to the pressure from India. It is an open secret that the southern neighbor has been urging the Madhes-based parties to unite and come up with a strong political force.
Despite all these factors, the question as to whether the two parties will actually unite remains open. Their leaders say despite broad convergence of views on various issues, it is not easy to form a single party. The immediate challenge is related to support for the government. While the RJPN thinks Yadav should quit the government before unification, the FSPN maintains no condition should be imposed for unity talks and government-related issues should be dealt with after unification.
Figuring out the new party’s leadership will be tricky too. The RJPN is for a presidium model, under which six members take turns as party coordinator. In the third week of April 2017, six of the seven Madhes-based parties under the then Samyukta Loktantrik Madhesi Morcha (SLMM) had formed the Rastriya Janta Party Nepal (RJPN) so as to consolidate their strength. But Upendra Yadav chose not to join it.
Problematic presidium
As the presidium model has already created many problems in the party, it is unlikely to be continued after the unification. At least three RJPN leaders will claim leadership of the unified party. But so will Yadav, given the FSPN’s strength in federal and provincial parliaments. Says political analyst Vijya Kanta Karna, “Party leadership will be difficult to settle. But if it is settled, unification won’t be difficult.” Karna says the ruling Nepal Communist Party (NCP) is also beset by problems because it has two chairmen.
If the presidium model is accepted at the center, it will lead to organizational problems at the grassroots.
Yet another challenge, according to Madhes observers, is the intra-party dispute rife in both the RJPN and the FSPN. “There are disputes within the two parties over leadership. These disputes could worsen if the parties decide on unification,” says Labh.
The RJPN and the FSPN aren’t much divided on the ideological front. They had the same position during constitution drafting and had jointly launched the Madhes movement. They also fought the election together and they have a coalition government in Province 2. As such, the two parties have many common interests, which could provide a solid foundation for unification.
If and when the unification goes ahead, each party’s strength at the federal and provincial levels will obviously count. The RJPN was formed after the unification of six Madhes-based parties, but in the three tiers of elections in 2017, the FSPN secured almost equal seats in the House of Representatives and won more seats than the RJPN in Province 2.
In the HoR, the RJPN has 17 members—11 directly elected and six from proportional representation—while the FSPN has 16 members—10 directly elected and six from proportional representation. In the National Assembly, they have two seats each.
Contested claims
In Province 2, the FSPN has formed the government with the RJPN’s support. In the provincial parliament, the FSPN is the largest party with 29 seats against the RJPN’s 25. FSPN leaders say their claim to party leadership is therefore justified.
Upendra Yadav has a strong organizational base at the grassroots, which is why his party secures a sizable presence even in difficult times. Observers say hard work sets him apart from other Madhesi leaders. Yadav frequently visits Tarai districts and meets the party rank and file. He has also maintained good relations with other political parties and the international community.
The caste factor seems to be equally important. Upendra Yadav is regarded as a towering figure in the Yadav community, which is economically and educationally strong. Even in the whole of Madhes, Yadav is considered an important leader, second perhaps only to Mahanta Thakur. As such, the FSPN is strong and coherent. The RJPN, by contrast, is not united either at the center or at the grassroots, and is relatively weaker.
Even if unification between the two parties proves elusive, they are likely to forge an alliance to press for constitution amendment and to minimize the Raut factor in Madhes. During the Madhes movement in 2015 and the elections in 2017, there was already a working alliance.
“During the formation of the Oli-led government, the RJPN and the FSPN made decisions independently. Whereas Yadav joined the government, the RJPN supported it from the outside. Now, even if they don’t unite, it’d be good for Madhes if they can maintain an alliance,” says Labh.
Many challenges of the Oli government on FDI
The government is holding the Nepal Investment Summit with the goal of attracting foreign investment. The summit, which begins March 29, is the second of its kind in the past two years. In 2015, the government had organized a donor conference to solicit international support for post-quake reconstruction, but that was not an investment summit. Political leaders, businesspeople and economists who spoke to APEX say there is a tendency of organizing investment summits with fanfare, but successive governments have not given priority to other vital aspects such as embracing liberal political and social values, ensuring policy consistency, setting up follow-up mechanisms, clearing bureaucratic hurdles, among others.
Says Dipendra Bahadur Chhetri, a former Governor of Nepal Rastra Bank (NRB), “We seem to be organizing such summits as a formality. The new government, with a strong support from the parliament, should instead solve various practical problems that are hindering foreign investment.”
The communist government also faces the challenge of demonstrating full commitment to protecting foreign investment and adopting liberal economic policies. “First, the government should convince international investors that it embraces liberal political and economic values as enshrined in the constitution. Second, there should be follow-ups on the pledged investment after the summit. Third, there should be policy consistency as frequent changes in foreign investment-related laws create confusion,” says Nabindra Raj Joshi, who as then Minister for Industry was in charge of organizing the Investment Summit in 2017.
At the same time, economists and businesspeople point out the need for an in-depth study on why the flow of foreign investment in Nepal is small. Speaking at a parliamentary committee a few days ago, Binod Chaudhari, a billionaire lawmaker from the Nepali Congress said, “We should formulate laws only after a detailed study that takes into account the views of all stakeholders. Or we will always revolve around the same issue.”
If the flow of FDI doesn’t shoot up, Nepal’s target of graduating to a middle income country by 2030 is unlikely to be met
Big commitments, low flow
Government data show that since 1990, although the pledged foreign investment is high, only a small percentage of it has materialized. According to official figures, foreign investment constitutes 0.5 percent of the country’s GDP. In the past 20 years, Nepal only saw Rs 170 billion in foreign direct investment out of the Rs 440 billion endorsed.
In the last investment summit held in 2017, various countries and donor agencies committed $13.51 billion, but not even half the pledge has materialized, according to official records. Investment was pledged in sectors such as agriculture, roads, tourism and railways. “After the summit, there was no regular interaction and follow-up with international investors,” says Joshi. According to a survey released by the NRB in June 2018, FDI inflows into Nepal are substantially lower than into neighboring countries. In 2016, the share of the total global FDI that entered Nepal and South Asia was 0.01 percent and 3.1 percent respectively.
“Foreign investors from 39 countries have made investment in 252 firms in Nepal. India is the main investor in Nepal in terms of paid up capital. However, West Indies comes ahead of India if we consider total stock of FDI by including reserves and loans,” the NRB report says. The report also reveals that most of the FDI into Nepal comes from tax havens, which means Nepali businesses parked money in those countries through illegal means and brought it back as FDI.
Many hurdles
Now that Nepal has a strong government with a five-year mandate, there is favorable political climate for foreign investment, but other factors impede FDI. “Nepal needs to make paying taxes easier by simplifying the process of social security-related payments. This is the reason that the recent labor act has made the process more cumbersome and contributed to pushing the country down five places to 110th in a global ranking for the ease of doing business”, says an October 2018 World Bank report.
According to the annual ranking, Nepal made paying taxes more difficult through a 2017 labor act, which introduced a labor gratuity, medical insurance and accident insurance paid for by employers in a way that places a larger administrative burden on companies that already face considerable red tape.
A business licensing system and a proper legal framework have not been created. International investors often complain they face various obstacles when applying for a license. Multinational companies are facing difficulties in registering their offices in Nepal.
In order to clear the bureaucratic hurdles foreign investors are facing, the government has introduced a provision of endorsing an investment proposal within seven days if all necessary documents are submitted. The government is preparing to provide all company registration-related services through a one-door policy. Former NRB Governor Chhetri, however, says such a policy had already been introduced in 1993, but was not implemented. “The problem lies not so much in policy as in its implementation,” he says.
Settlement of court cases is also a concern for foreign investors, who are not confident Nepal’s judiciary would settle cases without prejudice if a legal issues arise. They are also concerned about the visa renewal process for foreign workers in Nepal. Land acquisition has also been a considerable challenge. Stability in politics hasn’t translated into stability in bureaucracy as there are frequent changes of secretaries and chiefs of government bodies.
Of late, the activities of the Netra Bikram Chand Biplab-led Nepal Community Party have also spoiled the investment climate. “Such activities have sent mixed messages. The government should ensure the country is safe for investment. We now have a strong government and a courageous prime minister, so there’s reason to hope that past trends will change and the country will attract more investment,” says Chhetri.
Nepal’s constitution has liberal provisions on foreign investment. It says, “The policy of the state is to encourage foreign capital and technological investment in areas of import substitution and export promotion.” Although the new government has accorded high priority to economic diplomacy, it is still failing to woo international investors.
Muted expectations
In the summit, the government is all set to showcase specific projects with detailed investment modalities. Nepal Investment Board has selected around six dozen projects under seven broad headings: agriculture infrastructure, education and health, energy infrastructure, industrial infrastructure, tourism infrastructure, transport infrastructure, and urban infrastructure. This could make the investment process smoother for foreign companies.
Experts suggest tempering expectations though. “If the government takes measures to achieve policy clarity and remove procedural hurdles, we can expect much from the summit. Otherwise, more investment won’t be forthcoming,” says Chandra Mani Adhikari, an economist.
Targeting the investment summit, the government has already made amendments to some laws and a few more are in the cards. The government has prioritized amending the Special Economic Zone Act and introduction of new laws such as Economic Procedures and Fiscal Accountability Act, Public-Private Partnership and Investment Board Act, and Foreign Investment and Technology Transfer Act. Nepal, a Least Developing Country (LDC), has set a target of becoming a middle-income country by 2030. It is virtually impossible to meet the target without huge foreign direct investment, as internal resources are insufficient. If the flow of FDI doesn’t shoot up, Nepal’s target of graduating to a middle income country by 2030 is unlikely to be met.
From one to many
5 Is India losing influence in Nepal?
APEX Series
OLI GOVERNMENT AND INDIA
5 Is India losing influence in Nepal?
In this concluding part of the five-part, weekly APEX Series on ‘Oli government and India’, we examine how India continues to lose ground in Nepal following the 2015- 16 blockade. There are various signs of this. Recently, one of the most noted ones was Nepal opting for Chinese (instead of Indian) standards in laying its railway tracks. Nepal cited lower cost as a reason. But observers in India were quick to point out how this was yet another instance of New Delhi ‘losing out’ to Beijing in Nepal.
Three main reasons are responsible for New Delhi’s loss of influence over Kathmandu: the blockade of 2015-16, the transit and transport treaty Nepal signed with China in 2016, and the logjams in India-funded development projects in Nepal. Following the blockade, Indian interference in the internal politics of Nepal has been less conspicuous, and there are speculations that Indian policy on Nepal has changed. But Narayan Kaji Shrestha, a senior leader of the ruling Nepal Communist Party (NCP) and former foreign minister, says such a conclusion would be premature. “Now, India’s interference in internal matters of Nepal has been reduced but we have to wait to see if there has been a sea change in India’s Nepal policy post-blockade,” he says.
The blockade created a public opinion that Nepal’s trade and transit facilities should be diversified. The signing of the Transit and Transport Treaty between Nepal and China in 2016 ended, at least in principle, India’s monopoly on Nepal’s supply system. Using Chinese ports will be costlier, but they nonetheless offer alternatives for Nepal.
Not only China, western countries, especially the US, have also renewed their interest in Nepal after the blockade and particularly after the formation of a strong communist government in February 2018. Warning bells are ringing in Delhi which has traditionally been loath to see Nepal slip out of its ‘sphere of influence’.
The slow decline of Indian hegemony
Observers point to three major reasons: the blockade of 2015-16, the transit and transport treaty between Nepal and China in 2016 and the endless delay in India-funded development projects in Nepal
On February 25, The Global Times, a Chinese newspaper, published a news story titled ‘Nepal gauges interests in choosing China rail norm’. It said, “Considering that a majority of Nepal’s third-country trade currently runs through India, a plan to hitch Nepal’s rail system to Chinese standards will reduce the landlocked nation’s dependence on India. New Delhi has to accept the fact that Nepal is strengthening its economic cooperation with China, and make the best policy choices for itself.” It also said, “Choosing the Chinese gauge standard is an economic move by Nepal, and it has nothing to do with Kathmandu’s political stand.”
Of course that didn’t prevent Indian diplomats and commentators from presenting it as an example of growing Chinese influence in Nepal and the failure of Indian Prime Minister Narendra Modi’s neighborhood first policy. Indian government officials also raised objections to Nepal’s use of the Chinese gauge standard.
In an interview with The Print, an online news portal, India’s former National Security Advisor Shiva Shankar Menon reacted to the news story, expressing displeasure with Nepal choosing the Chinese gauge standard. “I do not think our relationship with Nepal is where it should be,” he said.
Three major reasons
All this hints at the worry felt by Indian diplomats, academicians and journalists about Delhi gradually losing its influence in Nepal to Beijing. Observers point to three major reasons: the blockade of 2015-16, the transit and transport treaty Nepal signed with China, and the logjams in India-funded development projects in Nepal.
On 30 August 2015, Nepal’s Constituent Assembly (CA) endorsed a new constitution and set September 3 as the date to promulgate it. Soon after, India sent its foreign secretary S Jaishankar to Kathmandu as a special envoy to advise Nepali leaders to either stop or postpone the promulgation of the constitution and bring Madhes-based parties on board. Jaishankar’s advice was not heeded, and when Nepal promulgated the constitution, India imposed a five-month-long border blockade, which caused a humanitarian crisis in Nepal, a country hit by a major earthquake just a few months earlier. India denies it imposed a blockade and that the supply disruptions were a result of security concerns emanating from protests on the border by Madhes-based parties.
“I do not have evidence to prove that the Indian state was complicit in the blockade. As a scholar, I can speak only on the basis of evidence and facts. Let’s assume India had no hand in the blockade. In that case, India could have supported Nepal. It could have airlifted essentials like food and fuel into Kathmandu. It did not. That hurt bilateral relations,” says Constantino Xavier, a fellow in Foreign Policy Studies at Brookings India, in an interview with APEX.
Following the blockade, Indian interference in the internal politics of Nepal has been less conspicuous, and there are speculations that Indian policy on Nepal has changed. But Narayan Kaji Shrestha, a senior leader of the ruling Nepal Communist Party (NCP) and former foreign minister, says such a conclusion would be premature. “Now, India’s interference in internal matters of Nepal has been reduced but we have to wait to see if there has been a sea change in India’s Nepal policy post-blockade,” he says.
After the signing of the 12-point understanding between the Seven Party Alliance and the Maoists in 2005 in Delhi, the promulgation of the constitution was probably the first instance of Nepal making a major political decision without consulting India. Another instance was the holding of three tiers of elections in 2017, although India had some reservations. By contrast, India was closely consulted during the integration of the Maoist combatants into the Nepal Army in 2012.
Geja Sharma Wagle, a political analyst and commentator, believes India is losing its traditional influence in Nepal because of a few factors, such as India’s coercive diplomacy and its interference in Nepal’s political affairs. “India has abused the Madhes card time and again. And while India only promises development projects, China delivers,” says Wagle.
The China factor
The blockade created a public opinion in Nepal that its trade and transit facilities should be diversified and its exclusive dependence on India minimized. Such an opinion resulted in a favorable environment for the Nepal government to improve connectivity with countries other than India, mainly China.
The signing of the Transit and Transport Treaty between Nepal and China in 2016, the first ever in Nepal’s history, ended, at least in principle, India’s monopoly on Nepal’s supply system. The protocol of the agreement is ready, and is expected to pave Nepal’s way for using Chinese ports and roads for trade with third countries. Using Chinese ports will be costlier for Nepal, but in case it faces blockades and difficult times in the future, it can look to China.
The way development projects are handled is another possible reason behind diminishing Indian clout in Nepal. At a time when there are complaints that Indian development projects take too long, China has given an impression that it complete projects on time. Its Belt and Road Initiative (BRI) has also piqued interest in Nepal.
According to the Xinhua news agency, “China pledged the highest foreign direct investment (FDI) to Nepal three years in a row as the Himalayan country received China’s pledge of 427 million US dollars in last fiscal year 2017-18.” It further says, “China topped the chart in committing FDI to Nepal in fiscal years of 2016-17 and 2015-16 too with a commitment of 76 million US dollars and 57 million US dollars respectively.” In the recent years, China has invested heavily in major infrastructure projects, such as the expansion of the Ring Road in Kathmandu and the construction of an international airport in Pokhara.
China has also become more influential in other spheres such as the bureaucracy, security agencies and media. The Nepal Army and China’s People’s Liberation Army (PLA) are increasing cooperation, and the two conducted their first-ever joint military drill in 2018, raising eyebrows in New Delhi.
The 1950 treaty is a bone of contention between the two countries and a major political topic in Nepal
Striking a balance
Another significant development in the last couple of years is the formation of the Nepal-India Eminent Persons’ Group (EPG), and the discourse surrounding it about Nepal’s desire to change its special relationship with India.
Indian bureaucrats and diplomats apparently fear that implementing the recommendations proposed by the EPG report will further reduce India’s traditional influence in Nepal by bringing about three major changes in Nepal-India relations. First, with more regulatory measures, the dynamics of the open Nepal-India border would change. Second, Nepal would be free to import weapons from third countries without India’s consent. Third, there would be greater clarity on other provisions of the 1950 Peace and Friendship Treaty.
The 1950 treaty is a bone of contention between the two countries and a major political topic in Nepal. “Naturally, Nepal wants to diversify its options in order to reduce its dependence on India. At the same time, there still are elements that make Nepal-India relationship more unique and special. Even today, Nepali citizens are allowed to join the Indian civil service and armed forces based on the 1950 treaty,” says Xavier. “Nepal could consider abrogating the treaty. But you have Nepali citizens serving as officers in the Indian air force. The open border is yet another aspect of the special relationship between Nepal and India. Again, it is up to Nepal to decide whether it wants to do away with this.”
Not only China, western countries, especially the United States, have renewed their interest in Nepal after the Indian blockade in 2015-16 and particularly after the formation of a communist government with a two-third parliamentary majority in February 2018. The recent visit of Foreign Minister Pradeep Gyawali to the US, where he discussed with his American counterpart Nepal’s role in the US’s Indo-Pacific Strategy, has been widely considered an example of growing US interest in Nepal.
There is a sort of domestic consensus in Nepal that it should strike a balance between its two neighbors by putting economic diplomacy front and center. Says Wagle, “Nepal should strike a diplomatic, strategic and economic balance between emerging global powers like India and China. It should respect their core interests. Neither country is a substitute for the other. Nepal should take maximum advantage of its location between two economic giants”.
A game-changer in regional power trade
4 New Indian power regulation
APEX Series
OLI GOVERNMENT AND INDIA
4 New Indian power regulation
5 Is India losing influence in Nepal?
India’s new cross-border power trade guidelines pave the way for Nepal to export electricity to India and other countries. Issued in December, the new guidelines replace earlier provisions from 2016 which allowed India to buy power only from Indian government-owned companies or those with at least 51 percent Indian investment. The earlier regulations were seen as an attempt to block non-Indian investment in Nepal’s hydropower. With the new guidelines, hopes are that more foreign investors will be lured.
The guidelines, if implemented, will ensure reliable grid operation and power trade among South Asian countries. As per the guidelines, “Indian entities may import electricity from the generation projects located in neighboring countries directly or through Government or a Government Company or a licensed trader of that country after taking approval of the designated authority.” The guidelines also state, “In case of tripartite agreements, the cross border trade of electricity across India shall be allowed under the overall framework of bilateral agreements signed between Government of India and the Government of respective neighboring countries of the participating entities.”
The earlier guidelines permitted only those hydro projects with a capacity to generate 50 MW and above to export electricity to the Indian market. This provision has been removed.
" I have personally told Bangladeshi Prime Minister Shekh Hasina that India’s new power regulation is a game-changer in this region."
Choplal Bhusal, Former Nepali Ambassador, Bangladesh
Why the change?
When Narendra Modi became India’s prime minister in May 2014, he took an initiative to bring fresh vibes into Nepal-India relations. Among others, the Power Trade Agreement (PTA) was hailed as an important achievement between the two countries, as it was expected to attract foreign investment into Nepal’s hydropower sector. But the optimism didn’t last long.
“India… issued a cross border trade directive in 2016 that prohibited the purchase of electricity produced by non-Indian companies. It didn’t open its market when foreign investors showed an interest in Nepal’s hydropower. It agreed to build transmission lines, but made Nepal pay the inherent ‘wheeling charge’,” writes Bikas Thapa, a journalist who has been closely following the developments in Nepal’s hydropower sector for over two decades. In various high-level visits, officials from Nepal and neighboring countries like Bangladesh kept asking India to amend the directive, but India didn’t listen. Until recently.
Now, India has changed the directive in line with the interest of Nepal and other neighboring countries. There are some reasons behind the change in policy. India has faced international pressure to implement the Paris Agreement and reduce its fossil-fuel emissions. It has as such given greater priority to solar, hydro and wind power. Electricity produced in Nepal would help meet its growing demand for power. As per the revised regulations, India has dropped electricity from its list of strategic assets and categorized it as a commodity.
Another reason behind the policy change is continuous pressure from immediate neighbors like Nepal, Bangladesh and Bhutan. A senior government official in Nepal speaks of India’s new priority on hydropower. “Earlier, India was more interested in Nepal’s water, now it has realized hydropower is equally important,” says the official.
Bangla beckons
India’s new directive has also paved Nepal’s way to export electricity to power-hungry Bangladesh, which currently imports 1,160 MW from India. Bangladesh has plans to import 9,000 MW from Nepal by 2040. Bangladesh’s power demand is projected to double by 2030. The Bangladesh Power Development Board (BPDB), soon after India introduced the new directive, said it would greatly help Bangladesh procure electricity from various sources. On 10 August 2018, Nepal and Bangladesh signed a Memorandum of Understanding (MoU) to increase energy cooperation. Bangladesh has shown interest in investing in Nepali hydropower projects such as Sunkoshi II (1,110 MW) and Sunkoshi III (536 MW).
Choplal Bhusal, a former Nepali Ambassador to Bangladesh, says India’s new power regulation would help bring Bangladeshi investors. “Some have already shown an interest in Nepal. I have personally told Bangladeshi Prime Minister Shekh Hasina that India’s new power regulation is a game-changer in this region,” says Bhusal.
During her visit to India in April 2017, Sheikh Hasina had asked for India’s cooperation in cross-border power trade with Nepal. The Indian side, however, was non-committal. Efforts are now underway to sign an MoU on energy cooperation between Bangladesh, India and Nepal (BIN). The original plan was to sign an MoU under BBIN (Bhutan, Bangladesh, India and Nepal), a sub-regional grouping within the South Asian Association for Regional Cooperation (SAARC). Citing internal reasons, Bhutan refused to endorse its participation in BBIN so Nepal, India and Bangladesh are holding consultations for a three-party MOU. If an MoU is signed, it would be another milestone in Nepal’s electricity development.
BIMSTEC and SAARC
The new Indian directive can also facilitate power trade among the member states of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), whose fourth summit in Kathmandu on August 30-31 expressed a commitment to improve energy trade among its members. Although BIMSTEC, in the 21 years since its establishment, has made virtually no progress in realizing such regional ambitions, efforts are underway to sign an MoU among its member states.
SAARC member states also signed a framework agreement on energy cooperation in 2014 during the 18th SAARC Summit and it is in the process of ratification, opening yet another avenue for energy trade in the region. As member states of both SAARC and BIMSTEC are suffering from an energy deficit, Nepal can reap great benefits from regional electricity grids.
Getting investment
Because of the lack of a market, there has been little foreign investment in Nepal’s hydropower. This could change. “A sector with apparently boundless potential has thus been crimped. Norwegian company SN Power carried out a survey and other necessary tasks for signing a contract for Tamakoshi III, a peaking-run-of-the-river project estimated to generate 650 MW energy, but pulled out when India refused to purchase the electricity,” writes Thapa.
Now, the onus lies on the Nepal government to clear various legal hurdles and persuade international investors. Observers say electricity is the only product that Nepal can sell to significantly bridge its huge trade imbalance with India.
China is another country that has shown interest in investing in Nepal. The new Indian guidelines have given us a reason to be hopeful that mega electricity projects would take off in Nepal.
