The United States has offered Nepal $500 million through its the Millennium Challenge Corporation (MCC) for the construction of power transmission lines and strategic roads. The Nepali parliament must approve the agreement before implementation. A pre-condition to the agreement is a cross-border transmission line that will connect Indian and Nepali power markets.
The debate on the MCC compact has ignored the impact cross-border transmission lines will have on the growth of hydropower in Nepal. Such cross-border lines will undermine the long-term prospects for new hydro plants in Nepal and make us entirely reliant on power imports from India.
An internal task force of the ruling Nepal Communist Party (NCP) reportedly found that the MCC’s support is part of the US’s Indo-Pacific Strategy and would undermine Nepal’s sovereignty. The taskforce’s findings are as much a broader indictment of all aid in Nepal as it is about the MCC itself.
Aid always comes with conditions and influences. Take procurement rules. When aid money is used, Nepal is often required to adopt procurement rules of the donor agency. Nepalis cannot challenge those rules: our courts will say that is outside their jurisdiction; the government will say, “what can we do, it is their rules!”
Procurement is just an example. There are many other rules and conditions that donors impose when disbursing their aid. But donors also have a legitimate right to safeguard the interests of their sponsors.
Most aid invariably involves loss of sovereignty in some form. If we are not ready for a broader rethink of how we use aid, why single out the MCC? Rather, we should seek to utilize aid more effectively. Deploy it in ways that directly advance our development so that one day we can break free of the need for aid.
The MCC compact requires Nepal to build a transmission line connecting Butwal in Nepal with Gorakhpur in India. This is intended to enable export of Nepal’s power to India. Such cross-border transmission lines connect the two power markets. It opens electricity trade for both countries. While Nepal can access India’s power markets, India can also access Nepal’s.
Unless Nepal sells its electricity dirt cheap—practically free—there is no way Nepal’s power can compete on price against India’s. No matter whether it is the wet or dry season, Nepali power will almost always be more expensive than that in India.
Recognizing that cheaper Indian power will be available to Nepal, investors will pull back from investing in large hydropower plants in Nepal. Small hydro plants may still be built, mostly for localized domestic consumption. But the contention that Nepal can attract large investments and generate thousands of megawatts to sell to India is based on faulty assumptions.
Interconnected power markets will increase India’s hold over Nepal’s energy sector. Investments in new hydro plants in Nepal will then require the explicit approval of Indian power market authorities and the implicit approval of its government.
There are smarter ways for Nepal to tap into India’s power market. Dedicated transmission lines that connect hydro plants directly to the Indian market, rather than cross-border transmission lines which connect Indian and Nepali power grids, is one way out. Dedicated transmission lines protect Nepali power markets against cheaper Indian power, thus allowing for domestic growth, while also providing opportunities for power exports to India.
Ten years hence
“The MCC project focuses on constructing lines that will bring Nepal’s power to the consumers who will pay Nepal good money for it. It is a simple fact of geography and economics that means India,” US Ambassador to Nepal Randy Berry wrote in an op-ed [Republica, 3 Oct 2019].
Fast forward ten years. Nepal’s hydro capacity is hovering around 2,500 MW, well below the national goal of 15,000 MW. Meanwhile, electricity imports from India meet 70-80 percent of Nepal’s power demand.
At that point, we could remind ourselves about what the ambassador had said: “the simple fact of geography and economics” will mean that India would pay “good money” for Nepali power exports. And we could ponder: “So, where are all our hydropower dollars?”
But then it will be too late. Let’s request the Government of Nepal to conduct a credible and independent evaluation of the impacts that cross border transmission lines will have on the growth of Nepal’s power sector.