Like Sri Lanka, Nepal has been struggling to make up its mind on accepting or rejecting America’s Millennium Challenge Corporation (MCC) Compact. However, it now appears that Nepal will accept it despite internal opposition. Nepalese Prime Minister, K.P.Sharma Oli, though a hard boiled communist, is determined to brush aside opposition from his own party men, and push it through parliament in the winter session.   

In Sri Lanka, in contrast, prospects of the MCC’s going through (in its entirety) are dim. The new Gotabaya Rajapaksa regime wants to keep the sensitive issue pending till the parliamentary elections are over in April 2020.   

The two compacts are different in their subject matter, and that might explain the difference in the attitude of the two governments. While the Sri Lankan compact has to do with the sensitive issue of control over land, the Nepalese one does not. The Nepalese compact does not involve any internal matter but Nepal’s relations with China, a friendly country.   
Last Thursday, the Lankan cabinet decided that signing the compact will be temporarily suspended until a committee conducts a study of it. The compact was approved for signing in October 2019 during the Sirisena-Wickremesinghe regime, but it could not proceed further because the regime lost the November 16 Presidential election.   

In Sri Lanka, “nationalists” have been up in arms against the MCC compact, saying that it is a Trojan Horse to seize Lanka’s land across the island from Colombo in the West coast to Trincomalee in the East. But in Nepal, the opposition has been from the “communists”, who double up as “nationalists”.   

In Sri Lanka, “nationalists” are up in arms against the MCC compact, saying it will seize the land across from the West coast to Trincomalee in the East

The communists are in government in Nepal under communist party leader Prime Minister K. Prasad Sharma “Oli”. A significant section of Nepalese communists fear that acceptance of the American offer of a US$ 500 million grant under the MCC compact will annoy northern neighbour China, which has been a major political ally and economic investor since Nepal got alienated from its southern neighbour, India, after the 2015 economic embargo. Nepalese communists see the MCC compact as a part of the US’ Indo-Pacific Strategy (IPS), which is aimed at countering China in the region. Nepal agreed to sign the “MCC Nepal Compact” in 2017 when the right-wing Nepali Congress was in power. MCC Nepal has two components, one dealing with electricity and the other with roads.   

The objective of the Electricity Transmission Project is to increase domestic electricity consumption by improving the availability and reliability of electricity in Nepal’s electricity grid. Specifically, the project will expand and strengthen the high voltage electricity transmission network to support new investments in generation. The project includes the construction of approximately 300 km of high voltage power lines, equivalent to one-third the length of Nepal; the addition of a second cross-border transmission line to facilitate electricity trade with India; and activities to improve sector governance to promote private investment.   

A document on MCC points out that Nepal struggles with poor road quality, inefficient customs and border enforcement, an inefficient trucking industry, and poor road coverage. To address the high cost of transit, the objective of this investment is to maintain road quality across the strategic road network, preventing further deterioration of Nepal’s road network which makes travel challenging and expensive.   

“This compact of US$ 500 million, combined with the Government of Nepal’s commitment of US$ 130 million, will surely create a lasting impact on Nepal’s sustainable development for generations to come,” the then Nepali Finance Minister Gyanendra Bahadur Karki had said in 2017. 

Political Storm   

The Communist government, which came into being in early 2018, was not opposed to the MCC compact and was keen on getting it passed by parliament. But it ran into a political storm in the ruling party itself. The Secretariat and Standing Committee meetings of the Nepali Communist Party failed to decide on ratification following a heated debate over whether the MCC was a part of the anti-China Indo-Pacific Strategy (IPS). 

Senior leaders Madhav Kumar Nepal, Bhim Rawal, Dev Gurung and Minister for Tourism Yogesh Bhattarai asked the government to modify the compact and not approve it through the federal parliament if the MCC is a part of the US-led IPS.   

Foreign Minister Pradeep Gyawali categorically stated that the MCC was not a part of the Indo-Pacific Strategy since the corporation was formed before the advent of the strategy. “The MCC was announced by US President [George W] Bush in 2002 and since 2008, Nepal has taken initiatives to become a part of it. We finally became eligible in 2011 and we signed an agreement in 2016. The US forwarded the concept of the Indo-Pacific Strategy in 2017,” Gyawali explained. But it fell on deaf ears.   
However, despite opposition, on Prime Minister Oli’s insistence, the MCC compact was registered in the House of Representatives on July 15, 2018, though it is yet to be tabled for ratification. The Nepali Congress has continued to support the compact and has asked the communists not to create any hindrances for its ratification. The opposition party went so far as to say that it would be “suicidal” for Nepal to reject the compact. Nepali Congress spokesperson Bishwo Prakash Sharma said that Nepal should accept support from any country for its prosperity.

Changing Oli   

In the wake of the Indian blockade of 2015, Nepal did get away from reliance on India and started courting China. Nepal joined China’s Belt and Road Initiative (BRI) and entered into a Transit and Transport Treaty with it. In October 2019, Chinese President Xi Jinping visited Nepal.   

But still, Prime Minister K.P.Oli had been keen on ratifying the American compact. In a recent interview to Kathmandu Post,Nishchal Nath Pandey, Director of the Centre for South Asian Studies, said that this should not surprise Nepal watchers. He explained that the only option open to Nepal is to hedge and try to take economic advantage from the enormous amount of money China and US are going to spend. Realpolitik is seizing advantages from both sides while not overtly siding with one, he pointed out. 

China not 
opposed to MCC   

Fortunately for Oli, China is not opposed to Nepal’s ratifying the MCC. The Chinese Ambassador to Nepal, Hou Yanqi, said last Friday. that Nepal is a least developed nation and therefore needs international support—not just from China, but from all over the world, for its prosperity. “We welcome any international assistance to Nepal if it is for economic cooperation,” Hou said. “We would like to see the ratification process of the MCC and the Nepal government take a positive decision for its interest,” she added.   

According to Pandey, the approach of America and China to the MCC shows that Nepal’s strategic importance has grown. “We border Tibet, long known as the soft underbelly of China, and Uttar Pradesh and Bihar, the most populous and underdeveloped areas of rising India. China also wants to penetrate the very large South Asian market through Nepal. But we have to tread very carefully as we are entering a grey area. What decisions Nepal makes now will determine our future,” he warned.   

In the wake of the Indian blockade of 2015, Nepal did get away from reliance on India and started courting China

The Chinese Ambassador’s clarification has thrown opponents of the MCC compact in the communist party of Nepal of gear. But the diehards continue to oppose. Explaining the dichotomy, Pandey said that this is part of communist tactics.   

“It is what left parties do all over the world. They do not want to give the nationalist quarter to any other party because a nationalist stance comes in handy during elections. When the MCC is ultimately ratified by Parliament, some sections of the ruling party will tell the Americans that despite all the hurdles, they were able to get it passed. Other sections of the same party will go to the electorate and say that we managed to revise its anti-national elements before ratification. It’s a smart strategy.”