After Nepal entered the Belt and Road Initiative agreement with China relating to infrastructure development in May 2017, the United States intensified its efforts in the Himalayan state: in September 2017, it signed a deal to create the Millennium Challenge Corporation Nepal Compact.

Over the last few years, dignitaries from China and the US have frequented Nepal to give impetus to their respective projects.

The high-profile two-day visit by Chinese President Xi Jinping in October 2019 was the most significant. During the visit, Nepal and China signed 20 agreements, including the support for the Belt and Road Initiative, railways and roads construction worth about $2.75 billion.

However, the US-backed Millennium Challenge Corporation Nepal has failed to take off and has yet to be ratified by Nepal’s members of Parliament. Thanks to Nepal’s ever-bickering politicians, the Millennium Challenge Corporation Nepal has become the hottest topic of debate in Kathmandu and has divided the nation.

With a budget of $630 million (America’s $500 million contribution and Nepal’s $130 million), the Millennium Challenge Corporation Nepal Compact, has two projects in its portfolio: a 300-km 400 kilovolt electricity transmission line and an upgrade to a 100-km east-west highway.

According to its official website, the Millennium Challenge Corporation is a US Foreign Assistance Agency that aims to fight poverty. It has partnered with 30 countries worldwide to implement projects worth around $13 billion.

However, it was created in 2004 under President George Bush with the purpose of preventing terrorism in the post-9/11 era by attempting to use American aid and expertise to ensure stable governments around the world.

Millennium Challenge Corporation Nepal has become the hottest topic in Kathmandu.

America versus China

“Millennium Challenge Corporation Nepal is caught up in the middle where the main players are America and China and their increasing competition will determine the direction of global politics over the next 50 years,” said author Sanjeev Uprety.

The Millennium Challenge Corporation, he said, aims to ensure good governance, infrastructure development and security.He said that there is no controversy regarding the first two goals.

“...But the third issue [security] generated controversy when [former] US Vice-President Mike Pence said a couple of times in public that Millennium Challenge Corporation is part of the Indo-Pacific Treaty designed to counter China,” Uprety said. “This led to a furore in Nepal along nationalist lines, and to [unfounded] fears that it would lead to US troops entering Nepal.”

Political instability

Political instability is another reason the government is unwilling to implement the Millennium Challenge Corporation.

Nepal has not had an elected government since 2017. With elections slated for 2022, no political party can afford to anger would-be voters. While the Nepali Congress and Janata Samajwadi Party support the Millennium Challenge Corporation wholeheartedly, said Ratna Sansar Shrestha, a water resources analyst from Kathmandu, other parties keep changing their position. “...That is the main reason why it is taking so long to ratify it in Nepal,” he said.

He also pointed out that electricity produced by Millennium Challenge Corporation will not be for local consumption but will be solely for export to India. As a consequence, it will not directly benefit the local economy.

With about 6,000 big and small rivers, Nepal offers a huge potential for hydropower generation. But India has control over most of Nepal’s main rivers through a series of barrages and dams. That has not gone well with nationalists within the Himalayan country.

It is not hard for people in Nepal to figure out whose interests are served through Millennium Challenge Corporation Nepal.

Nepal's then Prime Minister KP Sharma Oli with Chinese Premier Li Keqiang in 2018. Photo credit: Greg Baker/AFP

Another point of irritation for people in Nepal is the fact that the Americans had described the funds they would spend on the project as a “donation”. But this turned out to be false. It is actually an investment of $500 million on which the Americans want to make a profit of billions by exporting electricity to India.

“That Millennium Challenge Corporation is not a grant was confirmed by US Ambassador Randy Berry in a recent TV interview,” said veteran journalist Dhruba Adhikari. “If it were an investment, they would ask for a return or profit or dividend. Why should Nepal take such investment at the price of antagonising China?”

Boon or bane?

Adhikari recalled the suspect role that the Central Intelligence Agency had played during the Khamba Episode in the 1970s, when Tibetan rebels trained in the US made forays into Tibet from bases in Nepal. As a non-aligned member of the United Nations, Nepal cannot afford to commit the same mistake again. This time, the consequence could be severe, he warned.

The delays and flip-flopping by Nepali leaders seems to have alarmed the Americans. Two recent visits to Nepal by high-level US officials signalled the urgency of the matter.

In September, Fatema Z Sumar, the Millennium Challenge Corporation Vice-President, and her assistant Jonathan Brooks paid a four-day visit to the country and met with business and political leaders in Kathmandu.

The next month, US Assistant Secretary of State for South and Central Asian Affairs Donald Lu and his assistant visited Kathmandu. They are said to have given Nepal an ultimatum to arrive at a decision on the deal before mid-December.

“Take it or leave it,” is what the Americans are reported to have told Nepali leaders.

Will the Millennium Challenge Corporation actually benefit Nepal? The answer depends on whom you ask. It has polarised Nepal. Many believe that the Millennium Challenge Corporation has become too controversial for its good and might not be a good idea for Nepal – at least, not at this juncture.

“Nepal should tell the Americans, firmly but politely, that Nepal cannot accept Millennium Challenge Corporation in its current format, and they can take back the offer...” suggested Dhruba Adhikari.

One alternative, he suggested, is for the project to be halted and restarted later through the United States Agency for International Development or some other agencies. “We do need US support and assistance as a democratic country, but not through the controversial Millennium Challenge Corporation,” he said.

For now, ordinary Nepalis are hoping their leaders will do the right thing for the country.

Tim I Gurung is a writer from Nepal. His most recent book is Ayo Gorkhali: The True Story of the Gurkhas.