As Prachanda arrives, focus on economic ties
In his first overseas trip since taking over as Prime Minister (PM), Nepal’s Pushpa Kamal Dahal (also known as Prachanda) lands in New Delhi for a four-day trip on Wednesday. Two key developments are playing in the background. The first is a scam relating to trafficking of Nepali nationals to the United States (US) as Bhutanese refugees. Several leaders of coalition partner Nepali Congress (NC) and the opposition Communist Party of Nepal (United Marxist Leninist/CPNUML) have been arrested. Between them, the NC and CPN (UML) have the requisite numbers to form the government. So, Prachanda — who is in a coalition with the NC — has to be sensitive to the demands for an impartial probe and punishment of the culprits, while not doing anything that jeopardises his administration.
The second is the jockeying for influence in Kathmandu by China, with its Belt and Road Initiative (BRI) and Global Security Initiative, and the United States (US), with its Millenium Challenge Corporation (MCC) grant projects and the Indo-Pacific Strategy. Nepal is wary of participating in any initiative seen as anti-China but the developments in Sri Lanka have also made it cautious about Chinese funding. In a balancing act, it has endorsed the MCC projects with caveats and also asked Beijing to fund BRI projects on a grant or concessional loan basis.
Prachanda’s primary objective is to obtain India’s support for his coalition while assuaging nationalist voices at home that he will not do anything against national interest. Irritants are unlikely to disappear soon, especially on the contentious boundary issue in the sensitive Himalayan region bordering Tibet. The matter should be put on the back burner until the right moment arises for talks. Instead, the visit needs to be anchored in the economic pillar of the relationship.
Nepal has constructed two new international airports, one in Bhairahawa, near Lumbini, close to the Nepal-Uttar Pradesh border, and another in Pokhara. The former is financed by the Asian Development Bank and constructed by China; the latter is financed and built by China. If the airports, especially Bhairahawa, are not to become a white elephant, India’s approvals will be required for flight clearances. New Delhi should consider helping Nepal, especially for the Bhairahawa airport, which is important for operationalising the Buddhist Pilgrimage Circuit.
The sector with the most potential for cooperation is hydropower. India is engaged in several projects in eastern Nepal. An Indian government firm is negotiating the development of a mega project on the Seti River in western Nepal. Unfortunately, a privately promoted project on the Karnali River is stuck. The 5,000+ MW bi-national Pancheshwar project on the Mahakali River is also at an impasse. Together, these projects represent 10,000 MW of hydropower generation and investments upwards of $10 billion. These projects need to be pushed in mission mode. Some of the differences, particularly on Pancheshwar, should be resolved expeditiously.
Significant progress has been made in bilateral power trade between Nepal and India. Nepal sells power during the monsoon season on the Indian spot market. In 2022, Nepal raked in $80 million but was unhappy at India’s refusal to buy power from Chinese-promoted hydropower projects or even those that engage Chinese contractors. While the former restriction is by our power trade guidelines, the latter flies in the face of globally accepted procurement rules.
The time has come to expand the cooperation into a trilateral or quadrilateral format. Nepal’s top demand will likely be permission for Nepal-Bangladesh power trade through transmission lines in India. The vision statement on cooperation, signed between the two countries during PM Sher Bahadur Deuba’s visit in April 2022, provides for this possibility. Bangladesh has agreed to buy 50 MW of power from Nepal; there is an agreement on a joint venture to develop a hydropower project in Nepal. Both are willing to use existing transmission lines connecting Nepal to the Indian power market and Bangladesh, or construct new ones.
Power trade between Nepal and Bangladesh through India will open a sub-regional market for power. It will integrate the region’s economies and represent a win-win situation. It may even pave the way for trilateral cooperation on projects, such as the Kosi high dam and integrated river basin management between the three countries. With a focus on economic integration, connectivity and project delivery — rather than on contentious issues — both countries should look ahead with confidence.