Dragon shadow over Himalayas: How China plans to kill America’s MCC Nepal Compact

Nepal signed a deal with China to join China’s Belt and Road Initiative (BRI) in 2017 when Maoist leader Pushpa Kumar Dahal alias ‘Prachanda’ was the Prime Minister of Nepal. Concurrently, America’s Millennium Challenge Corporation (MCC) signed a $500 million compact with the Government of Nepal. The MCC Nepal Compact marked a new chapter in the US-Nepal Partnership and is designed to increase the availability of electricity and lower the cost of transportation in Nepal. It was designed to counter China’s BRI.

China launched the bloody Maoist insurgency in Nepal during the era of Mao Zedong to wean it away from India and the US. The civil war in Nepal (1996-2006) resulted in the deaths of over 17,000 Nepalese (civilians, insurgents, army and police) and the internal displacement of hundreds of thousands. Some 63,000 complaints were received by the Truth Reconciliation Commission while the Commission for Investigation of Enforced Disappearances received around 3,000.

Chinese hard and soft powers have been focused on Nepal over the past several years to control it politically and strategically. During communist regimes in Kathmandu, PLA soldiers in uniform were spotted by foreign journalists in northern Nepal known to have uranium deposits. Chinese nationals (PLA in disguise?) began manning three-star hotels in Kathmandu. Much before Prachanda became prime minister, he told Nepalese media, “The ultimate war will be with the Indian Army.” That is why Prachanda was always accorded a red carpet in Beijing even when he was not the prime minister.

KP Sharma Oli is another Chinese puppet who first became prime minister of Nepal in 2015. In Oli’s second tenure, Chinese President Xi Jinping visited Nepal in October 2019 and an agreement was signed to intensify execution of the BRI for enhancing connectivity, encompassing ports, roads, railways, aviation and communications within the overarching framework of Trans-Himalayan Multi-Dimensional Connectivity Network.

China made major encroachments in Nepal during Oli’s regime: removing border pillars in several places including in Limi-Lapcha, Humla, Dhaulka and Lalungjong areas, constructing many building complexes and deploying PLA to stop Nepalese from entering the areas; denying traditional grazing areas to Nepalese of multiple border villages. Oli denied any Chinese encroachment despite media reports and diverted attention by raising the Kalapani border issue with India.

However, after Sher Bahadur Deuba took over as prime minister in July 2021, he appointed a committee in September 2021 to investigate these encroachments. BBC claims to have a copy of the report that confirms the above Chinese encroachments including China having constructed several buildings for the PLA after trespassing in the Limi Lapcha area of Namkha Rural Municipality. According to Nepal’s Ministry of Agriculture, China has not only encroached on Humla and Daulkha but several other districts also including Gorkha, Darchula, Sindhupalchowk, Sakhnuwasabha and Rasuwa.

In November 2021, Nepalese media quoting a 50-page confidential document prepared by Nepal intelligence reported that several spies from China’s Ministry of State Security (MSS) have infiltrated Nepal in the guise of diplomats, journalists and even businessmen who are playing an active role in destabilising Nepal’s relations with other countries, particularly the US; they are also actively propagating and lobbying against the MCC Nepal Compact grant assistance provided by the US. Nepalese security forces have reportedly concluded that China’s top priority is to invalidate the MCC.

Recent reports reveal that Prachanda held an hour-long hush-hush virtual meeting in early February 2022 with Song Tao, head of the International Department of China’s Communist Party (CPC). Song Tao reportedly said that China wants to deepen traditional ties with Nepal’s political parties based on mutual political trust. China has had a free run in Nepal when Prachanda and Oli were the prime ministers. It is quite possible that the hour-long Prachanda-Tao tête-a-tête was to chalk out a strategy to dislodge Nepal’s present coalition headed by Prime Minister Deuba and bring the communists back into power since Deuba is perceived pro-India and pro-West.

Nepal was to start implementing projects under the MCC Nepal Compact from September 2017 but as of August 2019, Nepal fulfilled only two preconditions out of the six laid down by MCC, courtesy Oli. The two preconditions met are declaring the Electricity Transmission Project as a national pride project and passage of legislation to create an Electricity Regulatory Commission. The ones that did not meet relate to ratification of the Compact agreement by the Parliament; the signing of the project implementation agreement and the completion of a plan in agreement with India for a cross-border transmission line from Butwal to Gorakhpur in India. The projects must be executed within five years, else MCC will withdraw the assistance.

The US has now said that the MCC Nepal Compact must be ratified by 28 February 2022. Prime Minister Deuba wanted to table the ratification of the MCC Nepal Compact in Parliament, but his coalition partner Prachanda, chair of Maoist Centre, is creating roadblocks. Deuba has had to defer tabling the ratification in Parliament because of large-scale protests against it which are obviously China-backed and engineered by Maoist leaders Prachanda and Oli.

Finally, China will apparently succeed in its designs to lapse the MCC grant. The only possible solution is if the US-MCC extends the ratification period beyond five years, giving more time to Prime Minister Deuba.

The author is a retired Army officer. Views expressed are personal.

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Lt Gen Prakash Chand Katoch