On the day he returned to the U.S. presidency, Donald Trump issued an govt order freezing foreign aid for 90 days. Among the many many initiatives impacted was a $500 million grant that was supposed to develop essential infrastructure in Nepal. This funding, supplied by way of the Millennium Challenge Corporation (MCC), a U.S. governmental company, aimed to boost Nepal’s electrical energy transmission capability, together with a 200-mile 400kV transmission line facilitating energy commerce with India. The freeze not solely raises questions on the way forward for U.S. engagement in Nepal but in addition alters the strategic calculus in a area the place China and India are vying for affect.
The federal government of Nepal initially signed the MCC compact in 2017. Nevertheless, home political hiccups, divided opinions amongst Nepali politicians, and protracted Chinese language efforts to dissuade Nepal from accepting the grant delayed its ratification by 5 years. The Parliament of Nepal lastly authorized it in 2022 after a lot controversy.
In August 2024, the Millennium Problem Account in Nepal signed a deal with India to provoke the development of three high-capacity substations at Damauli, Ratmate, and New Butwal, together with a transmission line connecting New Butwal to the Nepal-India border. Nepal, which generates almost all of its electricity from hydropower, is topic to seasonal differences in its electrical energy provide. These transmission line initiatives purpose to boost imports of electrical energy in the course of the dry season and exports within the moist season to bolster its vitality safety with a steady and dependable electrical energy provide.
Trump’s choice to droop the MCC grant now casts uncertainty over these developments.
You will need to observe that Trump’s transfer got here shortly after China and Nepal efficiently entered right into a contract throughout the framework of the Belt and Road Initiative on December 4, 2024. Just like the MCC contract, this step adopted a prolonged bout of negotiations since Nepal initially joined the BRI in 2017, attributable to Nepal’s issues over debt and geopolitical signaling. Among the many 10 recognized initiatives to be executed below “aid-assistance financing,” the centerpiece is a proposal to develop a first-of-its-kind 220kV cross-border electrical energy transmission line from Jilong through Kerung in China’s Tibetan Autonomous Area to Rasuwagadhi, Nepal. This plan follows Nepal’s completed development of its home Chillime-Trishuli transmission line. The road is designed to move electrical energy generated from its hydropower initiatives within the Trishuli River basin to the nationwide grid.
Taken collectively, the 2 traces are a part of the bigger proposed Kerung-Rasuwagadhi venture, which is able to facilitate Nepal’s electrical energy commerce with China sooner or later. Moreover, reports have surfaced that discussions are underway to construct one other electrical energy transmission line connecting Nepal’s Sankhuwasabha district to China, signaling deeper engagement within the electrical energy commerce community.
Sandwiched between two rising Asian giants, Nepal has prioritized growing its complete electrical energy era with an eye fixed towards exporting a few of that output. As outlined in its 16th five-year plan, Nepal goals to develop electrical era capability from 3,157 MW to 11,769 MW and export 5,500 MW of electrical energy yearly within the subsequent 5 years. With 90 percent of its electrical energy era coming from hydropower, Nepal possesses a technically possible potential capability of 83,000 MW and an economically viable capability of 42,000 MW.
This huge hydro-electric potential has gained newfound significance within the overseas coverage realms of its neighbors, strategically positioning Nepal on the middle of the evolving energy dynamics. Each India and China search to safe their vitality futures and assert their affect within the area. In the meantime, the US, by way of the MCC grant, has aimed to align Nepal with its broader Indo-Pacific technique to counter China.
Over time, China has intensified its affect in Nepal by way of each political and financial means, a improvement considered with concern by each the US and India. In Chinese language strategic discourse, Nepal is considered as a “essential hyperlink” for advancing its grand plans for regional connectivity and monetary largesse that would cut back Nepal’s a long time lengthy dependence on India, in addition to an integral element of China’s broader improvement technique in Tibet.
Over time China has efficiently managed to affect Nepal’s stance on the Tibetan challenge by way of securing its help and recognition of Beijing as the only reliable authority over Tibet. In that context, China venturing into cross-border electrical energy connectivity initiatives holds important strategic worth. These energy initiatives might speed up Tibet’s integration into regional commerce networks and foster stability by way of stimulating industrial development, facilitating the switch of experience, manpower, and supplies, and optimizing the utilization of native hydropower assets for cross-border electrical energy commerce. By deepening its engagement with Nepal, China just isn’t solely strengthening bilateral financial ties but in addition consolidating its broader strategic affect within the area whereas advancing its improvement objectives in Tibet.
China’s funding in world energy-related infrastructure is a key pillar of its abroad technique, accounting for almost 31 percent of its complete overseas investments. Experiences point out that its electrical energy transmission traces alone are valued at over $7 billion, with plans for extra growth below the a part of its “global energy interconnection initiative” in coming years. The renewed negotiations with Nepal sign China’s intent to regain momentum in electrical energy transmission infrastructure improvement, an space the place progress had beforehand stalled.
India, then again, has actively engaged with Nepal’s hydropower sector by way of establishing long-term energy commerce agreements and establishing a number of electricity transmission lines, together with the Dhalkebar-Muzaffarpur and Dhalkebar-Sitamarhi 400 kV electrical energy transmission traces, with plans for additional growth and completion within the upcoming years.
Additional, final 12 months, either side inaugurated one other three 132 kV cross-border transmission traces, together with the Raxaul-Parwanipur, Kataiya-Kusaha, and New Nautanwa-Mainhiya traces, and India agreed to purchase 10,000 MW of electrical energy from Nepal over the following 10 years. Moreover, each international locations entered a tripartite settlement with Bangladesh final 12 months, and Nepal efficiently exported 40MW of electrical energy to Bangladesh through India. India views the electrical energy commerce as a key element of its strategic relationship with Nepal, and the elevated export of electrical energy guarantees to strengthen ties between the 2 international locations.
Nevertheless, during the last decade the relationship between India and Nepal has remained fraught with political sensitivities. Tensions snowballed following Nepal’s 2015 constitutional amendments, alleged Indian help for ethnic protests towards the change, the unofficial blockade on the border that adopted, and India’s inauguration of a brand new highway within the disputed Kalapani area. All these developments, together with the rising nationalist rhetoric in Nepal, fueled anti-India sentiment, which has important repercussions in energy commerce dynamics.
Many Nepali specialists argue that Indian dam development initiatives in Nepal face deliberate delays, with Indian corporations stalling progress to keep up long-term management, particularly in border areas the place India is perceived as asserting claims over Nepali rivers and hydropower assets. Others contend that India’s stringent approval course of for Nepal’s energy exports, pushed by its strategic issues, has erected substantial boundaries. India has explicitly acknowledged that it’ll not buy electrical energy from initiatives involving any type of Chinese language funding. To implement this, India has demanded complete monetary disclosures from Nepali hydropower initiatives, together with particulars of funding sources and monetary establishments concerned. Moreover, India has made the annual renewal of export approvals obligatory, entangling the method in bureaucratic purple tape.
As at the moment there isn’t any different marketplace for promoting the excess electrical energy produced within the moist season, amid these procurement delays Nepal has witnessed occasional energy spillage. This example has induced frustration amongst Nepali officers and solid doubts concerning the long-term rationale of the electrical energy commerce with India. Such complexities reinforce the notion that Nepal’s hydropower sector is being formed by India’s strategic pursuits and managed by Delhi’s dictum reasonably than by Nepal’s financial priorities and broader improvement wants.
In opposition to this backdrop, the U.S. suspension of the MCC grant additional exacerbates these challenges, complicating Nepal’s electrical energy transmission initiatives and jeopardizing its general energy commerce ambitions. For China, the freeze presents a window of strategic alternative to develop its presence in Nepal’s electrical energy sector. Whereas the suspension is momentary, China could search to use anti-U.S. sentiment and Nepal’s notion of the US as an unreliable companion. The choice might additionally increase issues for India, which had tactically supported the MCC compact and was intricately concerned in its formulation to counter China’s escalating affect within the area.
With Trump’s support freeze and Nepal’s renewed engagement with China below the BRI, Nepal’s energy commerce and electrical energy networks stand at a crossroads. Whereas a cross-border electrical energy reference to China presents a chance to diversify its energy commerce and strengthen its bargaining energy, it additionally displays Nepal’s broader intent to claim geopolitical autonomy past India’s affect. That mentioned, the China-Nepal transmission line venture continues to be into account – and issues persist relating to debt sustainability, transparency, and China’s long-term strategic intentions below the BRI. It’s important for Nepal to fastidiously assess the implementation and the financing modalities of the venture to keep away from potential monetary entrapment.
Given the nation seeks to leverage its hydroelectric potential for financial development, Nepal’s energy commerce technique will proceed to be formed by the competing pursuits of the US, China, and India. Whether or not Nepal can efficiently navigate these geopolitical complexities to maximise its financial and strategic benefits, or whether or not exterior pressures will dictate its vitality future, stays an open query. These evolving energy dynamics counsel that Nepal’s position as a powerhouse in South Asia might be decided not simply by its useful resource endowments but in addition by its means to steadiness the aspirations of the highly effective regional and world actors whereas safeguarding its personal strategic pursuits.
