It was that notorious geezer Karl Marx who, in his oft quoted essay The Eighteenth Brumaire of Louis Napoleon, said history repeats itself, first as tragedy, second as farce. No where has this been truer than in Nepal over the last quarter of a century in the water and energy sector. The first was the tragedy of the Mahakali Treaty with India, ratified by the parliament in September 1996 with four strictures (‘sankalpa prastav’) and stuck in an impasse ever since. The second is the parliament’s farcical ratification of the US Millennium Challenge Corporation – Nepal Compact (MCC) on the last deadline day of February 2022 with a 12-point interpretive declaration (‘byakhyatmak tippani’). And as fate would have it, both happened with the same cast of characters: Sher Bahadur Deuba as prime minister and UML’s KP Oli in the opposition (with the additional farce this time around of Lefties Madhav Nepal and Prachanda in the government as well as in the opposition).

To understand how this happened, how Nepal’s incompetent leadership sleep-walked into such embarrassing deals, we need to revisit the background to both. Mahakali Treaty was India’s success in whitewashing its Tanakpur mess, a run-of-river hydropower project on the western border river Mahakali built unilaterally by India ignoring Nepal’s protests but later requiring Nepal’s acquiescence to tying up the dam’s left afflux bund to high ground in Nepal, thus gifting India 577 meters of Nepali land. It, however, split political parties, paralyzed different governments that attempted to wriggle out of political difficulties with pork barrel deals like the Pajero scandal, depleted India’s political capital with rancour in Nepal for generations to come – in short, it led to the wholesale tragic corruption of multi-party democracy and in no small measure the rise of Maoist insurgency and the public’s support for it. The treaty is in limbo, as good as dead (together with hydro diplomacy between the two countries and relations with potential international development partners thrown into the coffin as well). Things stipulated to be completed within six months after ratification have still not been done in all these twenty-five years. And neither the Indian nor the Nepali compromised leadership has the courage to revisit and revise it, even though the treaty itself stipulates that it shall be done “ten years or earlier”!

The decade-and-a-half road to MCC has been even murkier. This US government agency was born of America’s need, following the collapse of the Soviet empire, for a more overt strategy-oriented outfit that the older and more pluralistic development-oriented USAID as well as the World Bank could not meet. 9/11 accelerated the process of weaponizing foreign aid in particular and foreign assistance by US and its allies in general. The first exploratory mission of MCC came to Nepal following the regime change of 2006 effected by US outsourcing its Nepal policy to the Mughlanis with the EU’s armchair revolutionary diplomats and aid bureaucrats tagging along. Nepal’s political instability initially helped, but ultimately did not help. At first the Americans could get a distracted Nepali dispensation (which included half a dozen prime ministers and many more finance, foreign and energy ministers to say nothing of as many senior bureaucrats) to sign off on anything they proposed. Later – as the interpretive declaration drama in the parliament a few days back showed – the feckless leaders of Loktantra had no qualms backtracking as the rest of the country wised up to their decade-long stupidity.

And the backtracking was spectacular. The interpretive declaration – a one-sided explanation of what agreement clauses in black-and-white in the main bilaterally signed document mean that the other side is not bound to accept (as happened with the Mahakali strictures) – essentially says two things. First, in signing the compact, Nepali political figures are only now waking up to the fact that we should not have signed off on this or that clause, or not agreed to these wordings but replaced them with what is in our interpretive declaration. Second, what the compact says is not what we understand what it says. For instance, where it clearly says “the Parties understand that this Compact, upon entry into force, will prevail over the domestic laws of Nepal”, we understand it to actually mean “it will be governed by the domestic laws of Nepal”. A rather naughty wag even likened this verbal jugglery to our LSE-returned prime minister teaching Uncle Sam English! We will have to wait and see if Uncle Sam learns and accepts the interpretive declaration; but if it does, then unlike with the Indians and the Mahakali strictures, it will be interpreted as a major friendly gesture by the US – or a major climb-down depending on which side of the political fence the seeing is done from.

To add to the mess, it was Nepal’s aid- and revenue-addicted finance ministry (with poor understanding of development economics and an even more pathetic appreciation of political economy or foreign policy) that became the key interlocutor for the American MCC bureaucrats. Of late, again taking advantage of political instability, the finance ministry had started empire-building, setting up hydropower and power trade companies within itself bypassing the energy ministry and the NEA at the first sign of any prospective donor waving a carrot before it. As of now, there is no explanation why, together with these two legitimate electricity-related entities, the foreign ministry too was AWOL when it concerned export of Nepali electricity to India, a subject matter with over half a century of unresolved issues.

Because of their institutional blindness and failure to properly consult not just power sector officials but also academics and civil society leaders, MCC and Nepal’s finance ministry also failed to appreciate the fundamental problems bedeviling the power sector, which have been debated for decades within Nepal. On exporting electricity to India, which is the primary objective of this MCC project, a USAID study in 2003 clearly states that Nepal would get no more than six cents (actually it turned out to be 4 cents with recent agreements) from export when it would gain 86 cents in value addition if used within the Nepali economy. Nepalis are one of the lowest per capita electricity consumers at approximately 230 kWh/cap with India’s consumption four times higher. This report thus makes a fundamental theoretical mockery of the MCC claim that it would contribute to poverty alleviation in Nepal. (We in the development sector know very well the bad blood existing between MCC on one side and USAID with World Bank plus other Bretton Woods outfits on the other, and for good reasons: MCC debases and securitizes development per se undercutting the albeit questionable professional efforts of the Bretton Wooders!)

Moreover, MCC, in bypassing NEA which is the legitimate Nepali transmission line building authority and creating a new outfit in the name of efficiency (absolute iron-clad, completion in five years deadline which critics have derided as a pie-in-the-sky claim), has badly damaged the equity aspects of development. NEA has built its 400 kV transmission line at Rs 40 million per kilometer while MCC is planning to do that at four times that going rate, much the same as happened with the World Bank with the late but not lamented Arun-3. It also consigned to the dustbin a 2016 World Bank-funded master plan for NEA’s transmission line development which does not include the transmission line that MCC proposes but correctly tries to upgrade the 132 kV existing grid to a 400 kV one along the Tarai and particular basin corridors!

MCC, with its super power political pressure, has also badly distorted the 12-Point Delhi Deal inspired 2006 “democracy” and the politics of major parties, exposing the two-faced sleaze within them. When MCC’s strategic implications, that of Nepal having to give up its non-alignment and array itself with the US’s attempt to encircle China and Russia, began to dawn on leaders of the Left persuasion, they balked at ratifying it. The speaker of parliament who resisted its tabling was Me-Too-ed and removed (he was subsequently cleared of the charge of rape, it turning out to be mere adultery between two consenting adults). When the current speaker (no saint with a murder case against him pending in the court) balked, he too was threatened with impeachment and more.

Kangress has never discussed policy, not even in its recent convention, deferring that instead to an uncertain future date; but it paradoxically chose to single-mindedly pursue MCC even though it was never part of the common minimum program this current coalition was based on. Prachanda and Oli are having a difficult time convincing their cadres of their duplicitous behaviour during the voting. And the parliamentary fast-track voting itself was rushed through, not allowing any debate on the contentious clauses indicated in the interpretive declaration. It was exactly how the last budget was passed, indeed how the 2015 constitution itself was passed. The sleaze even spread to the Supreme Court that intervened directly to have Deuba appointed PM, as if for the sole purpose of having MCC passed, even though his party does not command enough votes to table a motion in parliament.

So, what is the future for MCC? Paradoxically, with its murky parliamentary passage it has become legal but politically illegitimate. China has begun speaking out against it (why would it not, given MCC’s Indo-Pacific anti-China orientation?), “noting” its passage as India had done with the 2015 constitution it did not like and imposed a blockade to stop its implementation. Chinese social media has gone much further, saying Nepal sold its sovereignty for $500 million. India never intended to build the mammoth Pancheshwar project under the Mahakali Treaty (especially after Uttarakhand was carved out from Uttar Pradesh): the strictures passed with the treaty can be ignored. But the Americans are in a fix with the MCC: they cannot obviously accept a one-sided interpretation, but they cannot ignore it either since it has been passed by Nepal’s sovereign parliament. How will they navigate the shoals of implementation fueled by the gales of illegitimacy and public anger? But the bigger question they have to answer will be: is this how you promote democracy abroad?