When generosity kills

Published On: September 10, 2019 01:30 AM NPT By: Bishal Thapa

Nepal’s young democracy requires Nepalis to demand more from themselves and their government instead of falling victim to the allure of progress that foreign aid promises 

The United States (US) has betrayed 75 years of its friendship with Nepal. Tragically, that moment of betrayal came in what should have been a cause for celebration.

In June, the government of Nepal tabled in Parliament the agreement it had signed with the US’s Millennium Challenge Corporation (MCC). The agreement was for a $630 million outlay—$500 million as a grant from the US and $130 million contribution from the government of Nepal for building 318 kilo-meters of high-voltage transmission lines, three large substations and maintenance of 300 kilometers of strategic roads. \

In August, the Millennium Challenge Account Nepal (MCA-Nepal), the agency established for implementing MCC’s investment, announced that it would commence work by June 2020.

How could the single largest grant to Nepal be a mark of betrayal? 
Foreign aid in Nepal is crowding out domestic change makers, undermining civil society engagement and financing the creation of a monopoly state. Though the issue is broader than aid from just one country, this story focuses on the generosity of the US. 

Crowding out civil society
One of the conditions for MCC’s grant was that Nepal establish Electricity Regulatory Commission (ERC). Nepal dutifully obliged. In August 2017, parliament approved the ERC Bill, which established an independent body to regulate the power sector.

Establishment of ERC was a basis on which MCA-Nepal reported that Nepal was making satisfactory progress toward fulfilling the conditions set out by MCC for project implementation. Technically MCA-Nepal’s report didn’t lie: the ERC Bill was passed, the institution established. But it blurred the truth and misrepresented the reality. 

Two years after the ERC Bill was passed, ERC continues to struggle. Every order it issues, every press conference it hosts, every initiative it launches, invariably ends with the ERC saying it doesn’t have adequate staff or resources to do anything quickly. Naturally, progress in the power sector is stalled.

Such unceremonious beginnings are not uncommon, especially for independent regulators. In Nepal’s case, donor agencies writing back to their capital will possibly disregard these as mere “teething problems.” 

But, the continuing struggles of ERC are more than just “teething problems.”

What MCA-Nepal should have examined is why there is no constituency rallying and lobbying for ERC. Why are there no visible civil society groups (eg, interest groups, think thanks, industry associations) that are actively lobbying for strengthening ERC? For everything else in Nepal, there is always a group ready to take to the streets, but the poor ERC appears to have no takers for its sloganeering.

Maybe no one is rallying for ERC because no one really wants it: not the government, not the national power utility (Nepal Electricity Authority (NEA)), not the private sector, not the consumers, nobody. 

It is too late now to ask whether the ERC is really required—it is already the law. But the point to note, a fact which MCA-Nepal may have blemished in its report, is that the ERC has no domestic support base. There never was or currently is any real demand for ERC in Nepal’s power sector.

Most Nepalis will say, “so what, the ERC Bill is a small price to pay for $500 million in free money?” Free but damaging. This is exactly the kind of generosity that kills the ability of Nepal’s civil society to create pressure, build change and influence the government. 

When Nancy Pelosi, the speaker of the US House of Representative, reviews progress on MCC, she will happily note a tick mark against ERC. Establishment of the ERC was an intended goal under the USAID funded Nepal Hydropower Development Program.

Donor financed regulatory changes, however appropriate they may be, crowds out civil society participation. There was never any meaningful dialogue about ERC. The absence of that dialogue doesn’t mean ERC wasn’t the right thing. But in that absence, Nepal’s civil society missed an opportunity to converge and build a true base for civil society participation in the sector. 

The MCC funding is also coming at a time when Nepal’s government is seizing greater control of the power sector, pushing out private sector participation and undermining markets. Who will be the force that pushes back against the government’s monopoly state? Clearly, not the MCC: They have just given the state $500 million to carry on. 

Nepal’s young democracy needs civil society participation that can organize, mobile and create its own sustainable forces of change. But with limited means, how will it compete against the power and influence of donor money? 

Absence of additionality
The tragedy of MCC’s investment in Nepal is that far more could have been achieved if Nepal had opted to build these transmission lines with money it raised on its own. 

There is no doubt that Nepal needs transmission lines, especially like the east-west high voltage lines that MCC’s investment will provide. But Nepal also urgently needs many other things: improvement in health, education, nutrition, airports, inland customs, the list is long. 

So, why a grant for transmission lines?
The proposed transmission lines are financially viable. 

NEA is now a strong entity. After several turnaround years, it is profitable and recently posted a 150 percent growth in profits over the last fiscal year. Load-shedding (blackouts) is over. Rural electrification is expanding at its fastest pace. Capacity additions are accelerating. NEA is organizationally more streamlined. It is adopting new technologies faster, meaningfully reducing losses and increasing efficiency. 

At the helm, NEA’s Managing Director, Kulman Ghising has acquired a rarefied status in public opinion—somewhere between God and a movie star.

Despite the legacy of losses, based on NEA track record, government’s commitment and the promise of the future, NEA would have been able to raise the investments for the transmission lines on its own. 

This would have been a perfect coming of age for NEA, a state-owned national power utility emerging confidently from decades under the shadow of political interference, corruption and patronage. 

Nepal’s power sector would have had a better future if NEA were able to raise funds for the transmission lines on its own. It would have made NEA more accountable and more responsive to its stakeholders. It would have accelerated corporate reforms within NEA. It would have enabled NEA to transition from a dictatorial monopoly to a responsive utility addressing the challenges of federalism and integrating emerging technologies.

If NEA had raised the investments needed for the transmission lines on its own and it was then liable for it, it would have needed everyone and everything to repay. This would have created room for public participation and enhanced accountability within NEA. 

With free money (though, technically NEA borrows from the government) what is there to lose? Why should the Energy Minister or NEA bother listening to anyone else when they have $500 million free and a transmission line they are building? There is no room for dissent, no room for advice and no room for civil society engagement.

The small window of opportunity for Nepalis to shape the future of their own power sector has been closed, bought out by the generosity of the “American People.” 

Perhaps MCC should pause to ask the people of Nepal, “what would you rather have: a future you can build or transmission lines built with free money.”


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