Delhi’s foreign policy mandarins could not conceal their glee when, inÂ a tweet on 13 November, Nepalâ€™s Deputy Prime Minister and Energy Minister Kamal Thapa announced the scrapping of the US$2.5 billion deal with Chinaâ€™s Gezhouba Group to build Budhi Gandaki Hydro Electric Project. The proposed project planned to build a large water storage dam on Budhi Gandaki River in the central-western part of Nepal. On 4 June 2017, the former government under CPN (Maoist Center) Chairman Pushpa Kamal Dahal alias Prachanda had signed the MoU with China to build this Dam within Chinaâ€™s Belt and Road Initiative. The move was not entirely unexpected because Nepali Congress leaders had questioned the deal ever since its leader Sher Bahadur Deuba took over as Prime Minister on grounds that the project had been allegedly awarded without a competitive bidding process.
Few days after Nepalâ€™s decision, Pakistan also unexpectedly decided to renege on the MoU it had signed with China to build US$14 Billion Diamer-Bhasha Dam in Pakistan Administered Kashmir because of difficult financing condition. Both these decisions have created some question marks over the Chinaâ€™s financing strategy within its Belt and Road Initiative. That may have added to the happiness in Delhi, but all this was clearly short-lived.
Now that Prime Minister Sher Bahadur Deubaâ€™s Nepali Congress has received its worst electoral drubbing ever in a parliamentary election, the country’s ruling dispensation is not just turning left but perhaps towards China. India’s ministry of external affairs has ‘welcomed’ the election results and ‘promised’ to work ‘with the new government,â€™ but the talk in Delhi is that the Leftist victory in Nepal is bad news for India. They may have good reasons to feel that way.
In a complete pre-election surprise in October, Nepalâ€™s two largest and ever-warring Communist parties came together to form a Left Alliance. Indian agencies, active in Nepal and not averse to meddling to tweak poll outcomes their way, say the Chinese played a major role in getting the Communists to form the alliance. Some see it as a Chinese revenge for the defeat of Mahinda Rajapaksa’s party in Sri Lanka. Rajapaksa, seen as strongly pro-China, had alleged that India’s external intelligence R&AW played a major role in his defeat by bringing together Sirisena and Wickremesinghe. Not that the change of guard in Colombo has undermined Chinese presence in the island nation — Sri Lanka is handing over the China-built Hambantota port to Beijing.Â But the delight over Rajapaksa’s defeat in Delhi was not very concealed. Now the sense of defeat in Nepal is similarly preponderant.
All Nepali Congress stalwarts have been defeated, except Prime Minister Deuba — Minister for Information and Communications Mohan Basnet, former Finance Ministers Ram Sharan Mahat and Mahesh Acharya, former Home Ministers Bimalendra Nidhi and Krishna Situala, former Foreign Minister Prakash Sharan Mahat and a party heavyweight and a member of the illustrious Koirala family, Shekhar Koirala, have all lost.
K P Sharma Oli, chairman of the Communist Party of Nepal-United Marxist Leninist (CPN-UML) is taking over as Prime Minister — a man seen in Delhi as hostile to India and close to China. Nepal has been getting a new prime minister every nine months or so, but Oli looks set to be in office for at least two years, if not full five years. Nepalâ€™s new constitution stipulates that a no-confidence motion cannot be moved against a new head of government for two years. And unlike all other recent governments, which were dependent on a host of parties to stay in power, Oliâ€™s will rest on a resounding majority of the Left Alliance. The last majority government was in office in 1999.
It remains to be seen how the Oli-Prachanda combine handle relations with India and China. When New Delhi imposed an undeclared border blockade against Nepal in 2015 and 2016, Oli signed watershed trade and transit framework agreements with China. For the first time, Nepal could now import its oil from China and use Chinese roads, railways and ports for third-country trade. Though neither of the agreements has translated in substantial gains on the ground yet, the move strongly buttressed Oliâ€™s nationalist credentials. “Here was a prime minister who was adept at deft diplomacy when the nation so needed,” said a Europe-based commentator Ashok Swain.
Under Oli, cooperation with China on infrastructure development will further deepen but the Left government is also expected to reach out to New Delhi to speed up such projects as Postal Road, Pancheshwar and Arun 3.
Political stability may finally encourage Chinese President Xi Jinping to consider a visit to Nepal, his first, while Indian Prime MinisterÂ Narendra ModiÂ will be keen to start afresh after a dip in the warming relationship following the border blockade. Handling these two most important relationships and safeguarding Nepalâ€™s national interest will be his major foreign policy challenge.
Now that Oli and the Left Alliance have a comfortable majority, it will be interesting to see how they handle the contentious issue of Constitution amendment that the Madhes-based parties are demanding. The amendment, among others, is aimed at giving the Madhesi /minority population greater political representation. It is perhaps not lost on Oli that all the top leaders of Madhes-based parties — Upendra Yadav, Mahanta Thakur, Anil Jha and Rajendra Mahato — have been elected and his all-conquering Left Alliance has very fared poorly in Province 2, with a dominant Madhesi population.
But again, the ghosts of Sri Lanka may return to haunt Delhi, as the Oli-Prachanda combine has declared before the polls that the Budhi Gandaki project may be renegotiated with the Chinese. In 2015, Sri Lanka had decided to withdraw from Colombo port deal with China done during the Rajpakse regime, but now the Sirisena government has reversed that decision after China agreed to change the terms of the agreement.
Some in Indian media had speculated that Deuba’s decision to scrap the Budhi Gandaki deal was influenced by India and the contractÂ might go to Indiaâ€™s National Hydroelectric Power Corporation (NHPC) instead. That has not been the case yet and Nepal is floating the idea to raise funds from its own sources to finance this project. However, now that Oli-Prachanda combine is back in power, the project may be handed back to Chinaâ€™s Gezhouba Group.
But Delhi should not over react if that happens.Â Nepal is home to eight of the ten highest mountain peaks in the world and the source of origin of three major rivers, the Kosi, Gandaki and Karnali, which are main tributaries of the Ganga River system. But its huge hydropower potential has hardly been utilised — it produces only 753 MW of electricity from its hydel resources. Ninety percent of countryâ€™s power supply comes from its dams. When the 1200 MW Budhi Gandaki project is ready, it would be Nepalâ€™s largest hydropower project. Having emerged from a decade long bitter civil war, the hilly country needs a majorÂ push in development. The World Bank estimates that Nepal needs to invest 3% of its GDP annually on its connectivity. Nepal has good reasons to look forward to BRI-driven Chinese investment to improve its infrastructure. China is already the dominant investor in Nepal — it total foreign direct investment in Nepalâ€™s has risen from USD 653 million in 2016 to a whopping USD 291.9 million. China intends to build several large dams in Nepal. Its Three Gorges Corporation has also got the contract to build 750 MW West Seti Dam.
Post-conflict Nepal has good reasons to look to its hydropower potential to meet its own energy demand and to be able sell surplus power to its energy starved neighbors. After the World Bank decided to withdraw its promised support to Nepalâ€™s Arun III Dam in 1995, the country has not been able to build a large dam since then. Besides, Arun III, Budhi Gandaki and West Seti, Nepal aims to build several large hydropower projects. Indiaâ€™s GMR has received the contract to build Upper Karnali Dam while SJVN Ltd to build the Arun III. But despite Prime Minister Narendra Modiâ€™s promise in 2015, Indian companies have not been able to start work on these projects until now. No neighbour, however historically and civilisationally linked, can afford to stomach the ‘chalta-hai approach’ of Indian companies and its meddling bureaucracy.
“Nepal lacks the capital and technology required to build large dams, which are critical for the poor mountainous country to industrialize and develop. The perceived unfair treatment in its past water agreements with India and the failure of Indian companies to undertake recently planned dam projects on timely manner have pushed Nepal to explore Chinese finance and collaboration to develop its water resources for the last ten years,” says commentator Ashok Swain.
Indiaâ€™s unofficial economic blockade of Nepal after the Himalayan stateâ€™s promulgation of the new constitution on 20 September 2015, created unprecedented energy crisis in the country and the growing anger against India ignited Nepalâ€™s desire for further closer ties with China. However, Indiaâ€™s opposition to Chinaâ€™s increasing influence in its perceived area of influence has made it difficult for Chinese companies to successfully build any large dam project in Nepal, as it can be seen in the uncertainties concerning Budhi Gandaki project.
The construction of large dam projects and for that matter the overall economic development of Nepal have become hostage to the power rivalry between India and China. In spite of its overt and covert opposition, India has not been successful in resisting or even delaying immensely cash-rich Chinaâ€™s increasing economic influence in Nepal. So, it is time for India to see in the right perspective Nepal’s priority to develop its economy and strengthen its political institutions. A developed democratic Nepal is more likely to choose India as a role model and not China, though it may maintain even distance between the two neighbours. It will be a smart move for India to cooperate with China in helping Nepal to harness its huge hydropower resource and develop its economy.
Large hydropower dams in Nepal not only will provide India the possibility to buy surplus cheaper and cleaner energy, it will also help to control devastating floods in the Indo-Gangetic Plain and increasing air pollution in northern India. Moreover, Indiaâ€™s cooperation with China in Nepal might also pave the way for a comprehensive shared water development framework in the Ganges-Brahmaputra basin. That will hugely benefit downstream nations like Bangladesh.
It is time for the mandarins in New Delhi to get over the ‘zero-sum’ approach and react to Chinese gains as India’s losses. Smaller countries like Nepal, Bhutan, Bangladesh or Myanmar will always seek to work with both neighbours as big as China and India — they cannot afford to overlook any. In private, every pro-Indian leader like Sheikh Hasina or Sri Lanka’s Sirisena or Myanmar Aung San Suu Kyi will tell you that.
India has to acknowledge that ground reality and start playing ball with China on Nepal. That could produce an unexpected dividend — weaken the aggresive PLA driven defence lobby in Beijing which seeks confrontation with India on the Himalayan heights and strengthen the business-economy driven development lobby led by Prime Minister Li Keqiang to produce a quick time final settlement on the disputed border. Nothing would serve India’s national interest better.
India needs to think in long-term and big.