Mahesh Ganguly and Raza Siddiqui
On the day he returned to the U.S. presidency, Donald Trump issued an executive order freezing foreign aid for 90 days. Among the many projects impacted was a $500 million grant that was intended to develop critical infrastructure in Nepal. This funding, provided through the Millennium Challenge Corporation (MCC), a U.S. governmental agency, aimed to enhance Nepal’s electricity transmission capacity, including a 200-mile 400kV transmission line facilitating power trade with India. The freeze not only raises questions about the future of U.S. engagement in Nepal but also alters the strategic calculus in a region where China and India are vying for influence.
The government of Nepal originally signed the MCC compact in 2017. However, domestic political hiccups, divided opinions among Nepali politicians, and persistent Chinese efforts to dissuade Nepal from accepting the grant delayed its ratification by five years. The Parliament of Nepal finally approved it in 2022 after much controversy.
In August 2024, the Millennium Challenge Account in Nepal signed a deal with India to initiate the construction of three high-capacity substations at Damauli, Ratmate, and New Butwal, along with a transmission line connecting New Butwal to the Nepal-India border. Nepal, which generates almost all of its electricity from hydropower, is subject to seasonal variations in its electricity supply. These transmission line projects aim to enhance imports of electricity during the dry season and exports in the wet season to bolster its energy security with a stable and reliable electricity supply.