After a long controversy, the MCC Nepal Compact comes into force

KATHMANDU: Following several years of controversy, the Millenium Challenge Corporation Nepal Compact –a $500 million US aid started its implementation on August 29. 

Exchanging the letter on the Entry into Force (EIF) of the Nepal Compact, Finance Minister Prakash Sharan Mahat and Millennium Challenge Corporation (MCC) Vice President of Compact Operations  Cameron Alford inaugurated the implementation amid a function at the premises of the Finance Ministry in Singhadurbar.

“The symbolic exchange of letters marked the official start of the five-year countdown to complete the $500 million compact,” states the release issued by the Department of State. 

The compact includes the construction of the Nepali portion of a 400kv interconnection with India that will increase the availability and reliability of electricity in Nepal and facilitate cross-border power trade.   

For the construction works, the MCC is funding $500 million while the Nepal government will be contributing $197 million.

“The milestone [of EIF] follows an agreement between the Government of Nepal and the MCC that substantial progress on project preparation has been achieved,” said Millenium Challenge Account-Nepal (MCA-Nepal), a special purpose vehicle established to implement the MCC Compact Programme, in a statement on Wednesday. “The EIF is an important milestone for MCC Compact as it marks the fulfilment of necessary conditions and preparation to ensure successful completion of the Compact projects within a five-year timeline.”

Addressing the function, US Ambassador to Nepal Dean Thompson termed the MCC-Nepal Compact as an exciting milestone in the 75-year-long friendship between the two countries.

“We are happy to mark this milestone to implement the Electricity Transmission Project—a designated National Pride Project—and the Road Maintenance Project, which will invest in Nepal’s strategic road network,” Finance Minister Mahat said at the event.

Earlier on September 14, 2017, the Nepal government and the MCC had signed the compact and the EIF of the MCC Compact was planned for June 30, 2020. However, there was a delay in the compact’s ratification by Nepal’s parliament for more than three years due to the controversy over whether it is part of the Indo-Pacific Strategy (IPS) and is above Nepal’s constitution.

After Parliament ratified the agreement in February 2022, the two sides agreed to start the project’s implementation in late August this year.