KATHMANDU: The Millennium Challenge Corporation (MCC) Compact, signed six years ago between the Ministry of Finance and the US Government, has reached the crucial Entry into Force (EIF) phase, marking a significant milestone in its implementation.
The Millennium Challenge Account (MCA)-Nepal Development Committee is currently making preparations to announce the EIF date for the MCC soon.
Since the signing of the agreement, Nepal has successfully met almost all of the six prerequisites required for the implementation phase, except for the awaited land acquisition for the project.
Despite these accomplishments, the government is now facing an increase in economic responsibility for the initiatives and projects under the agreement.
Initially, the agreement stipulated that Nepal would receive 500 million USD in grants, while the government would bear 130 million USD, amounting to a total project cost of 630 million USD.
However, a recent ‘supplemental agreement’ signed in May-June has demanded an additional 67 million USD contribution from the government, raising its total contribution to 197 million USD, equivalent to Rs 900 million.
The announcement of the EIF date, amid unfulfilled preconditions, raises concerns regarding the implementation of projects under MCA-Nepal, the government agency responsible for co-funded projects with the US government.
One of the contributing factors to Nepal’s increased responsibility is the decision by the Council of Ministers to endorse the Finance Ministry’s proposal to revise the agreement and raise the government’s share for implementation.
This led to the signing of a supplemental agreement with the Nepal Electricity Authority (NEA) and the MCA-Nepal.
The additional budget of 67 million USD will be utilized for the construction of a section of the 400kV New Butwal-Gorakhpur Nepal-India Inter-country Transmission line and the capacity enhancement of three substations. The MCC Compact originally included this transmission line project with a cost of USD 630 million. The MCA-Nepal explained that the increase in cost is due to additional work and expanded scope.
Despite the progress made, the acquisition of land for the implementation of MCC Nepal Compact projects and the guarantee of land use rights within forest areas are still pending. The Compact mandates that the project implementing body complete the projects within five years of the EIF declaration, but doubts arise regarding timely completion due to prevailing challenges.
As the implementation date draws near, the government has allocated over Rs 10.8 billion for the current fiscal year 2023/24 to support the project, with a significant portion going towards the electricity transmission project.
In conclusion, the MCC Compact’s impending EIF and the increase in Nepal’s economic responsibility mark a crucial phase in the agreement’s journey, while unresolved land acquisition and other challenges cast shadows over the project’s timely implementation.