Controversy Around $500Mn MCC grant to Nepal

Contact Counsellor

Last Updated01/03/2022

Nepal’s House of Representatives has ratified 500 million US Dollar grant assistance-Millennium Challenge Corporation (MCC) pact along with the “interpretative declaration”.

2004: MCC was founded as a US foreign aid agency that acts in accordance with governments that have demonstrated a commitment to good governance, economic freedom, and citizen investment.
Vision: an organisation that would follow Paris Declaration on Aid Effectiveness’ key principles.
MCC works with countries that have been identified as being eligible for assistance to develop programmes that are based on MCC’s purpose of decreasing poverty via economic growth.
Results framework: based on fourth and fifth principles of Paris Declaration, Results and Mutual Accountability.
Provides framework for applying agency’s rigorous methods for projecting, tracking, and evaluating the effects of its programmes.
MCC uses this framework to address basic questions about aid effectiveness.

Compact and threshold programmes are the two types of programmes in which MCC invests.
Compacts: large, five-year grants implemented by accountable entity established by each partner nation.
Thresholds: smaller funds focusing on policy and institutional transformation in selected countries implemented by MCC.

MCC’s partnership with Nepal began in 2011, when Nepal requested assistance.
Nepal was granted smaller threshold grant, and later in 2014, for a larger compact.
September 2017 : MCC-Nepal compact was signed, with US committing $500 million and Nepal committing $130 million.
Nepal is expected to generate electricity infrastructure with 400kVA transmission lines through MCC project
It will be used to distribute power both domestically and to India.
MCC’s implementation could boost Nepalese economy by increasing employment possibilities and increasing per capita income.

If agreement is not passed by Parliament, power producers are likely to lose Rs. 142 billion every year.
As a result, Nepal PM trying to get it passed in Parliament as soon as possible, even if it means splitting coalition government.
If he fails to get it through Parliament, there is a possible risk of losing his international credibility.

MCC agreement has created political divide in Nepal.
Compact has been criticised in Nepal as endangering country’s sovereignty, integrity, and constitutional autonomy.
There are claims that it supersedes national charter and shall prevail over Nepal’s domestic laws.
MCC’s inclusion in Indo-Pacific Strategy (IPS) is considered problematic for Nepal, as majority of country’s political class views US strategy as anti-China.

Few claim that electricity generated by MCC will be only for export to India and will not be for local public.
As a result, it will not benefit local economy directly.
Nepal’s hydroelectric generation potential is huge, with over 6,000 large and small rivers.
However, through a series of barrages and dams, India has control over majority of Nepal’s major rivers.
Nationalists in Himalayan country have strongly objected to this.
Nepal, where India is still perceived as meddling big brother, its goal of strengthening India’s military capabilities through this agreement to counter China’s was questioned.