Controversy Around $500Mn MCC grant to Nepal

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Controversy Around $500Mn MCC grant to Nepal

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

What is Millenium Challenge Corporation?

  • 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.

Investments made by MCC

  • 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.

The background of the project

  • 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.

Issues with the project

  • 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.

America vs China: Objections around MCC

  • 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.

India’s role in the ongoing political crisis in Nepal

  • 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.