The Millennium Challenge Corporation (MCC), a bilateral United States foreign aid agency established by the U.S. Congress in 2004, has formally notified Congress of its intent to increase assistance for the Millennium Challenge Compact with the Government of Nepal. The proposed $50 million boost aims to address an anticipated funding gap in the Compact, which focuses on strengthening Nepal’s infrastructure and promoting sustainable economic development.
“The increase is necessary to support the Government of Nepal in overcoming an anticipated funding shortfall and ensure the achievement of Compact objectives,” stated a letter signed by Aysha House, MCC’s Vice President for Congressional and Public Affairs.
The $500 million Compact with the Government of Nepal was signed on September 14, 2017, and entered into force on August 30, 2023. It comprises two key projects.
The electricity transmission project will increase domestic electricity consumption by improving the availability and reliability of electricity in Nepal’s grid. It will expand and strengthen the country’s high-voltage electricity transmission network to support new investments in hydropower generation and facilitate increased power trade between India and Nepal. The road maintenance project will maintain the quality of Nepal’s primary road network.
MCA-Nepal, the Government of Nepal entity overseeing compact implementation, launched a procurement for the construction of transmission lines under the Transmission Lines Activity on November 28, 2022.
Recognizing the potential for increased costs due to significant global disruptions since the Compact’s signing in 2017, the Government of Nepal, MCA-Nepal, and MCC implemented mitigation measures, including internal compact reallocations and an increased contribution from the Government of Nepal to bolster funding availability for the Transmission Lines Activity.
However, the financial offers received by MCA-Nepal on September 5, 2023, significantly exceeded the available budget, necessitating the rejection of all bids. Subsequently, MCA-Nepal identified design changes and potential cost-saving measures for the re-procurement, which was launched in November.
The $50 million increase will be used to support the Government of Nepal in bridging a potential funding gap for the Transmission Line Activity and enable the achievement of Compact objectives.
“The addition of these proposed funds will enhance the Compact’s financial capacity to fulfill the intended scope of the Electricity Transmission Project. Specifically, it will facilitate timely contract signings by MCA-Nepal and maximize the remaining implementation period without further delays. The additional funds will also ensure adequate contingency reserves across the Compact to accommodate inevitable cost adjustments during construction,” stated the MCC report.
According to MCC, this additional funding underscores the collaborative nature of the partnership and strengthens the enabling environment for implementation. This demonstration of partnership is particularly significant, considering the Government of Nepal voluntarily increased its original $130 million country contribution by an additional $67 million in May 2023, for a total of $197 million, despite having no country contribution requirement for this initial compact.
“The additional funds will bolster MCC’s reputation and effectively demonstrate the United States’ commitment to development with our partners in this geopolitically complex region. In this context, providing even limited grant funding to secure the successful implementation of a high-return project will send a strong and visible message beyond Nepal,” stated the MCC report.
The amendment to the Compact will not take effect before January 2, 2025, following a mandatory congressional review period. MCC plans to publish the full text and justification for the amendment in the Federal Register and on its official website to ensure transparency.
Kishor Panthi
View More PostsKishor Panthi is the founder and editor-in-chief of Khasokhas and NepYork. He is the author of three books, “Kampan,” "UNTRANSLATABLE" and “Zero Mile.” He writes about social issues, immigration, and politics.
