U.S. Foreign Aid Agency Releases Updated Financial Plan After Increasing Nepal’s Funding to $550 Million

Photo by Alejandro Barba

U.S. Foreign Aid Agency, The Millennium Challenge Corporation (MCC), has published a new notice in the Federal Register correcting errors in the notice of the first amendment to the compact with Nepal.

The updated notice clarifies the budget details, including the total MCC funding at $550 million and including Nepal’s contribution of $197 million, bringing the overall budget for the compact to $747 million in the corrected Multi-Year Financial Plan Summary table with complete details.

The initial notice, published on January 2, 2025, only mentioned a budget of approximately $500 million. The revised notice corrects this by adding an extra $50 million in MCC funding, along with the Nepalese government’s contribution of $197 million. This amendment follows the MCC Board of Directors’ approval to increase funding for Nepal’s compact to $550 million from $500 million.

The additional $50 million in funding will be allocated to the Electricity Transmission Project under the compact. According to the MCC, this funding will help cover the rising costs of the project and ensure its successful implementation. The amendment was deemed necessary due to delays between the compact’s signing in September 2017 and its implementation in August 2023, as well as inflationary pressures caused by the COVID-19 pandemic, which increased project costs. Moreover, procurement for the transmission line construction did not begin until September 2023, leading to bids that exceeded original cost estimates and necessitating a re-tendering process.

Corrected Table Published on January 29, 2025

MCC officials explained that the additional funding will help address cost overruns and enable the timely completion of procurement processes. The funds will also ensure adequate contingencies for necessary operational adjustments during construction. Despite increased costs, MCC stated that the economic rate of return for the electricity transmission project remains above 10%, reaffirming its viability and effectiveness.

The amendment to the MCC compact was agreed upon by the U.S. government and Nepal’s Ministry of Finance. It officially revises the budget allocation under Article 2.1 of the compact agreement, increasing the MCC grant to $525,977,559.41. The amendment also updates the multi-year financial plan to reflect these changes.

Prior to this amendment, MCC had officially notified the U.S. Congress of its intent to increase funding for Nepal’s compact to bridge the financial gap and ensure successful implementation of its objectives. In a letter signed by MCC’s Vice President for Congressional and Public Affairs, it was stated that additional resources were required to complete key infrastructure projects and promote sustainable economic growth in Nepal.

Originally signed in 2017, Nepal’s MCC compact had a budget of $500 million, primarily focused on electricity transmission and road maintenance projects. These initiatives are expected to strengthen Nepal’s power grid, enhance hydropower utilization, and improve the quality of major road networks. The compact officially entered into force on August 30, 2023, but rising costs necessitated the additional funding.

The extra $50 million will specifically support transmission line activities, as the procurement process in 2023 revealed costs exceeding available funding, requiring a re-bidding process. MCC officials stated that this additional funding will help secure agreements in a timely manner, adjust to cost fluctuations during construction, and ultimately reinforce the U.S.-Nepal partnership.

Although low-income countries are not required to provide financial contributions to MCC compacts, Nepal voluntarily increased its contribution from $130 million to $197 million in 2023. MCC emphasized that this financial boost sends a strong positive signal, highlighting Nepal’s commitment to high-return projects and the United States’ development vision in the region.

With the new amendment, the total MCC funding for Nepal now stands at $550 million, while Nepal’s government contribution brings the overall budget to $747 million. This financial enhancement is expected to ensure the compact’s successful completion and long-term benefits for Nepal’s infrastructure and energy sectors.