The Millennium Challenge Corporation (MCC) assistance from the United States appears to have originated in response to the UN General Assembly's declaration of Millennium Development Goals (MDG) in the year 2000 with targets to combat poverty, hunger, disease, illiteracy and environmental degradation, and work for gender equality and emphasis on human rights, infrastructure development and improvement in living standards. There was also an emphasis on development partnership with aid from developed countries to achieve the goals in the developing countries.

After the conclusion in 2015, MDG was succeeded by the Sustainable Development Goals. I recall representing Nepal at the UN International Conference 2002 on Development Finance in Monterrey, Mexico which brought together heads of the UN, World Bank, International Monetary Fund, World Trade Organisation and over 50 heads of state/government and 200 ministers. Addressing the conference, US President George Bush made commitment to raise US development assistance by 50 percent with an additional $5 billion annually through millennium challenge accounts (MCA). Subsequently the MCC was established by the US Congress in 2004 as a foreign aid agency for bipartisan aid to promote economic growth and poverty reduction and strengthen institutions. As of September 2017, MCC had partnered with 46 countries around the world including Nepal.

The threshold phase of MCC was approved for Nepal in 2011 at the government’s request which was followed up by a diagnostic study that concluded energy and transport sectors as binding constraints for higher economic growth for which large scale compact assistance was required. In 2014, MCC approved supporting the compact programme with a grant between $300 and $700 million. The Compact agreement was signed in September 2017 with the allocation of$500 million MCC grant and $130 million domestic counterpart for the identified energy and road development projects.

The energy component comprises a 400 kV power transmission line extending from Kathmandu to the west and south, and a cross-border transmission line from Butwal to Gorakhpur, India. The transportation project includes repair and upgradation of certain portions of the east-west highway. Each successive government and political party has been involved in seeking MCC assistance. But the compact agreement is yet to be ratified by Parliament as required by every compact aid receiving country, despite Nepal’s prior commitment to ratify it by September 2019. The obstruction stems from various false criticisms based on political prejudice, confusion and misinterpretation of the compact agreement.

False criticisms

Critics consider that the MCC project compromises national sovereignty by misinterpreting the project agreement with the assumption that US laws will prevail over Nepali laws, and calling MCC part of the US Indo-Pacific Strategy with military alliance. This argument that MCC undermines national sovereignty is totally false, as the agreement is related to a purely development assistance project and its implementation without any intervention in state authority. There is no military component or any strategic alliance as part of MCC. There is no need at all for the country to be a member of the Indo-Pacific Strategy.

The critics tie the MCC with the IPS, pointing out a comment reportedly made by David Ranz, an acting deputy assistant secretary of USA state department for South Asia, during his visit to Nepal in 2019 indicating the US grant under MCC; as part of IPS. As there is no connection between MCC and the Indo Pacific strategy, it is incorrect to conflate the MCC assistance to promote economic growth and poverty alleviation as being the same as the economic wellbeing component of the IPS. The compact agreement prohibits the use of grant aid for security training, military-related activities and affecting environment and maternity. The critics also consider MCC as a counterweight to China's Belt and Road Initiative. But MCC agreement does not comprise of any element opposed to any particular nation, including China. China's closest neighbour Mongolia has also benefitted from MCC Compact assistance.

It must be understood that Nepal's Ministry of Law has given clearance to the agreement, as MCC guidelines, not necessarily US laws, apply with respect to MCC assistance; and only to prevail in case of contradiction with local regulations, as applicable in all recipient countries.

The procurement and manpower appointment for the project are based on open competitive bidding to ensure greater efficiency and timely project completion. With respect to assistance projects from other development partners like the World Bank and the Asian Development Bank, procurement and other implementation guidelines are defined which do not often conform to domestic regulations. The MCC procurement guideline is uniquely favourable compared to most other bilateral grant assistance where procurement is limited to the donor country.

There are other false criticisms in relation to the need for Indian approval for a project component, project management by the Millennium Challenge Account (MCA) audit authority and intellectual property right about the project, ownership and control of the power transmission line and land, and other issues. The objection to the need for Indian approval is not justified. Indian support is needed only for the use of 120 km of Indian territory to install the cross-border transmission line from Butwal to Gorakhpur.

There is also confusion about MCA Nepal that is responsible for the project management. Critics interpret it as being under MCC management without any control of the Nepal government. The agreement has clearly stated the government's principal responsibility for overseeing and management of the programme. To that end, the government has formed MCA Nepal under the Bikas Samiti Act, with a board of directors chaired by the finance secretary and members comprised of officials from other relevant ministries and national institutions.

Critics consider the intellectual property right of the project as being monopolised by MCC. But Nepal has the intellectual property right relating to project implementation based on project monitoring of the design, procurement, construction and other related issues. There is no need to give intellectual property rights to MCC on the use of $130 million contributed by Nepal. At the same time, there is no restriction to Nepal in providing the right concerning the use of the compact grant.

Parliamentary ratification

There is also confusion about the audit authority. Nepal's auditor general has the right to periodically audit the funds contributed by the Nepal government and the MCC grant. In addition, the government can also permit auditing on the use of MCC grant to be conducted by an independent auditor approved by MCC and named on the list of local auditors approved by the Auditor General or a US certified accounting firm selected in accordance with MCC guidelines. The critics also think MCC has control over the transmission lines and the land on which they stand for an indefinite period, which is untrue. These assets are under government ownership and control during project implementation and afterwards.

While the agreement contains a provision permitting either side to withdraw from the project by giving 30 days' notice, critics think the withdrawal right is limited to the MCC side only. There is also an allegation of diplomatic immunity to MCC staff. The reality is that diplomatic immunity covers MCC senior officials located in the US Embassy with respect to acts in an official capacity, but not non-diplomatic officials recruited for the execution of the project.

The MCC compact assistance represents purely an economic development project of Nepal to accelerate economic growth and reduce poverty. The project will increase the supply of electricity and lower transportation costs thereby promoting higher investment, employment opportunities, revenue and economic growth. In the country's pure economic interest, there is a need to avoid further unnecessary delays for parliamentary ratification of the agreement. The compact agreement was signed in 2017 by a coalition government led by the Nepali Congress with Nepal Communist Party-Maoist partnership, which was almost like the present government. Therefore, there is an expectation of parliamentary ratification of the agreement soon, as the opposition CPN-UML is also supportive of the agreement. There is no aspect in the compact agreement that undermines our constitution, foreign policy, autonomy or national interest. Given the criticisms against the agreement based on prejudice, confusion and misinterpretation, clarification can be sought from the relevant authorities on any aspect.