On Sunday night, hours after Nepal’s Parliament ratified the Millennium Challenge Corporation (MCC), Himesh Dhungel, vice president of Tetra Tech, a global consulting and engineering firm, called it a momentous occasion. Dhungel’s appreciation of the compact ratification stems from his professional association with the US compact. Dhungel is the first country head of the MCC Nepal Programme, serving from October 2015 to December 2017. After Nepal signed the MCC Nepal Compact in September 2017, Dhungel returned to the US.

Under the MCC compact, a-315km double circuit 400kV transmission line will be constructed. Five segments of transmission lines to be built are—New Butwal-India Border (18km), New Butwal-New Damauli (90km), New Damauli-Ratmate (90km), Ratmate-New Hetauda (58km), and Ratmate-Lapsephedi (59km).

Once completed, these infrastructures are expected to provide a vital missing link for power projects of different river basins to the existing high-voltage grid in Nepal. Under the US grant, 305 kilometres of road would be improved.

Dhungel, who lives in Washington, DC, was in Kathmandu to visit his parents when political parties were haggling over MCC ratification. After weeks of confusion, the US grant got through the House on Sunday and now it will soon be on the implementation path. Dhungel spoke to the Post’s Prithvi Man Shrestha on the MCC, disputes surrounding it, and the way forward.

The interview has been condensed for clarity.

How have you taken this whole saga of the MCC compact in Nepal?

Until the MCC compact agreement was signed in 2017, all sides supported this programme. What happened thereafter is quite surprising that it ran into controversy. The MCC programme was designed through a consultative process. After leaving the MCC, I kept myself busy with my work. After visiting Nepal about a month ago, I learned about the controversy and curiously observed what is happening regarding the MCC compact. Irrespective of the dispute, Nepal’s Parliament has passed it, which is good.

The Parliament has ratified the compact. What challenges do you see hereon?

There are now manageable challenges ahead. The MCC had prepared the budget for the compact implementation in 2017. So, it has been nearly five years since the budget was prepared. The MCC should now also analyse the budget because of the long gap since 2017 and examine whether the earmarked amount would be adequate to accomplish the tasks regarding the implementation of the selected projects.

The Nepali government should prepare the schedule of implementation very carefully because the five-year clock for implementation of the selected projects starts very soon. We all know about the continued slow progress in project implementation in Nepal. So, while preparing the schedule, this trend should be considered. Due to the delay in parliamentary ratification of the MCC compact, four and a half years have been wasted and the momentum has been lost and while restarting it, there is a possibility of a slow start.

Why is the MCC Compact so important for Nepal?

The MCC compact is designed to address two binding constraints to Nepal's economic growth: inadequate electricity supply and poor road transportation infrastructure. Investment in infrastructure and policy and institutional environment will increase net economic benefit to businesses and households.

Imagine how much the Nepali economy and environment could benefit if the transport sector was electrified—electric cars, buses, and two-wheelers. Electric mobility is the future—it could significantly reduce Nepal's oil import bill—which is currently estimated to be around $2 billion a year, reduce air pollution, and even address the current crunch in foreign reserves.

What are Nepal's losses due to the delay in ratification of the MCC compact?

If the project had started as per the initial plans, at least half or two-thirds of the work could have been completed by now. With early completion of the construction of the power lines and road improvements, Nepal could have reaped the economic benefits. Nepal lost the opportunity cost. The opportunity cost is the foregone benefit that would have been derived from the completion of the planned projects.

Nepal also faces the cost escalation of the projects due to delays in their implementation.

Issues like whether the MCC compact breaches Nepal’s sovereignty and whether it is part of the Indo-Pacific Strategy of the US government threw the US grant into controversy. You had headed the MCC Nepal operations at the time of signing of the agreement. Did these issues feature during the discussions?

No such issues were raised during the negotiations. Whatever issues were required to be negotiated, all of them were addressed at that time. If the Nepali side had raised any concerns at that time, they could have been negotiated and settled accordingly. There is actually nothing new in the “interpretative declaration” endorsed by the Nepali Parliament. They have written some points in Nepali, which have been already written in the MCC compact agreement.

What could have led to the ‘politicisation’ of this issue?

I don’t follow Nepali politics [much] and I may not be able to provide an answer to this question to your satisfaction. Looking from far away, I can observe that people are running after rumours. I am not sure about the motive behind rumour-mongering. I think many people are making statements or giving their views without studying the compact agreement. They say there is a provision that undermines Nepal’s national interest but no such thing has been written in the MCC compact agreement.

Those spreading rumours that the US army would come to Nepal after the MCC compact is implemented should first read the Millennium Challenge Act-2003. It has clearly stated that the MCC funding shall never be used for military or security purposes. Investing in military or security purposes means violating the law. Even in the compact agreement, a provision bars using the fund under the MCC for military purposes.

Questions were also raised about the need for parliamentary ratification. Why was such a provision made?

The MCC compact is a five-year programme. So, there is a tight schedule. The budget must be used up within the timeframe, or else the fund that’s unspent should be returned. Contradictory laws of Nepal could have hindered the implementation of projects under the MCC compact. So, parliamentary ratification would mean it would get the status of a law, thereby helping implement the projects in a time-bound manner.

Nepal’s track record in the implementation of large infrastructure projects is abysmal. If the budget is not spent within five years, the remaining budget of the MCC compact, as you mentioned, should be returned. How can Nepal ensure that it utilises all the MCC funds within five years?

This is why I suggest that adequate and proper homework is required while preparing the work schedule. One of the biggest challenges is addressing the land acquisition issue. In many projects in Nepal, the land acquisition process takes more time than the actual project implementation period. Fortunately, the Nepali government should not worry much about acquiring land for substations of transmission lines because except in Ratmate, other substations will be built on the lands owned by the Nepal Electricity Authority.

Adequate budget has also been allocated to settle the livelihood issues of the people affected by MCC projects. The budget for livelihood issues has been set aside by also considering the potential obstructions from the people whose lands fall under the transmission lines. As settling the issue of land acquisition is a time-consuming process, potential hurdles must be properly examined before setting a date for the agreement’s entry into force.

It is better to complete the land acquisition process before the compact’s entry into force begins. If not, the government should at least ensure that such issues would not hinder the implementation of the projects. Keeping the date of entry into force a little late does not affect the implementation of the projects, as it would be better to avoid any hurdles mid-way, which could lead Nepal to return the unspent budget.