The Ministry of Finance has initiated the process of establishing Millennium Challenge Account (MCA), an agency that will implement projects using the $500-million grant provided by the US government to strengthen the country’s energy and transport infrastructure.

As the first step towards establishment of the body, the ministry has prepared the draft of the formation order of MCA and forwarded it to the Ministry of Law, Justice and Parliamentary Affairs for approval, according to Baikuntha Aryal, head of the International Economic Cooperation Coordination Division at the Finance Ministry.

Once the draft of the formation order is approved by the Law Ministry it will be forwarded to the Cabinet for approval. “This will pave the way for establishment of MCA,” said Aryal. MCA is being formed as per the provision in the Development Committee Act.

MCA will coordinate with various government bodies to implement projects selected jointly by the government of Nepal and the Millennium Challenge Corporation (MCC), an independent US government agency working to reduce global poverty through economic development. The government and the MCC signed a $500-million grant agreement in the US in September, to help Nepal build robust energy and transport network, which will enable the country to attract more domestic and foreign investment, foster economic growth and reduce the incidence of poverty.

The agreement was signed by Finance Minister Gyanendra Bahadur Karki and Acting MCC CEO Jonathan Nash at the US State Department in Washington, DC.

This is the single biggest grant being provided by a single development partner to Nepal.

The grant is part of the $630-million “compact programme” designed by the MCC for Nepal.

To implement the programme, the Nepal government has expressed commitment to contribute $130 million, which is the single largest up-front country contribution in MCC’s history.

The MCC board of directors had selected Nepal for its compact programme in December 2014. Nepal was selected for the MCC programme “in recognition of the country’s efforts to establish rule of law and democratic institutions, and its strong performance on MCC’s policy scorecard”.

Since then, the MCC has agreed to support two broad projects in Nepal: the Electricity Transmission Project and the Road Maintenance Project, as energy shortage and inferior transport network are two binding constraints for Nepal’s rapid economic growth.

Of the investment being made in Nepal, a bulk, or $520 million, will go towards development of 300 km of 400kV transmission lines from eastern to western parts of the country and three power substations.

Another $55 million will be used to maintain 305 km of road segments. The remaining amount will be used for activities like monitoring and evaluation of projects being implemented, hiring of procurement and fiscal agents, and covering other administrative expenses.