As the deadline to begin implementation of projects identified for funding under the Millennium Challenge Corporation (MCC) nears, questions are being raised about what will happen to the $500 million US assistance, the largest grant Nepal has ever received at one time.

The deadline for implementation of the projects is June 30 and the ruling Nepal Communist Party (NCP) remains divided over ratifying the MCC Nepal compact through Parliament. A crucial Standing Committee meeting of the ruling party, scheduled for Wednesday, is expected to come to a conclusion on the MCC, even as the United States stands ready to clarify any confusion should the Nepal government ask, the Post has learned.

According to Surya Thapa, Prime Minister KP Sharma Oli’s press adviser, the communist party’s two chairs—Oli and Pushpa Kamal Dahal—will first meet on Tuesday and then call a Standing Committee for Wednesday.

“The two chairs will discuss the agenda, determine whom to speak to, the length of the Standing Committee meet, and a possible outcome,” said Thapa.

Oli, who has stood firm in his desire to ratify the MCC, will be asking Dahal to clarify his position, as the MCC pact was signed in 2017 during the tenure of a coalition government of the Nepali Congress and the then Maoist party led by Dahal, said Thapa.

Dahal’s position on the MCC is that the pact should only be passed after amendments to some clauses.

The government and the MCC, an aid agency under the US government, had set the June 30 deadline through an exchange of letters with a view that the MCC compact, a large, five-year grant for countries that pass the MCC’s eligibility criteria, would be endorsed by the Nepali Parliament in September last year.

But, the issue has become politically charged, as a section of leaders from the ruling Nepal Communist Party strongly oppose the MCC, arguing that it is part of the US-led Indo-Pacific Strategy aimed at ‘containing China’. Some have also taken exception to a clause in the MCC agreement that says the compact will prevail over existing Nepali laws.

Earlier in January, the US Embassy in Kathmandu had come up with a 10-point clarification on the MCC and urged interested parties to read the full text of the agreement.

As of now, no request has been made by the Nepal government seeking clarification over the ruling party’s concerns. Party leaders who are in favour of the MCC say that problematic clauses could be taken up with the United States and amended accordingly.

Party spokesperson Narayan Kaji Shrestha believes that there is still room for amendment if the government takes up the matter with the US.

“I wonder why the government has not asked the US government about the possibility of amendment despite such a huge controversy,” Shrestha, who is also a party Secretariat member, told the Post. “We can amend some articles of the agreement if we are able to convince the Americans. The timeline for ratification can thus be duly extended.”

In the ruling party’s nine-member Secretariat, Oli, Ishwar Pokhrel and Bishnu Poudel believe that the MCC should be approved while three others—Dahal, Shrestha and Ram Bahadur Thapa—believe that it should only be approved after amendment. Jhala Nath Khanal, Madhav Nepal and Bamdev Gautam believe that the MCC should not be approved at all.

US officials, however, have clearly said that while they are ready to provide clarifications regarding any confusion, the MCC pact cannot be amended, according to diplomatic sources.

Officials at the US Embassy in Kathmandu told the Post that the US stands ready to clarify whether the MCC is part of the Indo-Pacific Strategy, whether Nepal’s laws will prevail, and the issue of intellectual property rights.

Following the controversy, the ruling party had formed a three-member task force led by Khanal with Bhim Rawal and Pradeep Gyawali as members, to study all aspects of the deal and submit a report. The panel said in its report that some clauses were problematic and required amendment. Gyawali, who is foreign minister in the Oli administration, had written a note of dissent over the report’s recommendations.

Bishnu Rijal, deputy chief of the ruling party’s Foreign Affairs Department, told the Post that some party leaders are formally and informally in communication with the Americans and it is their impression that the US is ready to issue another clarification if necessary.

“If that happens, then a lot of tension will be diffused but I don’t know why it is not happening,” Rijal told the Post. “The US is ready to clarify some controversial points and if we come to an agreement, a separate letter of exchange can be signed between the two countries.”

The Oli government had promised to get the Nepal compact endorsed by Parliament in September last year by sending a letter to the MCC in mid-2019 but that has not happened. With the June 30 deadline approaching, officials at the Millenium Challenge Account, the Nepal office of the MCC, are concerned.

“As one of the key pre-conditions—parliamentary approval—has not been achieved yet, there is now a question over the entry-into-force date determined by the two sides,” said Khadga Bahadur Bisht, member-secretary at the Millennium Challenge Account. “I am hopeful that the parliament will approve the aid programme and the government and the MCC will reach an agreement regarding the date of entry-into-force before the current deadline is over.”

There is no clarity as to what will happen once the June 30 deadline lapses. Nepal has already put in around Rs670 million of its own resources to implement the MCC compact, according to the Millenium Challenge Account.

Officials at the Finance Ministry are worried that the US could lose patience with Nepal if a decision is not made soon.

“Their recent delegations have suggested that they could pull out from Nepal instead of amending the agreement,” said a Finance Ministry official on condition of anonymity because he is not authorised to speak to the media. “The template of the agreement signed by other countries is not much different from what Nepal has signed and I doubt if they will be ready to offer separate provisions for Nepal.”

While the MCC has yet to be passed, the government has included two 400KV transmission line projects—Lapsiphedi-Ratmate-Hetauda and Lapsiphedi-Ratmate-Damauli, both of which are MCC-supported, in its policies and programmes for the next fiscal year.

In response, party leaders Khanal and Rawal, who are vocal against the MCC, wrote a six-page joint letter to Oli on May 17 asking for “proper discussions” on the matter within the party.

Responding to the concerns raised by lawmakers, Oli said on May 19 that the government had already tabled the compact in Parliament and that it is now up to lawmakers to take a call.

“This government didn’t sign the agreement, but it carries the legacy of preceding governments,” Oli had said in Parliament. “Our diplomacy will come under question if the MCC is not implemented.”

The compact was tabled at the federal parliament in July last year but it has yet to be discussed among parliamentarians. The compact needs to be endorsed by both the House of Representatives and the National Assembly for it to come into effect.

The government has allocated over Rs9 billion under the heading of ‘Millenium Challenge Account, Nepal’ for the fiscal year 2020-21. According to the ‘source book’ published by the Finance Ministry, the government has allocated Rs9.1 billion for ‘Projects Financed with Foreign Assistance’. Of this amount, Rs5.72 billion will be borne by the MCC while Rs3.37 billion will be borne by the Nepal government.

As per the agreement signed between the two sides in September 2017, the United States has agreed to provide $500 million in grants while Nepal would put in $130 million of its own for projects that prioritise energy and roadways.