At the US State Department in Washington, DC, on September 14, 2017, Nepal signed a 500 million USD Compact with the Millennium Challenge Corporation (MCC), a US foreign assistance agency. Gyanendra Bahadur Karki, Nepal’s Finance Minister at the time, signed the Compact with MCC Acting CEO Jonathan Nash on behalf of Nepal.
Nepal’s prime minister at the time was Sher Bahadur Deuba.
The MCC Nepal Compact is a public document. Everything is outlined in the Compact itself, including goals and objectives, finance and resources, as well as who will implement the pact, how it will be done, who will invest, and how much the Nepal government will contribute. According to the Compact, each project’s goal is to “raise electricity consumption by facilitating power trade and enhancing the availability and stability of electricity supply in Nepal’s electricity system,” as well as “facilitating power trade.” “Maintaining road quality across the key road network” is another goal.
The program implementation agreement signed in September 2019 by Dr Yubaraj Khatiwada, Nepal’s Finance Minister at the time, and Anthony Welcher, Vice President of Compact Operations, clearly states that the MCC will provide up to $500 million in funding for the project, with the Nepal government contributing up to $130 million. It is a full grant from the United States, with no responsibility on Nepal’s part to repay it.
The Compact proposed forming an organization called MCA-Nepal to oversee the project.
As a result, the government established the Millennium Challenge Account (MCA) Nepal, an office charged with executing and overseeing MCC initiatives, by publishing a decision in the Nepal Gazette in April 2018.
Nepal has completed a number of the Compact’s core requirements. The Electricity Transmission Project has been designated as a National Pride Project in Nepal. The Implementation Agreement for the Project has been signed. The cross-border transmission line from Butwal, Nepal to Gorakhpur, India has been completed, thanks to an agreement with the Indian government. The process of acquiring land and clearing the forest is under underway.
According to MCA Nepal, the government of Nepal and MCC have spent a total of 5.3 billion rupees on the project to date. For the fiscal year 2021-22, the government set aside 9.1 billion rupees for MCA-Nepal, of which the government of Nepal will bear 1.0 billion rupees.
However, there is a snag in the MCC Nepal Compact initiatives. Program implementation, also known as the Entry into Force (EIF), was supposed to begin on June 30, 2020, according to the agreement. Following the expiration of the deadline, Nepal’s Finance Ministry wrote to the MCC office, citing Covid-19 as one of the reasons for Nepal’s failure to comply with the EIF. The US side is claimed to have agreed to fix a new EIF following parliamentary ratification, which has placed the MCC in limbo.
Since the administration of KP Sharma Oli registered the Compact for ratification at the Secretariat of Parliament on July 15, 2019, there have been substantial disagreements concerning the MCC grant assistance.
What went wrong?
The failure of Nepal’s parliament to ratify the MCC has put the project’s implementation on hold. But why was it necessary for the grant aid to be approved by parliament? This is not a clause of the MCC Nepal Compact or the Implementation Agreement. Could Nepal have avoided the requirement of parliamentary ratification?
“Perhaps,” said Semanta Dahal, a lawyer and researcher who has been following the debates and developments surrounding MCC, “but because Compact includes a provision that mentions Compact will prevail over Nepal’s laws in case of conflict, Nepal’s Ministry of Law may have recommended for parliamentary ratification.” “However, because MCC has expressly agreed that in various aid memoirs, the Compact does not prevail over Nepal’s Constitution,” he stated.
The comment ascribed to US Under Secretary of State David J Ranz, who said MCC was part of the US Indo-Pacific Strategy during his May 2019 visit to Nepal, fanned the issue.
The Compact is still awaiting parliamentary ratification four years after Nepal sought MCC’s funding for infrastructure projects and signed the Compact, and two years after the Nepal government signed the program implementation agreement. Is Prime Minister Deuba in a position to push it through?
Then media commentary on MCC began to relate it to the US’s Indo-Pacific Strategy. Through the MCC project, political groups, particularly those of a Maoist bent, began to raise the specter of US military intervention in Nepal. On February 2, 2020, the ruling NCP organized a committee to provide recommendations to the party on the MCC. On February 21, the committee gave its findings to KP Sharma Oli and Pushpa Kamal Dahal, recommending that certain elements be changed before parliament ratified it. Much has changed in Nepali politics since then, but not the divisions over MCC.
Shifting the blame
While interpretations and misinterpretations circulated on MCC, none of the Compact’s signatories came out with plausible explanations. “Nepali Congress, as the political party that signed the Compact, could have stepped in and clarified its position when the arguments were centered on MCC and a lot of disinformation was being circulated. “From 2015 to 2016, none of the actors who signed the Compact were seen to provide any credible and convincing explanations or defend the project,” said Krishna Gyawali, a former government secretary who served as the first National Coordinator of the Millennium Challenge Nepal (OMCN) from 2015 to 2016.
Since the agreement was submitted in the secretariat of parliament for approval in July 2019, the then-ruling Nepal Communist Party (NCP) has portrayed it as a victim of an internal conflict. While K P Oli has stated publicly that MCC should be endorsed, a faction of his own party’s officials has consistently rejected it.
Interestingly, some who oppose MCC do not want to give off that idea in public. During a street demonstration in February, NCP Chairman Pushpa Kamal Dahal was discovered to have prevented his party’s cadres from yelling anti-MCC Compact slogans.
The House speakers, first Krishna Bahadur Mahara and subsequently Agni Sapkota, were blamed by K P Oli.
Oli accused Speaker Agni Sapkota for prolonging the MCC process during an all-party meeting on April 18, 2021, and threatened to replace him if he did not provide the MCC agreement at the House meeting on April 20. The government prorogued the House session the next day, on April 19.
Oli’s remark was soon refuted by Dr Shekhar Koirala of the Nepali Congress. Before an interview with Nepal Live Today on April 24, he stated that the Congress and Oli had agreed to propose the MCC agreement in parliament on April 20. “However, on April 19, the House session was adjourned,” added Dr. Koirala. He had previously stated, “PM himself does not appear willing to push MCC.”
Is it true that Speaker Agni Sapkota stymied the MCC process?
The Speaker could not be reached for comment, but a source close to the Parliamentary Secretariat revealed something else. Oli has only mentioned MCC with the Speaker once, according to the source. “PM Oli brought up the subject, and the Speaker agreed to support it but requested that the PM establish a national consensus on it,” the source said. “Then Prime Minister Oli stated that national consensus could not be achieved, prompting the Speaker to request that at the very least, an accord be reached among the parties’ top leaders. That was also rejected by the PM, according to the source. “The Speaker then asked the Prime Minister to get it endorsed by the CPN-UML party secretariat. He didn’t even do that. The claim that the speaker got in the way is a total fabrication, according to the source.
The Compact can be ratified by a simple majority of the House of Representatives, with at least one-fourth of the total number of MPs present pursuant to quorum criteria set forth in Article 94 of the constitution. When one-fourth of the total number of members in the House is present, the House meeting can proceed to pass any resolution. The number of members present at the meeting is used to calculate the simple majority.
Technically, 68 members of the 272 MPs meet the quorum requirement. As a result, any House meeting with at least 68 members can discuss and ratify the Compact. Even those who claim to support the MCC’s ratification lack the necessary numbers. K P Oli’s faction commanded the support of 93 MPs. With 63 MPs, the Nepali Congress will be able to do it as well. Even if all 272 MPs in attendance and all other groups oppose the Compact, Congress and the KP Oli faction can ratify it together.
Since the Compact was registered for ratification, neither the Minister of Law nor the Minister of Finance—all of whom are Oli loyalists like Dr Yubaraj Khatiwada, Bishnu Paudel (finance ministers), Sher Bahadur Tamang, and Bhanu Bhakta Dhakal (law ministers)—have ever tabled it for debate or raised the issue in parliament.
Moral obligation for Nepali Congress
It is expected that Prime Minister Sher Bahadur Deuba will be able to complete the task this time. MCA Nepal is similarly upbeat. “Entry into Force (EIF) is contingent on ratification of the Nepal Compact, following which the five-year clock for project completion begins,” said Khadga Bahadur Bisht, Executive Director of MCA Nepal. “We are hopeful that the incoming government will prioritize this.”
The MCC Compact has come full circle, with Sher Bahadur Deuba becoming Prime Minister for the sixth time and Gyanendra Bahadur Karki, the person who signed the MCC Compact on behalf of Nepal in 2017, becoming the minister of Law, Justice, and Parliamentary Affairs in his government.
Those who professed to support MCC (such as the CPN-Oli UML’s group) are now in opposition, while those who rejected it, particularly the Maoist Center, are now a coalition partner of Nepali Congress, the only party that has given MCC unconditional support.
The question is whether Deuba will be able to pull it off. What will Congress’s response be? Many of the Congress members contacted for this investigation declined to comment, citing the delicate nature of the subject and their desire not to get drawn into controversy. Those that did expressed opposing viewpoints. “The Nepali Congress government is ethically obligated to get the Compact confirmed by parliament because it signed it,” said Bhimsen Das Pradhan, a Nepali Congress leader who served as Minister of Defense in Sher Bahadur Deuba’s cabinet in 2017. Pradhan has observed how some political parties advocated for or against the BRI, as well as how others supported or opposed the MCC. He said, “That wasn’t right.” “Both MCC and BRI would benefit Nepal greatly. We must assess if MCC and BRI are in the best interests of the United States.”
Pradhan feels that the topic should be brought before parliament as soon as possible for consideration. “Let the MPs debate MCC and express their opinions in parliament. Let’s look at the positive aspects and the negative aspects, if any exist. Let parliament pass the Compact if it believes it will benefit Nepal,” he added. “That’s all there is to it.”
Laxmi Pariyar, another Congress MP, appears to be in a similar situation. She is not opposed to the MCC being ratified, but she feels that “the flaws” must be addressed. “All members of Congress agree that the Compact should be ratified by revising the contentious provisions,” she stated.
She emphasized that the Nepali Congress is a party with a history and legacy of working for Nepali people, national interests, and sovereignty. “As a result, any measures that are detrimental to Nepal’s national interests must be amended. Congress, on the other hand, will and should proceed with the MCC.”
The MCC saga in Nepal reflects poorly on the political resolve of Nepal’s political parties to find a common ground for ratification in parliament. Their hypocrisy and double standards are also exposed.
From its preparation phase (in 2011) to negotiations for the Compact to implementation agreement, the MCC Compact has received broad support from all parties and governments. “None of the democratic parties has spoken out against the Compact and agreement,” Khadga Bahadur Bisht stated. He is, however, astonished by the ongoing debate on MCC and the lack of a conclusion. “The MCC debate has been unexpected, given that the compact was developed collaboratively by the two nations and was backed by all major Nepali political parties at the time,” he noted.
According to Bisht, harmful misinformation about the agreement by a few has resulted in widespread and inaccurate criticism of the carefully crafted legal clauses that are part of internationally approved treaty language. “When compared to television, online news sites, newspapers, and radio, the general public appears to rely more on social media for daily news. The open source structure of social media makes it impossible to regulate against such malpractice,” Bisht said. Social media has been considered as an untrustworthy source of information when compared to other mediums, and has even been known to promote falsified news.
So, what are the options? What steps should Congress take next? Krishna Gyawali provides an alternative. “For the Nepali Congress, MCC has become a moral obligation,” he continued, “but I don’t see Congress leaders viewing it that way.”
He cited “certain linguistic shortcomings” in the MCC compact and project implementation agreement (PIA) that “cannot be discarded completely just because some of them may be considered perceptual.” He contends that first and foremost, ambiguities must be resolved. “Perhaps we have interpreted the articles of the compact and agreement in a way that is radically different from what they actually mean in words and spirit. However, this should be discussed with MCC authorities to ensure that both parties are on the same page,” he stated.
According to Gyawali, there are inadequacies in the Compact’s text on issues such as the Compact’s predominance over domestic Nepali laws (Section 7.1), audit (Section 3.8), intellectual property rights (Section 3.2 (f)), termination, suspension, expiration, and survival (Sections 5.1-5.5), waiver and immunities (6.8), and procurement (Sections 5.1-5.5). (Section 3.6).
“Also, the oft-mentioned issue of IPS in relation to MCC should be resolved,” he continued.
The MCC Compact’s destiny currently rests entirely on the will and wisdom of the Nepali Congress, particularly Prime Minister Deuba.
According to Gyawali, the “inadequacies and apprehensions,” the majority of which are based on perceptions, must be handled in a mutually agreed manner. And Nepal can do so by producing a “explanatory note” on the contestation problems. The note will explain the contentious topics, and the government will send it to the American side for approval. “This will save the face of Nepali political actors who are preparing to fight for legislative ratification of the Compact. Then, based on this “explanatory note,” they can file a Sankalpa Prastav (resolution proposal) in parliament, which will open the road for the Compact to be ratified,” he stated.
“Otherwise, after all these years of arguments, suspicions, contestations, and misinformation, it could be very difficult for the parties to pass it in the current format,” he said.
The MCC saga in Nepal reflects poorly on the political resolve of Nepal’s political parties to find a common ground for ratification in parliament. It has also exposed their hypocrisy and double standards in the process.
Will the Nepali Congress be together in support of the MCC Compact today? Will the CPN-KP UML’s Oli group, which has portrayed itself as a supporter of MCC and portrayed its opponents, primarily politicians from other factions within the party and the Maoist Center, as MCC’s adversaries, remain steadfast? Or will they shift their stance now that they are no longer in government? What message will MCA, Nepal give to Nepal’s bilateral/multilateral donors and development partners if it finally rejects the Compact after all these years of homework and preparation?
After winning the confidence vote Sunday night, Sher Bahadur Deuba, who had previously pressured K P Oli to ratify the Compact, has emerged as a strong Prime Minister. 165 MPs voted for him, assuring his leadership and, more importantly, the continuation of the current parliament for another year and a half.
The MCC Compact’s destiny currently rests entirely on the will and wisdom of the Nepali Congress, particularly Prime Minister Deuba.