Nepal too has difficulty in accepting the MCC Compact
Posted on June 23rd, 2020

By P.K.Balachandran Courtesy NewsIn.Asia

In both Nepal and Sri Lanka the issue is safeguarding national sovereignty

Just as the Sri Lankan government is having difficulty in taking a decision on the US Millennium Challenge Corporation’s 500 million dollar transport and land registration compact, the Nepalese government is on the horns of a dilemma in regard to MCC-Nepal. In both countries, the issue is the preservation of national sovereignty and neutrality in foreign policy in the light of certain provisions of the MCC compact.

Both Sri Lanka and Nepal had initially shown a keen interest in the MCC because the envisaged projects are in the area of infrastructure development and because it is a grant and not a loan. But subsequently they dragged their feet due to political changes at home and abroad.

Interestingly, both in Sri Lanka and Nepal, opponents of the MCC compact are in the ruling party. Both countries had left the issue to be examined by a committee. While in the Sri Lankan case the committee is yet to submit its final report (though its unfavorable view is no secret), in the Nepalese case, the committee had suggested that the government should accept the MCC compact only if the unequal” clauses are done away with.

But unlike in Sri Lanka, the Nepalese government has already included some of the MCC projects is it’s plan and has already spent US$ 16.4 million on some of them, even before the US could move in the matter. The US is to wait until the compact is approved by the Nepalese parliament, a prospect which is getting less and less likely with the ruling party divided and demonstrations taking place on the streets.

The MCC-Nepal compact projects were to start in June 2020. If government does not formulate its policy and does not get parliamentary approval for it, the compact will not be proceeded with.


As per the existing understanding, but not yet sanctioned by parliament, the MCC compact will provide Nepal a grant of US$ 500 million, and Nepal will provide US$ 130 million. US$ 500 million will go to the energy sector and US$ 130 million will go to roads sector. The plan is to construct a 300 km 400 KV transmission lines with the additional aim of exporting power to India. The compact will also maintain 300 km roads. The compact will be run by the Millennium Challenge Account Nepal (MCA-Nepal) established by the Nepalese government. However, decisions will be made by the Washington-based MCC Board.

According to Nepalese commentators, the objectionable sections are the following: 7.1, which says that the MCC rules will prevail over the domestic laws of Nepal” and 5.1 (iii), which says that MCC funding cannot be used to violate US law or United States Government policy.”

It is also said that the MCC will get the upper hand over intellectual-property rights, procurement, payment of tax, liability or loss of its property, auditing and suspension of the project, among others. Moreover, Section 6.8 provides immunity for MCC staff in all courts and tribunals of Nepal.” Further, the Compact states that if the project is not finished in five years, the money will go back to the US treasury, and delays could scuttle the project. The MCC compact projects are to start in June 2020. It might be cancelled if it does not do so.

Geo-Political Aspect

Opponents inside and outside the ruling Nepal Communist Party (NCP) and Nepalese nationalists see a geo-political angle in the MCC compact. They suspect that the US is trying to use the compact primarily to counter China’s Belt and Road Initiative (BRI) in Nepal. In support of this they cite US documents linking the MCC with America’s Indo-Pacific Strategy (IPS) to contain in China, though the compact itself does not mention Indo-Pacific Strategy.” Critics cite a US State Department document titled A Free and Open Indo-Pacific: Advancing a Shared Vision” which recognizes the MCC and the Overseas Private Investment Corporation (OPIC) as economic pillars of the IPS.

According to reports, the US National Security Strategy (NSS) of 2017 states that the MCC will be used for executing diplomacy and assistance abroad. It claims that Chinese dominance is diminishing the sovereignty” of many countries in the Indo-Pacific region. The NSS envisages a strategic partnership with India and supporting it for a leadership role in the Indo-Pacific.

After the unofficial Indian economic blockade of Nepal in 2015, the Nepalese government has been trying to build road and rail connections with China and be a part of China’s BRI. In this context, Nepalese nationalists fear that the MCC will lead to Nepal’s veering from its traditional non-aligned” path. Some see the MCC agreement as a violation of the Constitution of Nepal’s Article 51 (m), which commits the country to non-alignment.

US Troops?

Nepalese nationalists fear that US troops will land in Nepal on the pretext of safeguarding MCC projects against a Chinese threat, though the compact prohibits spending the grant for any military purpose and the US Embassy in Kathmandu has refuted such rumors. But a former Nepal Army chief Dharmapal Thapa wrote on his Facebook page that MCC is but a stepping stone for US troops to be stationed in Nepal.

It is pointed out that several high-profile American officials had visited Nepal recently. Among them were the Indo-Pacific Commander Philip A Davidson, Deputy Assistant Secretary Joseph Felter, and Deputy Assistant Secretary of State for South Asia David J Ranz. The visits bolstered the view that the MCC is a US move to counter China’s Belt and Road Initiative in Nepal. In fact, Ranz admitted that to the Nepalese media.

It is recalled that the Mustang district in Nepal was used by the CIA to support the anti-Chinese Khampa rebellion in Tibet in the 1950s and early 1960s. Following the Sino-Indian border war in 1962, the US gave Nepal military aid to the tune of US$ 1.8 million in 1965-66. However, in 1974, the Nepalese government had to disarm the Khampa rebels at China’s insistence.

There is opposition from Nepalese nationalists to exporting power to India on the grounds that the earnings could make Nepal more economically dependent on India, than it is already. Many essential goods, including fuel, come to Nepal from India and millions of Nepalese work in India under an agreement which allows that. These migrants send back remittances which help sustain the Nepalese economy. However, when India imposes a blockade or applies a sanction, the Nepalese suffer, become anti-India, and turn to China for succor.

Internal Divisions

The Nepalese Prime Minister and Chairman of the ruling Nepal Communist Party Khadga Prasad Oli is for the MCC even as he is a full supporter China’s BRI. But the main decision making bodies of the NCP have turned against the MCC compact. A task force on MCC headed by former Prime Minister Jhala Nath Khanal suggested that parliament should not approve it until the US removes the unequal provisions. Agitations have been held against the MCC.

However, the opposition Nepali Congress, which is pro-India and anti-China, has demanded the early passage of the MCC bill, on the grounds that Nepal will lose the trust of international donors if it makes a fuss about MCC which is an outright grant for infrastructural development. Nepal would also be seen going back on its word, it is pointed out. Nepal inked the MCC accord in 2017 when the present Co-Chairman of the NCP, Pushpa Kamal Dahal ‘Prachanda’ was Prime Minister. But as NCP Co-Chairman now, Prachanda is opposing the MCC! (Courtesy: Daily Mirror)

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