$500m US grant likely to enter Nepal from Sept 2019

Nepal will be able to utilise $500 million grant pledged by a US government agency beginning September 2019 if it is able to lay the necessary groundwork for release of the fund, a senior US official said today.

The Millennium Challenge Corporation (MCC), an independent US government agency working to reduce global poverty through economic development, had formally agreed to provide grant assistance of $500 million to Nepal last September. The grant assistance, which is the single biggest provided by a bilateral donor to Nepal, will be used to strengthen the country’s energy and transport network, which is crucial to attract domestic and foreign investment, stimulate economic growth and reduce poverty.

“The grant will be released on a quarterly basis beginning September 2019, if Nepali Parliament is able to ratify the agreement signed between Nepal government and MCC last September,” said a senior MCC official on condition of anonymity. Another important milestone that Nepal has to reach to tap the US fund is finalise the modality for construction of 400kV Nepal-India Butwal-Gorakhpur electricity transmission line, according to the official.

Nepal and India are currently scouting ways to build the cross-border transmission line, but have not reached a conclusion yet. Once the agreement is reached, the MCC will provide necessary fund to build the segment of the transmission line, which falls in Nepali territory.

“We hope the deal will be finalised soon, so that the (Nepal-US MCC) agreement could enter into force, paving the way for gradual release of the pledged grant,” said the official. The grant pledged by the US is a part of the $630-million ‘compact programme’ designed by the MCC for Nepal. Nepal has expressed commitment to contribute $130 million to the programme, which is the single largest up-front country contribution in MCC’s history.

Nepal will use the biggest chunk of grant, or $520 million, to build three power substations and 400kV transmission lines stretching 300 km from east to west of the country. Another $55 million will be used for maintenance and upgradation of 305-km road segments. The remaining amount will be used to monitor and evaluate performance of projects that are under implementation and cover administrative cost. These investments will benefit about 23 million people in Nepal, according to the MCC.

To implement the compact programme, the government, in April, endorsed an ‘order’ to establish the Millennium Challenge Account (MCA), the MCC programme implementing agency. “This is a significant progress,” said the MCC official, adding, “The MCA will not favour US contractors or consultants during the time of awarding contracts.”

The MCA comprises a board of directors headed by the finance secretary. It will comprise officials of the Ministry of Energy, the Ministry of Physical Infrastructure and Transport, Nepal Electricity Authority, MCA CEO and representatives of the private sector and the civil society. The MCA will also have a technical unit, which will comprise experts of different sectors related to the projects that will be rolled out.

“The MCA will prepare engineering design of the proposed transmission lines and conduct environmental impact assessments in coverage areas of the transmission lines. These works must be completed before the MCC agreement enters into force,” another MCC official said. The MCC follows environmental and social performance standards of the International Finance Corporation, a private sector arm of the World Bank, to manage environmental and social risks. The MCA will also oversee acquisition of land and right-of-way required for transmission lines, the official informed. “We expect considerable progress in this area by the time the MCC agreement enters into force.”

This is an ambitious target for Nepal, which takes years to acquire land for projects. “But with support from everyone, we know we can achieve these goals,” the MCC official said.

All projects under MCC must be completed within five years of enforcement of the agreement. Otherwise, the fund will go back to the US.

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