The Cabinet on Tuesday passed an order facilitating the establishment of an entity to oversee the implementation of US government-funded projects worth $630 million. 

The decision will allow the Finance Ministry to establish Millennium Challenge Account (MCA) Nepal that will execute schemes with a $500 million grant provided by the Millennium Challenge Corporation (MCC), an independent US government agency working to reduce global poverty through economic development.

The $500 million grant is part of the $630 million ‘compact programme’ designed by the MCC to strengthen the country’s energy and transport infrastructure. The Nepal government will contribute the remaining $130 million. 

The compact fund will be used to build robust energy and transport networks which will enable the country to attract more domestic and foreign investment, foster economic growth and reduce the incidence of poverty.

Following the Cabinet decision, the government has moved a step closer to enforcing the grant agreement signed between the MCC and the Nepal government in September 2017. The incorporation of MCA Nepal is one of the conditions for enforcing the agreement. 

After the Cabinet decision is published in the Nepal Gazette, the existing Office of Millennium Challenge Nepal (OMCN) will be converted to MCA Nepal, according to Tulasi Prasad Sitaula, national coordinator of OMCN. 

“Subsequently, the board of directors of MCA Nepal chaired by the finance secretary will be given full shape by inducting six members,” said Sitaula.

“One joint secretary each from the Energy Ministry and the Physical Infrastructure and Transport Ministry, managing director of the Nepal Electricity Authority, one representative each from the private sector and civil society, and the CEO of the MCA will be made members of the board.” The board will then recruit a staff of 62 persons to operate the office. 

A preparation fund of $40 million will be released immediately out of the $500 million to set up the office and hire staff while the rest will be released once the agreement enters into force. The grant agreement will come into force once the government fulfills the preconditions put forth by the MCC while signing the agreement. 

Getting the Indian government’s consent over the financial terms for the construction of the 400 kV New Butwal Gorakhpur Cross-Border Transmission Line Project, which is being developed under the compact programme, is one of the preconditions set by the MCC. 

Likewise, the government needs to ensure that land acquisition, site access and forest clearance for the projects being developed under the compact fund are done in a timely manner for the agreement to come into force. 

The MCC board of directors 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 shortages and inferior transport network are two binding constraints for Nepal’s rapid economic growth.

The bulk of the investment being made in Nepal, or $520 million, will be spent on the development of 300 km of the 400 kV transmission line extending from the eastern 

to the western part of the country and three power substations. 

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