A Cabinet meeting held on Thursday endorsed the Ministry of Finance’s proposal to accept a grant of $500 million from the US government to build robust energy and transport infrastructure in the country. 

With this, the government has achieved one of the key milestones in bagging the biggest grant in the country’s history from a single donor.

The grant assistance is part of the $630-million investment agreement that the government is signing with the Millennium Challenge Corporation (MCC), an independent US government agency working to reduce global poverty through economic development. Of the total investment amount, $130 million will come from the Nepal government.

Nepal and the MCC are expected to formally sign the investment agreement in September. But before that the proposal needs to be endorsed by the MCC board of directors and the US Congress. 

“Once the deal is signed, the Nepal government will have to finalise all issues related to land acquisition, introduce regulatory reforms, including passage of the Electricity Regulatory Commission, and take other key steps that will be required to complete the projects in five-year period,” Fatema Z Sumar, MCC’s regional deputy vice president for Europe, Asia, the Pacific and Latin America, told journalists during her recent visit to Nepal.

Under the MCC programme, all projects must be completed exactly after five years of their implementation date. If not, the funds will go back to the US.

The MCC board of directors selected Nepal for its “compact programme” in December 2014. Nepal was selected for the MCC programme because of the progress made by the country in upholding democratic rights, rule of law and economic freedom, and controlling corruption. Since Nepal’s selection, the government and the MCC have been scouting projects that can provide highest economic rate of return and reduce the incidence of poverty in Nepal.

After conducting a thorough study, the MCC had agreed to support two broad projects in Nepal: the Electricity Transmission Project and the Road Maintenance Project.

Of the investment being made in Nepal, a bulk, or $520 million, will go towards development of 300 km of 400kV transmission lines from eastern to western parts of the country and three power substations. Most of the proposed transmission lines traverse hilly terrain, starting from close to the Kathmandu Valley and moving to the west and then southwest to the Indian border. Another $55 million will be used to maintain 305 km of road segments; the remaining amount will be used for activities like monitoring and evaluation of projects being implemented, hiring of procurement and fiscal agents, and covering other administrative expenses.

The project related to the energy sector is expected to have an impact on at least 72 percent of the households currently connected to the grid, while maintenance works on around 300 km of road segments will benefit 205,000 households across the country, according to the MCC.