The proposed $500 million grant under the American Millennium Challenge Corporation (MCC) compact is close to its day of reckoning. As per the agreement, the compact will have to come into force after June 30. But the Nepali parliament is yet to endorse it owing to the differences in the ruling Nepal Communist Party (NCP).

For a long time, Prime Minister KP Oli has been trying to convince senior party leaders Pushpa Kamal Dahal, Jhala Nath Khanal, Madhav Kumar Nepal, and Bhim Rawal on the need for its parliamentary approval. He hasn’t succeeded.

Finance Minister Yubaraj Khatiwada faced considerable heat from within his own party after he incorporated the MCC grant in the new budget before its parliamentary endorsement. Responding to lawmakers’ criticisms, Khatiwada said: “If we cancel the compact, it will affect our bilateral relation with America, as well as the larger climate of international assistance to Nepal.”

With divisions in the NCP running deep, the ruling party formed an intra-party panel to study the compact and make recommendations. The panel recommended that the MCC compact be adopted only after making changes. The prime minister is not in a position to flatly reject the recommendation of a panel set up by his own party’s central committee.

If Dahal, Khanal and Nepal do not support it, the chances of the compact’s endorsement are slim. “The MCC compact cannot move ahead without an agreement in the party. The PM should act as per party directives and decisions,” senior leader Khanal, who was also a member of the panel, had told media persons on June 9.

PM Oli fears that if the compact is forcefully tabled in parliament, the move could backfire, as many party lawmakers have threatened to vote against it. Likewise, in the nine-member NCP Secretariat, KP Oli is in a minatory, and a hard line on the compact could further alienate him. Oli had called a Secretariat meeting on June 9 to build consensus on the compact but it had to be cancelled at the last minute. Now, Oli is talking to top party leaders on individual basis to forge a consensus.

Dreaded September

Inside the party, Dahal’s role on the MCC is crucial. Of late, he has not spoken much on the MCC debate but he is of the view that the compact should not be passed without extensive discussions in the party. Speaker of lower federal House Agni Sapkota, who is close to Dahal, is also in favor of consensus in the party before it is tabled in the parliament. A leader close to Oli says the prime minister made a mistake by agreeing to form an intra-party panel on the compact.

Meanwhile, the June 30 deadline is fast approaching. There could be further discussions, but it is beyond the jurisdictions of MCC Nepal office to say what will happen after that. If the current deadline is missed, the two sides could set another deadline. But if the issue drags on beyond September-October, when the fiscal year of the US government ends, there could be a problem. If the compact is not endorsed before that, the American government could divert the money elsewhere.

The Millennium Challenge Account Nepal (MCA-Nepal), however, is still hopeful the current parliamentary session will endorse it. “There is still some time before the June 30 deadline so it would be too early to speak on what will happen if the deadline is missed,” says Khadga Bahadur Bisht, Executive Director of MCA-Nepal. Bisht hopes the compact will be a top government priority following parliamentary endorsement of the budget and the new Nepali map.

According to those in the know, the main concern right now is not the deadline but parliamentary endorsement. Prime Minister Oli has been assuring the Americans that the work will be done in the current parliament session. “If there is a guarantee that the current session will endorse the compact, we can discuss deadline extension. Similarly, some points of the agreement can be clarified in line with the suggestions of ruling party lawmakers,” says another MCA-Nepal source requesting anonymity.

According to the source, the Covid-19 pandemic could be used as an excuse to extend the June 30 deadline. But for this, “there has to be a prior agreement between the two sides”.

Say it’s different

The ruling party leaders who oppose the compact fear it is a part of the Indo-Pacific Strategy. Similarly, they say some provisions in the pact place it above the Nepali law. Projects under the compact do not follow Nepal’s public procurement act, they allege.

Some senior American officials have said that the MCC is a part of the IPS, which in turn created suspicion that America was trying to drag Nepal into a ‘military alliance’. But there have also been statements refuting the MCC’s links to the strategy. A few weeks ago, Alice G. Wells, Acting Assistant Secretary of State, Bureau of South and Central Asian Affairs, had said that the MCC, established in 2004, has no relation to President Donald Trump’s vision of an open and free Indo-Pacific.

The American Embassy in Kathmandu refused to comment on the looming deadline. In an email communication, the embassy says, “We understand that the Government of Nepal is discussing ratification of the MCC Compact.  To respect the processes of the government of Nepal, we have no comment at this time. The US looks forward to the Government of Nepal ratifying the compact as signed, so that critical electricity and road infrastructure assets can be built for the benefit of the people of Nepal.

Along with a powerful NCP faction, 10 other fringe communist parties are also warning the government not to endorse the MCC compact for the same reason. They think endorsement would compromise Nepali sovereignty and violate Nepal’s non-alignment policy.

There are also media reports of the Chinese advising the Oli government against endorsing the compact, as it could drive a wedge in the ruling party and further weaken Oli. In public, China has maintained that it is completely up to the sovereign government of Nepal to decide.