MCC projects reach entry into force phase

The Millennium Challenge Corporation (MCC) Compact that was signed between the Ministry of Finance and the US Government around six years ago has reached the entry into force (EIF) phase.

According to the Millennium Challenge Account (MCA)-Nepal Development Committee, preparations are on to announce the date for EIF regarding the MCC soon. The Compact was endorsed by the federal parliament along with a 12-point descriptive note in February last year.

Initially, it was agreed that $500m shall be provided in grants to Nepal, while the government shall bear $130m, expecting the total cost of the MCC project to remain at $630m. But the ‘supplemental agreement’ over the MCC that was signed in last May-June, demands that the government bear additional $67m, seeking its total contribution of $197m.

Nepal was supposed to take up the 20.63 percent economic responsibility for the MCC project and now it has risen to 28.26 percent. The increased responsibility amount is equivalent to Rs 900m. The preparations for the announcement of EIF date without meeting all the preconditions is another concern regarding the implementation of projects.

The acquisition of land for the implementation of MCC Nepal Compact projects, as well as the guarantee of the land use rights within forest areas is still incomplete. The Compact mandates the project implementing body, MCA-Nepal, to complete the projects within five years of the declaration of EIF. But there are doubts the projects will complete on time. 

This article primarily highlights the factors contributing to the increase in the cost of Compact implementation and sheds light on the reasons behind the decision to proceed with the EIF without fulfilling all the prerequisites. 

On May 23, the government decided to endorse the Finance Ministry’s proposal to revise the agreement between Nepal and the MCC and increase the government’s contribution to the projects. On the basis of the decision, Nepal Electricity Authority (NEA) and the MCA-Nepal on May 30 signed the ‘supplemental agreement’. 

The MCA-Neal has issued a public statement stating that the government has decided to include additional endeavors included in the electricity transmission projects under the MCC Compact at the request of the NEA. The statement further mentions that the additional budget of $67m required to implement these additional endeavors will be managed from the major budget of the Compact. In the event of the full utilization of the allocated budget, the insufficient funds will be borne by the NEA.

The additional budget required for the implementation of the Compact is to be considered as the government's contribution, and it will be adjusted in the relevant schedule of the Compact. Road and electricity projects are the areas of priorities for Nepal as identified by the MCC Compact signed on 14 Sept 2017. As per the statement, the cost amount of $67m which has been recently added will be spent for the construction of the section of the 400kV New Butwal-Gorakhpur Nepal-India Inter-country transmission line toward the Nepal side and for increasing the capacity of three substations.

This transmission line project is in the construction phase. However, it is not clear why the additional budget for the construction of the transmission line from New Butwal Substation to the India border is already mentioned before in the MCC Compact. The Schedule-1 (B) (1) of the MCC Compact states that the transmission line project will be constructed under MCA-Nepal.

It is mentioned in the Compact that around 300 kilometers of double circuit 400 kV transmission line would be constructed within Nepal. The Compact states that the transmission line would be constructed on five different routes—from Lapsiphedi of Kathmandu up to Ratamaate, from Ratamate to Hetauda, from Ratamate to Damauli, from Damauli to Butwal and from Butwal to the India border. This means that the plan of constructing the transmission line from Butwal to the India border for which the added cost has been managed is included in the existing cost of $630m.

When the RSS approached the MCA-Nepal for its comment regarding allocation of additional budget for the construction of the transmission line on this route, officials stated that the amount added in the MCC Nepal Compact programme would be merged with the Electricity Transmission Project budget, and it would be used for increasing the capacity of three substations by installing extra 'bays' as per the requirement and request of the NEA.

Asked whether the amount merged in this way can be termed as an increment in the project's cost, MCA-Nepal’s information officer Rajib Dahal said the cost automatically goes up when extra work has to be carried out. “Additional work of expanding the capacity of the under-construction three substations by installing extra bays is being carried out from the amount added on behalf of the Government of Nepal to the MCC Nepal Compact, as per the NEA's need and request,” he said.

The countdown for the five-year project will begin from the day of EIF. According to the preliminary agreement, EIF was supposed to start on 30 June 2020. However, many factors like a dispute in getting the compact endorsed from the parliament caused the delay. 

Despite the delay of nearly two years, MCA-Nepal has not yet completed the preparation works to ensure smooth execution of the projects. Land acquisition as a prerequisite for EIF has yet to take place. According to Section 8.1 of Article 8 of the MCC Compact, the government will ensure the full and expeditious cooperation of all relevant government entities to ensure that all land acquisition, site access, and forest clearance required to implement the Compact is provided in a timely manner, and consistent with all MCC policies. 

Asked about the implementation of the Compact, the MCC Nepal said the date for its implementation would be announced within the Nepali month of Bhadra. 

The MCA-Nepal requires a total 1,471 hectares of land for the electricity transmission project, and around 20 hectares for the construction of a substation at Ratmate in Nuwakot. It requires another 104 hectares of land for constructing around 856 electrical towers.

There is still a dispute regarding the acquisition of land required for constructing a substation. Likewise, the distribution of compensation for the land acquired for the transmission line has yet to begin. The MCA-Nepal has said except for a family-disputed plot, the distribution of compensation for the land acquired for a substation at Ratamate has been completed. A preliminary legal process has also been initiated to acquire the land required to build the electrical towers.

The legal process to determine compensation amounts for the land acquired for the project has started under the leadership of relevant chief district officers. The affected areas have 122 community and government forests. The government has allocated over Rs 10.8bn for the MCC projects in this fiscal year 2023/24. Out of the allocated budget, Rs 8.7bn will go for the electricity transmission project, Rs 1.5bn for road repair, Rs 2m for monitoring and evaluation, and Rs 555m for administrative work. 

RSS