The United States has completed a review of foreign aid for the Millennium Challenge Corporation (MCC) portfolio as part of alignment with the Trump administration’s ‘America First’ foreign policy. The new strategy, MCC explained in a press statement, will make the US ‘safer, stronger and more prosperous’. Further details are to follow after the MCC Board decision-making process and other consultations with the US Congress and partner countries.
The $500m MCC Compact is being implemented in collaboration with the government. The government has agreed to add another $197m, making the project’s total cost stand at $747m. The compact will develop Nepal’s transmission network for electricity and highways, promoting national prosperity and regional energy integration.
Earlier, Millennium Challenge Account Nepal (MCA-Nepal) appreciated the US government’s decision to allow continuation of the project under a special exception with the ongoing suspension of larger foreign aid programs.
On Jan 20, US President Donald Trump issued an executive order directing a review of all US foreign aid in accordance with the ‘America First’ policy. This led to a halt in the disbursement of aid from organizations like USAID and MCC for 90 days. Although MCC was exempted at first, its funding was eventually included in the suspension.
However, in March, MCC granted permission for Nepal to continue with essential procurement and office operations. Since then, project implementation has resumed. The MCC Board has already approved an additional $50m in Jan 2025 to address cost overruns in the transmission line component, although both the Nepal cabinet and US Congress are yet to confirm the release of these funds.
Contracts for three substations of Tanahun (Damauli), Nuwakot (Ratmate) and Nawalparasi, as well as for an 18-kilometer transmission line between the New Butwal substation and the Indian border, have been issued. Physical work has already begun in most places.
MCA-Nepal has also tendered for the remaining 297 km of transmission lines and bid evaluations are in the final phase. An earlier tender for 315 km had to be cancelled after bids received were over 60 percent higher than estimated costs.
Implementation of the five-year compact began on 30 Aug 2023. Any unspent money at the close date will be returned to the US government. To date, during fiscal years 2023 and 2024, $471.3m in obligations have been incurred under the MCC Nepal Compact, states ForeignAssistance.gov.
Signed in Sept 2017, the MCC-Nepal Compact took years of politicking, parliamentary ratification finally happening on 27 Feb 2022. At last, after a six-year break since the signing of the agreement, the project was launched officially in Aug 2023.
Though Nepal has already increased its share from the originally agreed $130m to $197m, the additional $50m MCC aid remains uncertain. Whether or not the Trump administration will approve the additional funds and whether or not Nepal’s cabinet will endorse it remains unknown.
Millennium Challenge Corporation (MCC) is a US government agency established by the Congress in 2004 as an independent entity to reduce global poverty through granting time-limited programs of economic growth, poverty reduction and institution building. While the agency’s top priority is development in partner countries, its mission is also designed to promote American interests abroad.
Nepal was eligible for MCC assistance in 2014 and obtained the $500m grant following persistent dialogue. The compact is one of the biggest bundles of US assistance to Nepal ever and is being implemented under MCA-Nepal, an office established under Development Board Act, 2013.
