The Time-bound MCC project shows great potential for revolutionizing the power sector


Kathmandu, Sept. 3: In a country where sick projects requiring continuous time and cost over-run have shadowed the overall infrastructure development environment, a mega infrastructure project worth US$ 697 million (Rs. 92 billion as per exchange rate of Friday) kicked off on Wednesday with a timeline to complete within five years.

Finance Minister, Dr. Prakash Sharan Mahat, and MCC Vice President of Compact Operations, Cameron Alford, exchanged the letter related to ‘Entry into Force’ (EIF) to mark the beginning of the project implementation.

The project with the US$ 500 million support from the Millennium Challenge Corporation of the USA and US$ 197 million contribution from the Government of Nepal will develop about 315-kilometre 400 KV transmission line, build three substations and implement road maintenance project.

While many are expressing doubts over the performance of the country in carrying out the project of that scale within five-year period, the Ministry of Finance (MoF) and implementing agency MCA-Nepal have expressed confidence to make it a reality.

To cite some examples, 456 MW Upper Tamakoshi Hydroelectricity Project cost about Rs. 89 billion, almost double the initial estimation, and completed in 10 years. Likewise, Melamchi Water Supply Project is still in implementation phase after 21 years from the commencement date. Babai Irrigation Project’s cost has escalated to above Rs. 18 billion from its initial cost of about Rs. 2 billion. Most of the national pride projects are sick and witnessing poor financial as well as physical progress.

Therefore, to carry out all the preparations and development work related to the projects, the government formed Millennium Challenge Account (MCA) Nepal about seven years ago through a Ministry of Finance-level Millennium Challenge Account Nepal Development Committee (Formation) Order, 2074.

As per the agreement signed with the MCC in 2017, Nepal had to meet six criteria – declaring the Electricity Transmission Project (ETP) as a national pride project, establishing Electricity Regulatory

Commission (ERC), signing Project Implementation Agreement (PIA), signing agreement with India for the cross-border transmission line, ratifying the Compact by the parliament, and completing land acquisition and forest clearance.

According to the MCA-Nepal, the country has met all conditions except the site access work as the land acquisition is still in progress in two districts.

“There has been a significant progress in land acquisition. It will take about three months to finalise the bids for the contract to develop the projects. By then, project site access would be completed,” informed the MCA-Nepal.

MCA-Nepal’s board of directors is chaired by the secretary of the MoF and includes joint-secretaries from the Energy Ministry and Infrastructure Ministry, executive director of Nepal Electricity Authority, one representative each from civil society and private sector, and executive director of the MCA.

This team is responsible for project management, supervision and implemantaiton, approving annual budget and programmes of the MCA-Nepal, devising policies, signing project agreement with other agencies and managing resources.

Deliverables of MCC grant

The MCC has provided support to 51 countries so far and some have completed the threshold programme and compact support, and have received the second phase of contact support in infrastructure and economic development.

The project will develop a high-powered cross-border transmission line from Lapsephedi and Hetaunda, Kathmandu, Nuwakot, Damauli, Butwal to Gorakhpur of India. By 2030, country’s electricity generation would reach about 10,000 MW and some of the major electricity projects are in the region through which the transmission lines will pass.

“Nepal’s energy generation will be about 7,000 MW by 2026 but domestic demand will not exceed 5,000 MW even by 2030. Therefore, we need a strong infrastructure to export the generated power,” said Ashish Garg, Vice President of the Independent Power Producers’ Association Nepal (IPPAN). He also maintained that the 5,000 MW estimated consumption would be met if massive industrial development happened here.

Current domestic demand is just 1,800 MW while the total installed capacity is 2,800 MW.

Similarly, three sub-stations will be constructed in Ratmate of Nuwakot, Damauli of Tanahun and Butwal of Rupandehi.

Under the road maintenance project, about 100 KM road section from Chandrauta of Kapilvastu to Shiva Khola of Dang will be upgraded. However, this is a small part of the overall grant support of the MCC. Only US$ 52 million would be used in road maintenance project.

To increase the energy sector reliability and sustainability of MCC investment, technical assistance has been bundled with the project.

Progress so far

The Ministry of Forest and Environment has approved the Environmental Impact Assessment that identified the environmental and social impacts of the ETP and devised mitigation measures in April 2021. The MCA-Nepal has also finalised the Environment and Social Impact Assessment report as per the MCC guidelines. It includes plans on critical habitat screening, biodiversity management, indigenous people development and trafficking-in-person risk management.

The MCA-Nepal has also completed community consultations, under which 152 hearings were organised in 30 project-affected municipalities. According to it, around 400 community consultations have been conducted so far.

Similarly, land acquisition for substations has been completed. But land acquisition is ongoing in two districts which is expected to complete within

next couple of months. About 104 hectares of land is  to be acquired in 10 districts for the transmission lines.

Meanwhile, two-year livelihood restoration programmes are underway in Ratmate of Nuwakot. It trains people on high-value agriculture, vocational skills and job skills including computer and financial literacy.

Largest support for infrastructure

MCC’s grant support is the largest foreign grant support for infrastructure development in Nepal so far. While Nepal has been struggling to obtain the loan support announced by India in the immediate aftermath of the 2015 earthquake as the southern neighbour forced the conditions that were not favourable to Nepal’s industry and economy, the MCC grant will realise a large structure within five-year period.

The experts also say that the technology that the project will transfer in terms of electricity transmission and road maintenance would help the country in the long run. As the country is graduating to the developing country status and gearing up for the middle-income nation by 2030, it needs a massive infrastructure development. Meanwhile, after the graduation, it will lose the remaining opportunities to receive the grant support and has to find loan facilities for its development works.

Protest of MCC support

MCC support is a demand-based grant support of the US government. Nepal had finalised the projects to be developed with the support and can utilise the financial support for the same projects. The USA will not dictate Nepal for any instrument of the project implementation.

However, there were rumours in the past couple of years, especially while the parliament ratified the agreement in 2021. Conspiracy theorists spread rumours that the US Army would land in Nepal along with the MCC support and Nepal’s sovereignty would be at stake. Some even went as far as saying that the country would slide into chaos like Afghanistan witnessed and the US would install ballestic missiles in the hills to attack China.

But the USA, through its embassy in Kathmandu, said that the MCC-Nepal Compact is a non-military agreement; it does not have any military components and by U.S. law, MCC funding cannot be used for military assistance or training. “The MCC-Nepal Compact is not, and never has been, a deliverable of the Indo-Pacific Strategy,” it said.

The USA also clarified that even after parliamentary ratification, the MCC-Nepal Compact, does not and will not prevail over Nepal’s constitution.

Unlike the rumours, the money that Nepal receives from the MCC will be deposited in Nepal’s bank and the annual report of the MCA-Nepal should be submitted to the Finance Ministry. Annual accounts of the project will be audited by the Auditor General of Nepal. However, the Government of Nepal and MCC could check it whenever they wanted.

It is also important to note that every political party and all past prime ministers – Sher Bahadur Deuba, KP Sharma Oli, Pushpa Kamal Dahal Prachanda (who is the incumbent PM as well), Sushil Koirala and Dr. Baburam Bhattarai, and chairman of the Council of Ministers during the caretaker government in 2013 – have furthered the agreement since the country was selected for the Nepal Threshold Programme of the MCC in 2011.

Source: The Rising Nepal