Tuesday, 7 February, 2023
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OPINION

Nepal Can’t Afford To Miss MCC Train



Koirala Sabin

 

These days, besides corona, the most uttered word by politicians, experts, media and the public is MCC (Millennium Challenge Corporation). Every person has different stories and perspective regarding this assistance project. Some politicians are using this controversy as an opportunity to take retaliation against the government. The most important thing is that the foreign assistance should match national interest, contribute to the development of nation and bring prosperity to people. Low income developing countries like Nepal have huge investment gap and those gaps needs to be fulfilled by internal loans and foreign assistance. Foreign assistance can be accepted in the form of grants or loans from bilateral and multilateral funding.

Guiding principles
The concept of MCC evolved after the International Conference and Financing for Development organised by United Nations in 2002 in Mexico. After the 9/11 terrorist attack, the superpower US realised that it should support underdeveloped countries economically to reduce the threat of terrorism, which established MCC as a bilateral aid by US Congress in 2004 in the form of corporation which is separate from USAID. Basically, this aid works with three guiding principles of competitive selection, country-led solutions and country-led implementation. For a country to be eligible to get this grant, it should score on 17 indicators exceeding the median score as defined by peer groups. These indicators are mostly targeted to good governance, investment in people and economic freedom.
Moreover, this grant is injected through government budgetary channel and is time bound. Till now, 47 projects have been completed and handed over in 50 different countries. MCC signs either a compact or a threshold agreement with a partner country. A compact is awarded if the country scores highly on the selection criteria indicators. If the country scores poorly, but positive with the upward trend, it can still be eligible for small grant called threshold programme. MCC requires selected countries to identify the priorities for achieving sustainable economic growth and poverty reduction.
The growth diagnostic study carried out by the Ministry of Finance in collaboration with MCC is starting point of MCC in Nepal. The report was published in 2014 which identified electricity shortage, road condition, discontinuity of government policy and labour shortage as the barriers for economic development in Nepal. Later, government decided to invest the grant in transformative projects on electricity and road sector. Millennium Challenge Account Nepal (MCA-Nepal) was established in 2015 by cabinet with the purpose to manage the programme developed by the office of the Millennium Challenge Nepal (OMCN) in coordination with the MCC, USA. MCA Nepal is governed by a board chaired by finance secretary with members including joint secretary of different ministries, executive director from NEA, representatives from private sectors and civil society.
The MCC board approved the proposal of grant assistance of $500 million for Nepal. In 2017, Nepal government signed the compact assistance agreement which creates mutual fund of $500 million as a grant by MCC and $130 million to be allocated by Nepal government. $52.2 million is allocated for road maintenance project and $398.2 million for electricity transmission project. It aims to build 312 km of 400 KV electricity transmission line and three substations, and transmission line is designed to pass through 30 municipalities in 10 districts with 856 towers and substations are designed to be constructed in Ratamate, Damauli & Butwal. This project also connects the electricity transmission with Gorakhpur, India with a goal to sell the surplus electricity generated during surplus period. Similarly, road maintenance project includes pavement improvement technology like full depth recycling (FDR) and super pave asphalt concrete on 100 km strategic roads in Kapilvastu, Arghakhachi and Dang.
Declaration of MCC projects as national pride project, formation and arrangement of electricity regulation commission, signing of work implementation agreement, getting consent from India for inter-country transmission project, land acquisition, approval to use forest land and ratification of contract agreement through parliament are the major pre-requisite of compact agreement, out of which ratification from parliament is the remaining work to be fulfilled by the government.
Some people see this grant as a part of the US-led Indo-Pacific strategy. Whereas, MCC grant was conceptualised long before the formulation of Indo-Pacific strategy in 2018 by the Trump administration, the contradicting statements given by US officials in different period has created doubt, but compact agreement doesn’t incorporate military agreement and strategy. Article 5 (1) of the contract has the provision that either party can terminate contract without any reason by giving the pre-notice of 30 days. This clause is important and provides special privilege to both the parties. Even during the implementation phase, if government feels that this project is beyond the interest of the country, government can terminate this project.
There is rumor that compact agreement is above the constitution of Nepal and any law inconsistent with the agreement becomes void. In fact, this agreement intends to assure policy consistency in the specific project over execution period. Even development projects funded by the World Bank, Asian Development Bank and other donor agencies practice international procurement guidelines which is also supported by clause 67 of public procurement Act-2063.
The controversies regarding intellectual property rights, auditing institution and audit process, appointment of officials and project manager are secondary matters. Even, during implementation phase, the government can use negotiation and diplomacy to bring things in favour of Nepal. This project has been developed by utilising money and time of both parties, and if the project is terminated, the efforts done till now will go in vain. Moreover, we will lose the opportunity to complete transformative project within 5 years period and to trade our surplus electric energy to neighboring countries.

Resource mobilisaiton
It is high time we learnt past and correct ourselves to mobilise resources for the welfare of people and nation. Nepali citizens are expecting speedy development and the government is responsible to meet the expectations. The government should utilise public treasury, internal loans, grants and foreign loans in a rational way. In addition to this, public-private partnership and foreign investment should be encouraged by the government. It is important to make bureaucracy and politicians capable for drafting agreement documents and negotiation with donors and international community. This is an opportunity to embark on the economic prosperity with the speedy construction of transformative projects. It is not good to have unnecessary doubts during initial phase of project though it is important to raise voice against misappropriation and corruption.

(The author is a student of Development Economics at Hiroshima University, Japan)