What will Nepali Congress do about the MCC Compact?

The actors who signed the MCC Nepal Compact now lead the government. Will they be able to ratify it through parliament?

Mahabir Paudyal

  • Read Time 10 min.

On September 14, 2017, Nepal signed a 500 million US dollars Compact with the Millennium Challenge Corporation (MCC), the US foreign assistance agency, at the US State Department in Washington DC. On behalf of Nepal, Gyanendra Bahadur Karki, Finance Minister at the time, signed the Compact with MCC’s Acting CEO Jonathan Nash. 

Sher Bahadur Deuba was the prime minister of Nepal at the time. 

MCC’s Nepal compact is an open book. Goals and objectives, funding and resources, including who will implement the pact, how it will be implemented, who will invest, how much the Nepal government will contribute, everything is stated in the Compact itself. The objective of each of the projects is to “increase electricity consumption by facilitating power trade and by improving the availability and reliability of electricity supply in Nepal’s electricity grid and by facilitating power trade,” says the Compact. The other objective is to “maintain road quality across the strategic road network.” 

The program implementation agreement signed between Dr Yuba Raj Khatiwada, the Finance Minister of the time and Anthony Welcher, Vice President of Compact Operations in September, 2019 clearly states that the MCC will provide assistance of up to $500 million dollars and Nepal government will contribute up to $130 million dollars for the project.  It’s a hundred percent grant assistance from the US, with no obligation for Nepal to repay it. 

The Compact envisioned creating an entity called MCA-Nepal to coordinate the process. 

As such, in April, 2018, the government established the Millennium Challenge Account (MCA) Nepal, the office to execute and oversee implementation of MCC projects by publishing the decision in the Nepal Gazette. 

Nepal has fulfilled several key conditions set forth in the Compact. Nepal has declared the Electricity Transmission Project as a National Pride Project. The Project Implementation Agreement has been signed. A plan in agreement with the government of India for the cross-border transmission line from Butwal, Nepal to Gorakhpur, India has been completed. Land acquisition and forest clearance are in progress. 

As of now, as much as 5.3 billion rupees has been spent by the government of Nepal and MCC together for the project, according to MCA Nepal. The government allocated 9.1 billion rupees for MCA-Nepal for the fiscal year 2021-22, of which one billion rupees have been allocated to be borne by the government of Nepal. 

But MCC Nepal Compact projects face a hitch.  According to the agreement, program implementation, or what is also called the Entry into Force (EIF), should have started on June 30, 2020.  Following the lapse of the deadline, Nepal’s Finance Ministry corresponded with the MCC office citing the reason, Covid-19 among other things, for Nepal failing to comply with EIF. Now the new Entry into Force date has not been specified, the US side is said to have agreed to fix a new EIF after parliamentary ratification, the lack of which has kept MCC in limbo.

Nepal’s Minister of Finance Gyanendra Bahadur Karki, seated left, and acting CEO of Millennium Challenge Corporation Jonathan Nash, seated right, sign the Nepal Compact, as Joint Secretary at the Nepal Ministry of Finance Baikuntha Aryal, standing left, and U.S. Deputy Secretary of State John J. Sullivan, standing right, look on Thursday, Sept. 14, 2017 in Washington. (Photo by Steve Ruark for MCC)

There have been serious contentions about the MCC grant assistance since the government of KP Sharma Oli registered the Compact at the Secretariat of Parliament for ratification on July 15, 2019. 

What went wrong? 

Nepal’s failure on parliamentary ratification has put MCC project implementation on hold. But why did the grant assistance have to be approved by parliament itself? Neither the MCC Nepal Compact nor the Implementation Agreement has this provision. Could Nepal have avoided the parliamentary ratification condition? 

“Perhaps it could, but because Compact includes a provision which mentions that Compact will prevail over Nepal’s laws in case of conflict, Nepal’s Ministry of Law may have recommended for parliamentary ratification,” said Semanta Dahal, a lawyer and researcher who has been closely following the debates and development around MCC.  “However, the Compact does not prevail over Nepal’s Constitution because MCC has categorically accepted that in several aid memoirs,” he explained.

What fueled the debate was also the statement attributed to US Under Secretary of State David J Ranz who said MCC was part of the US Indo-Pacific Strategy during his visit to Nepal in May, 2019. 

Four years after Nepal sought MCC’s support for infrastructure projects and signed the Compact, two years after the Nepal government signed the program implementation agreement, the Compact still awaits parliamentary ratification.  Will Prime Minister Deuba be able to push it?

Then media commentaries on MCC started to link it with the Indo-Pacific Strategy of the US. Political parties, especially those from Maoist orientation, began to raise the specter of US military presence in Nepal through the MCC project. Then the ruling NCP formed a committee on February 2, 2020, to provide recommendations to the party on MCC, which submitted its report to KP Sharma Oli and Pushpa Kamal Dahal on February 21 suggesting that certain provisions had to be amended before parliament ratified it.

 Since then, a lot has changed in Nepali politics but not the differences over MCC.

Shifting the blame

While interpretations and misinterpretations were making rounds on MCC, none of those actors who signed the Compact came to offer credible explanations. “As the political party that signed the Compact, Nepali Congress could have intervened and made its position clear when debates were centered on MCC and a lot of misinformation was being spread around. None of the actors who signed the Compact were seen to offer any credible and convincing explanations nor defend the project,” said Krishna Gyawali, former government secretary who worked as the first National Coordinator of the MCC’s then Nepal Office called Office of the Millennium Challenge Nepal (OMCN) from 2015 to 2016. 

Since the agreement was registered in parliament secretariat for endorsement in July, 2019, the then ruling Nepal Communist Party (NCP) made it appear like the victim of internal dispute. While K P Oli said in public speeches that MCC should be endorsed, a faction of leaders from his own party routinely opposed it.

Those who stand opposed to MCC, interestingly, also do not want to give that impression publicly. In February, NCP Chairman Pushpa Kamal Dahal was found to have stopped his party’s cadres from chanting slogans against MCC Compact, during the street demonstration.

K P Oli put the blame on the House speakers—first Krishna Bahadur Mahara and then Agni Sapkota.

During an all-party meeting on April 18, 2021, Oli blamed Speaker Agni Sapkota for delaying the MCC process and warned to replace him if he did not present the MCC agreement at the House meeting on April 20. The next day, on April 19, the government prorogued the House session.

Dr Shekhar Koirala of Nepali Congress quickly countered Oli’s claim. Talking to Nepal Live Today on April 24 he said that there was an understanding between Congress and Oli to present the MCC agreement in parliament on April 20.   “But the House session was prorogued on April 19,” said Dr Koirala. “PM himself does not seem willing to push MCC,” he had said. 

Did Speaker Agni Sapkota really stall the MCC process? 

It was not possible to reach out to the Speaker for comment but a source close to the Secretariat of Parliament revealed something else. According to the source, Oli had discussed MCC with the Speaker only once. “PM Oli raised the issue and the Speaker agreed to endorse it but asked the PM to build a national consensus on it,” said the source.  “Then PM Oli said national consensus cannot be built to which the Speaker asked to create at least an understanding among the top leaders of the parties. The PM declined that too,” the source further claimed. “Then the Speaker asked the PM to get it endorsed through the party secretariat of CPN-UML. He did not do even that. That the speaker came in the way is a complete lie,” said the source.

A simple majority of the House of Representatives—with at least one-fourth of the total number of MPs present according to quorum requirements as per Article 94 of the constitution—can ratify the Compact. Constitutionally, the House meeting can proceed to pass any resolution when one-fourth of the total number of its members is present in the House. Simple majority is counted from the number of members present at the meeting.

Technically then, of the 272 MPs, 68 members fulfill the quorum requirement. Thus any House meeting with as minimum as 68 members participation can discuss and ratify the Compact.  Even those who claim to stand for MCC’s ratification have nearly enough numbers.  K P Oli commanded the support of 93 MPs from his faction.  Nepali Congress, with 63 MPs, will be able to do it too. Even if all of the 272 MPs present in the meeting and all other factions stand opposed, Congress and the KP Oli faction together can ratify the Compact. 

Since the Compact was registered for ratification, neither Minister of Law nor Finance Minister—all of whom were Oli loyalists such as Dr Yuba Raj Khatiwada, Bishnu Paudel (finance ministers) Sher Bahadur Tamang and Bhanu Bhakta Dhakal (law ministers)—ever tabled it for discussion or raised the issue in parliament. 

Moral obligation for Nepali Congress 

There is an expectation that Prime Minister Sher Bahadur Deuba will be able to get it done this time around. MCA, Nepal is as optimistic. “Ratification of the Nepal Compact is one of the Conditions Precedent to achieve Entry into Force (EIF), after which the five-year clock for project completion begins,” said Khadga Bahadur Bisht, the Executive Director at MCA, Nepal. “We are hopeful the new government will make this a priority.”

With Sher Bahadur Deuba becoming the Prime Minister again, for the fifth time, and Gyanendra Bahadur Karki, the person who signed the MCC Compact on behalf of Nepal in 2017, becoming the minister of Law, Justice and Parliamentary Affairs in his cabinet, MCC Compact has come a full circle. 

Those who claimed to support MCC (such as the Oli faction of CPN-UML) are in opposition and those who opposed it, Maoist Center in particular, are now the coalition partner of Nepali Congress, the only party that has lent unconditional support to MCC.  

The question is will Deuba be able to do it? What will Congress do? Many of the Congress MPs approached for this report declined to speak, saying that it is a sensitive matter and they don’t want to be dragged into controversy. Those who did gave conflicting views. “Since the Nepali Congress government signed the Compact, it is morally obliged to get it ratified by parliament,” said Bhimsen Das Pradhan, a Nepali Congress leader who was Minister of Defense in 2017 in Sher Bahadur Deuba’s government. Pradhan has watched how some political parties lobbied for or against BRI and how others stood for and against MCC. “That was not right,” he said. “Nepal has a lot to benefit from both MCC and BRI.  We need to determine whether MCC and BRI will be in our national interests or not.”

Pradhan believes that the matter should be taken to parliament for discussion as early as possible. “Let’s allow the MPs to discuss MCC and put their views in parliament. Let’s identify what are the good points and what are the bad points, if any. If parliament thinks that it is beneficial for Nepal, let it pass the Compact,” he said. “It is as simple as that.”

Apparently, it is not as simple as that for Laxmi Pariyar, another Congress MP. She is not opposed to MCC ratification but she believes “the flaws have to be amended.” “There is an understanding among all Congress leaders that the Compact should be ratified by amending the disputed provisions,” she said. 

Nepali Congress is a party with the history and legacy of working for the Nepali people, Nepal’s national interests and Nepali sovereignty, she argued.  “Thus if there are any provisions which are against the national interests of Nepal they need to be corrected. But Congress will and should go ahead with the MCC.”

Nepal’s MCC conundrum reflects poorly on the political will of the political parties to build a common ground for its parliamentary ratification. It also exposes their duplicity and double standards.  

In principle, the MCC Compact has found support from all parties and all governments from its preparation phase (in 2011) to negotiation for the Compact to implementation agreement. “None of the democratic parties have opposed the Compact and agreement,” said Khadga Bahadur Bisht. He is, however, surprised by the longstanding debate and no resolution on MCC. “The MCC debate has been an element of surprise given that the two countries jointly developed the compact and it was supported by all the major Nepali political parties during that time,” he added. 

According to Bisht, malicious disinformation of the compact by a few has led to widespread and misinformed criticism of the carefully considered legal clauses, which are part of internationally accepted treaty language. “General people seem to rely more on social media for their daily news, compared to television, online news sites, newspapers, and radio.  Social media has been seen to be unreliable source of information compared to other mediums and has even been seen to promote forged news, and the open source nature of social media makes it difficult to regulate against such malpractice,” Bisht said. 

So what should be done? How should Congress take it forward? Krishna Gyawali offers a way out. “MCC has become a moral obligation for Nepali Congress but I don’t see Congress leaders taking it that way,” he said.

He pointed to what he called “some textual inadequacies” in the MCC compact and MCC project implementation agreement (PIA) “which cannot be dismissed outright just because some of them might be considered perceptual.” He argues that confusions have to be cleared first of all. “Maybe we have understood the provisions in the compact and agreement in a completely different way than what they might actually mean in words and spirit. But this needs to be clarified with the MCC officials to make doubly sure that both parties are on the same page,” he said.

According to Gyawali, there are such inadequacies mainly in the text of the Compact on issues related to Compact’s prevalence over domestic Nepali laws (Section 7.1), audit (Section 3.8), intellectual property rights (Section 3.2 (f)), termination, suspension, expiration and survival (Sections 5.1-5.5), waiver and immunities (6.8) and procurement (Section 3.6).

“Also, the oft-raised issue of IPS vis-a-vis MCC should also be clearly resolved,” he added. 

The fate of the MCC Compact will largely depend on the will and wisdom of Nepali Congress now, particularly of Prime Minister Deuba. 

Gyawali contends that the “inadequacies and apprehensions,” most of which are perception-driven, have to be addressed in a mutually agreeable manner. And this can be done by Nepal preparing an “explanatory note” on the issues in contestation. The note will clarify the debatable points and the government will forward that note to the American side to seek their consent. “This will provide a face-saving to the Nepali political actors who are poised to push the Compact for parliamentary ratification. Then they can register a Sankalpa Prastav (resolution proposal) in parliament based on this “explanatory note” which will pave the way for the Compact to be ratified,” he said.

“Otherwise, it could be very difficult for the parties to pass it in the existing format after these many years of debates, suspicions, contestations and misinformation,” he asserted.

Nepal’s MCC conundrum reflects poorly on the political will of the political parties to build a common ground for its parliamentary ratification. In the process, it has also exposed their duplicity and double standards.  

The question today is will Nepali Congress stand united for the MCC Compact? Will the KP Oli faction of CPN-UML—which projected itself as the advocate of MCC and characterized the opponents, mainly the politicians from rival factions within CPN-UML and Maoist Center as the enemies of the MCC–stand steadfast on MCC? Or will they change their position now that they are out of the government? After all these many years of homework and preparatory works accomplished by MCA, Nepal, what message will it send to Nepal’s bilateral/multilateral donors and development partners if it finally rejects the Compact? 

Sher Bahadur Deuba, who in the past pressed K P Oli to ratify the Compact, has emerged as a strong Prime Minister after winning the confidence vote Sunday night.   As many as 165 MPs voted for him, ensuring his premiership, and even more important, the life of the current parliament for the next one and half years.

The fate of the MCC Compact will largely depend on the will and wisdom of Nepali Congress now, particularly of Prime Minister Deuba.