Nepalese parliament ratifies MCC’s pact with the United States

(MENAFN – NewsIn.Asia)

By PKBalachandran

Colombo, February 27: The Nepalese parliament on Sunday passed the Millennium Challenge Corporation (MCC) pact with the United States by a voice vote. The opposition Communist Party of Nepal (United Marxist-Leninist) led by former Prime Minister KPSharma Oli stayed away, vowing to oppose the controversial deal. The deal had been hotly debated since September 2017 with communists and nationalists citing sovereignty issues.

Earlier in the day, the ruling coalition decided to ratify the pact. It is significant that the United States threatened to review relations with Nepal if the MCC pact was not accepted on February 28.

Nepalese Congress leader Ram Chandra Poudel informed the media on Sunday February 27 that the ruling coalition meeting held earlier in the day had decided to ratify the draft after the Nepalese Congress-led government led by the Prime Minister Sher Bahadur Deuba clarified that the MCC project is purely a financial matter and not military at all.

The meeting was attended by Prime Minister Sher Bahadur Deuba, Chairman of Communist Party of Nepal (Maoist Center) Pushpa Kamal Dahal, Chairman of Communist Party of Nepal (United Socialist) Madhav Kumar Nepal, Chairman of Samajwadi Party Upendra Yadav and d other senior leaders of other parties in the coalition. .

Parliamentary ratification puts an end to the controversy surrounding the signature of the MCC. The pact was requested by Nepal and joined by the United States in 2017. But it could not be presented to the Nepalese parliament (the House of Representatives) due to the opposition of the various communist parties, including the Center Maoist, which is now part of the Deuba government. The opposition had engaged in demonstrations against it, calling it anti-national, abridgement of sovereignty and a precursor to a military alliance with the United States.

Recently, when the centre-left Nepalese Congress government wanted to present it to parliament for ratification, the Maoists protested and threatened to leave the government and engineer its downfall. Prime Minister Deuba then approached CPN (UML) opposition leader KPSharma Oli and tried to enlist his support as he had been an MCC supporter at one time.

Meanwhile, US Assistant Secretary of State Donald Lu has warned that the pact will be canceled if it is not approved by February 28. He further warned that the United States would review its relationship with Nepal if the pact was not reached.

It was this threat that forced Nepal’s Congress government to table the pact in parliament, even as coalition partner Maoist Center threatened to quit the government. Deuba has started talks with opposition leader KPSharma Oli to form a new alliance. Subsequently, due to Donal Lu’s threat, the Maoists boarded albeit on the 11. o’clock.

MCC Nepal

The MCC pact aims to maintain road quality, increase the availability and reliability of electricity, and facilitate cross-border electricity trade between Nepal and India. Nepal faces significant economic development challenges caused by insufficient electricity supply and high transportation costs. MCC envisions the construction of 300 km of high-voltage power lines, equivalent to a third of the length of Nepal, including a link to the Indian border to facilitate electricity trade. The construction of three substations to help transform electricity from one voltage level to another for onward transmission or distribution to customers is also being considered.

The pact involves technical assistance to strengthen the Electricity Regulatory Commission in areas such as tariff setting, rulemaking, dispute resolution, and economic and technical regulation to help bring transparency, efficiency, inclusive consultation and competition in the electricity sector. It will also help the Nepal Electricity Authority improve its transmission operations.

Poor road maintenance in Nepal makes travel and transportation of goods difficult and expensive. The high cost of transport has significant economic effects in a landlocked and mountainous country that depends on cross-border trade. To address the high cost of transportation, MCC’s road maintenance project aims to maintain road quality across the entire strategic road network, thereby preventing further deterioration of Nepal’s road network. MCC will also introduce new pavement recycling technology in Nepal. MCC also provides for training and capacity building of the Roads Department and the Roads Board to improve the administration of road maintenance.

Gaping infrastructure gaps

According to a study by the World Bank (Nepal Infrastructure Sector Assessment – 2019), the country’s electricity consumption is one-fifth of the South Asian average. Load shedding imposed economic costs of US$1.6 billion per year between 2008 and 2016. The government has set an ambitious target of installing 3 gigawatts (GW) of generation capacity in three years, 5 GW in five years and 15 GW in 10 years. . But a two- to four-fold increase in investment is needed to meet projected domestic demand and utilize the sector’s export potential.

This requires funding. But Nepal’s domestic private sector lacks the capacity to mobilize large amounts of long-term finance and to assess and manage the significant technical, hydrological and environmental risks of large-scale projects. Nepal’s electricity imports from India have quadrupled since 2010 and now account for more than a third of the country’s electricity consumption. The government expects electricity demand to grow at a compound annual growth rate of 12.0%, implying a doubling of electricity consumption every six years.

From 2010 to 2017, the electricity sector in Nepal made investments of US$527 million per year on average. To keep pace with demand, investments in the power sector are expected to accelerate to an average of US$1.3-2.1 billion per year between 2018 and 2040. The total investment need in the electricity sector for the forecast period of 2018 to 2020 was estimated at US$29 billion to US$46 billion.

Additional investments of between US$0.5 billion and US$1 billion could be needed annually in large export-oriented hydropower projects


In Nepal, the Strategic Road Network (SRN), the main road network, covers 13,060 km. The SRN includes national highways, feeder roads and some urban roads of national importance. About 40% (5,300 km) of SRN roads are national highways, which are considered commercial road infrastructure; of these, 60% are paved roads. Across the country, 53% of roads are paved. The others are gravel (16%) or earth (31%). The road density of the SRN is 9.26 km per 100 square meters (m2), compared to 50 km per 100 m2 for the SRN and the local road network combined.

Transport costs are high due to the poor quality of roads with steep gradients, leading to long journeys and high fuel consumption. Commercial vehicles face constraints including inadequate road width, narrow road curves and high grades. Road quality, including poor pavement, also directly affects vehicle operating cost.

A survey assessing pavement condition found national highways to be 77% in poor or poor condition. Similarly, the condition of feeder roads was rated poor or poor at 82%. Similarly, cost and time related to transport/logistics is an issue highlighted by many actors, for example in the agribusiness value chain.

Widely dispersed production sites, low road density and poor road quality create high market access costs and increased levels of post-harvest losses. Poor transport infrastructure also increases the cost of transactions between regional, central and border markets, fragmenting Nepal’s value chains and undermining the competitiveness of Nepalese products.

The road sector has suffered from chronic under-investment, creating a significant investment backlog. According to a study by the National Planning Commission in early 2017, Nepal was expected to invest 2.3-3.5% of its GDP annually in transport infrastructure during the period 2010-2020. According to the Strategic Investment Plan prepared by the Department of Roads (DOR) and the Ministry of Physical Infrastructure and Transport (MOPIT), the sub-sector required $6.5 billion between 2016 and 2020.

Although it is recognized that the MCC will only be able to meet a small part of the electricity and road needs, it is still a much needed contribution. Giving consent to the MCC will on the one hand secure funds and better management practices and on the other hand cement the friendship with the United States and India in order to balance relations with China.



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