US suspends payment of $500 million pending ratification of Nepal Compact

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Prahlad Rijal (Kathmandu Post) Dec 6

Millennium Challenge Corporation of the United States has suspended payment of $500 million to the Electricity Transmission and Transportation Project pending ratification of Nepal Compact by Parliament.

Nepal Compact, an agreement signed between the US agency and the Nepal government in 2017, comes with a prerequisite that it must be endorsed by Parliament and will prevail over domestic laws.

“The funds have been halted by the donor agency as the government is yet to meet the terms of the agreement it had signed,” said Kumar Pandey, a board member of Millennium Challenge Account Nepal, the implementing agency of the Electricity Transmission and Transportation Project formed through a cabinet order.

According to Pandey, the Compact is likely to be ratified in the upcoming parliamentary session as the government has put it at the top of the agenda. The multi-million dollar agreement is viewed by many in Nepal as a counter-initiative under the US Indo-Pacific Strategy against China’s Belt and Road Initiative.

As per the agreement, the US agency will provide $500 million in grants, and the government will spend $130 million on energy and transportation projects of high importance in the Marsyangdi and Kali Gandaki corridors and the southern plains.

The Compact, which was tabled in Parliament nearly a year ago, awaits passage because of differences among the ruling party lawmakers and leaders over Nepal’s degree of involvement in the Indo-Pacific Strategy and the Belt and Road Initiative.

According to an official close to the situation, lawmakers in the anti-West alliance prevailed on disgraced former speaker Krishna Bahadur Mahara to not bring up the Compact for approval in Parliament, resulting in the payment being suspended. “US officials wanted the Compact to be ratified in the summer session, but it did not happen; and after the disbursement halt, the implementing agency cannot even pay the salaries as no money has been coming since October,” said the official.

Prime Minister KP Sharma Oli, in an interview with Kantipur, also blamed Mahara for not adhering to the discipline of the speaker’s post by not bringing up the Compact for ratification. After the funds were halted by Millennium Challenge Corporation, shortly before the Chinese president’s Nepal visit, the Finance Ministry has disbursed around Rs50 million for keeping the offices running by reallocating some of the project budget set aside for land acquisition.

Millennium Challenge Corporation has pledged to provide $40 million as programme administration costs while the Nepal government’s allocation is mainly for land acquisition and acquiring right of way for the transmission lines.

“The budget for this quarter starting October has been halted over the non-fulfilment of the pact, but the Finance Ministry has made some other arrangements,” said Khadga Bahadur Bisht, executive director of Millennium Challenge Account Nepal.

“Ratification should not be taken as a political and controversial issue, but as a contingency measure to ensure that the projects will be completed on time, and aren’t affected by political changes in the country,” said Bisht. As per the Compact, the projects must be concluded within five years from the date it comes into force or else the funds will go back to Millennium Challenge Corporation.

The proposed Rs13 billion Butwal-Gorakhpur transmission line, a second high capacity transmission line between Nepal and India, is one of the components of the Compact.According to another official who wished to remain unnamed, the ruling party lawmakers including Bhim Rawal and Dev Gurung had spoken against the prerequisite clauses of the Compact which required ratification. They also wanted India to come on board to implement the Butwal-Gorakhpur project.

“The pro-China lawmakers had taken a stern stance against seeking agreement with the southern neighbour over a project with a domestic scope and which was funded by another country,” said the official. A 120-kilometre section of the proposed transmission line falls in Indian territory, and Nepal and India only agreed to fund and implement the transmission line through a joint venture in October after multiple meetings.

“It was like a chicken-egg conundrum, and authorities were perplexed over what to do first—ratification or agreement with India,” said Bisht. “But now that the agreement with India is in place, ratification of the Compact should not be an issue if the government wants $500 million to come to Nepal.”


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