KATHMANDU, March 22: Amid growing speculation about the fate of the Millennium Challenge Corporation (MCC) projects in Nepal under the new US administration, the US government has indicated that it will allow the continuation of these projects, despite an ongoing review of foreign assistance.
Senior government officials in Nepal remain optimistic, noting that the MCC projects are likely to proceed even as other programs face cuts. Recently, MCA-Nepal received permission to continue certain tasks that may create future financial liabilities.
In a brief notice posted on its website on Friday, MCA-Nepal confirmed that it had received clearance to move forward with some MCC project activities. Sources said US Ambassador to Nepal, Dean R. Thompson, recently held a meeting with Deputy Prime Minister and Finance Minister Bishnu Paudel to apprise him on the latest developments related to the MCC projects.
MCA-Nepal’s statement clarified that while the review of US foreign aid is still underway, the US government has granted permission for specific activities under the MCC Nepal Compact. "However, this approval does not indicate the final outcome of the review," the notice added. At least 34 USAID projects worth Rs 46.12 billion ($329.43 million) in Nepal have been permanently terminated following the Trump administration's decision to suspend all foreign aid, according to media reports from the United States.
MCA-Nepal is now authorized to proceed with key procurement tasks and essential office operations. The agency emphasized its commitment to transparency as it manages the resumption of these activities. MCA-Nepal is working closely with the Government of Nepal and the Millennium Challenge Corporation to ensure that its responsibilities are fulfilled while awaiting further updates on the US foreign aid review, it further said in the notice.
On February 14, the US aid agency had informed Nepali officials via email that all payments related to MCC Nepal Compact activities had been frozen due to the 90-day funding freeze imposed by US President Donald Trump’s executive order on January 20, 2025. "
With the recent permission to resume certain components of the projects, MCA-Nepal issued a notice earlier last week to hire a supervision consultant for the Dhankhola–Lamahi road upgradation project, a critical part of the MCC initiative. The evaluation of the road contract has been completed.
Similarly, work is ongoing on the construction of an 18-kilometer transmission line for the New Butwal-Gorakhpur section. Progress is also being made on three substations: Ratamate, New Butwal, and New Damauli. Meanwhile, the evaluation of the 297-kilometer main transmission line from Lapsiphedi to Hetauda continues, though land compensation has not yet been distributed in any of the ten affected districts.
This development follows the temporary suspension of US funding, which has cast doubt on the successful implementation of MCC projects in Nepal. The diplomatic communication from the US government earlier last month confirmed that the funding freeze applies to MCC-funded projects, raising concerns about delays and the overall completion of the projects.
Initially, Nepali officials were confident that MCC-funded projects would be unaffected, even though USAID-funded initiatives were immediately impacted by President Trump’s executive order. During this period, the US government said it would "reevaluate and realign" its foreign aid policies.
MCA-Nepal has assured that it is coordinating closely with the Government of Nepal and the Millennium Challenge Corporation to ensure the successful completion of tasks while awaiting further updates on the US foreign aid review.
Nepal and the Millennium Challenge Corporation (MCC) signed an agreement on September 14, 2017, in Washington, D.C., for the construction of 300 kilometers of 400kV transmission lines along the Lapsiphedi-Galchhi-Damauli-Sunawal corridor, as well as the repair and upgrading of the Dhankhola–Lamahi road.
Under the agreement, the MCC committed to providing $500 million in grant assistance to Nepal, later increased by an additional $50 million. The Government of Nepal also pledged to contribute $197 million, bringing the total project cost to over $747 million. The grant Nepal is set to receive to implement the MCC projects is the largest foreign grant the country has ever received.
On February 27, 2022, the House of Representatives of Nepal ratified the MCC agreement with a two-thirds majority, clearing the way for the $500 million grant for electricity transmission lines and road repairs over the next five years. The agreement had been tabled in Nepal’s Parliament in July 2019, but its passage was delayed due to disagreements among political parties.
While the Nepali Congress and Madhes-based parties supported the MCC projects, left-wing parties, including the then-ruling Nepal Communist Party (formed by the merger of CPN-UML and CPN (Maoist Center)), initially opposed it. As protests erupted on the streets of major cities including Kathmandu, the MCC agreement became a point of geopolitical contention, with Beijing and Washington exchanging sharp remarks over the MCC in Nepal.