Clarifications on MCC Nepal Compact

Published On: January 20, 2020 09:09 AM NPT By: Khadga Bahadur Bisht


No conditions in the MCC Nepal Compact are against the spirit of Nepal’s constitution, nor do they threaten Nepal’s independence and sovereignty. The Compact is based on principles of accountability, transparency and mutual prosperity

The Millennium Challenge Corporation (MCC) Nepal Compact which can be downloaded from https://mcanp.org/wp-content/uploads/2019/04/Millennium_Challenge_Compact.pdf is being discussed at large these days and I personally appreciate all the concerns that have surfaced, both in social media and mainstream media. We live in a democracy wherein people and people’s representatives should discuss and debate matters of national interest, but I believe our debates should be based on facts and evidence. With this article, I hope to provide some facts and clarify specific concerns to help the public understand the Compact better.

Let me begin by clarifying the fact that Nepal had to qualify and compete worldwide for the MCC compact fund, and we are proud to have met MCC’s rigorous conditions for good governance, economic freedom, and investing in citizens. So this is not a mere generosity on the part of the US Government. The Electricity Transmission Project, a national pride project and the Road Maintenance Project under the Compact are priorities set by Nepal in consultation with civil society, private sector and numerous other stakeholders. It is also led and implemented by Nepalis, including the 60+ employees of Millennium Challenge Account Nepal (MCA-Nepal). MCA-Nepal is a Government of Nepal (GoN) agency under the Ministry of Finance. It was formed through Nepal’s own legislative process by a cabinet-level executive order in accordance with the Development Board Act (1956) in order to manage the Compact. It is governed by a Board chaired by the Secretary of the Ministry of Finance and with joint secretaries of line ministries, representatives from the private sector and civil society, and the Managing Director of Nepal Electricity Authority (NEA) as members.

Background of Compact
Nepal was initially selected by MCC’s Board of Directors to develop a threshold program in December 2011 based on the strength of its performance on MCC’s policy indicators following a period of civil and political unrest in Nepal from 1996-2006. Before the threshold program was finalized, MCC’s Board of Directors selected Nepal in December 2014 to develop a Compact. In this selection decision, MCC’s Board of Directors recognized Nepal’s efforts to establish rule of law and democratic institutions and highlighted the importance to the United States and South Asia of a politically stable and economically-growing Nepal. Much of the work prepared for the threshold program, such as the constraints analysis, and certain power and transport policy and institutional analyses, were completed shortly after Nepal was selected to develop a Compact and were repurposed for development of the Compact. Since December 2014, MCC and the GoN focused on developing a Compact to address the identified constraints to growth in Nepal. Following consultations with the private sector, civil society, and development partners, the GoN and MCC ultimately agreed to focus on two of the identified constraints: inadequate supply of electricity and the high cost of transport. Throughout the Compact development process, the GoN engaged civil society, trade associations, development partners, political parties, and other relevant communities and stakeholders to seek their support, guidance, and feedback in project design and risk mitigation. 

Ratification 
All MCC Compacts worldwide have been implemented only after parliamentary ratification. This requirement is not specific to Nepal. The GoN also decided to send the Compact for Parliamentary ratification after a well-thought legal opinion and thorough consideration by the Ministry of Law, Justice and Parliamentary Affairs. The Compact was submitted to the Parliament Secretariat in Nepal on July 15, 2019 for ratification. 

Agreement and domestic laws
The Compact does not intend to be above or replace any of laws of Nepal. The reason that agreement will prevail over the domestic laws of Nepal is simply to ensure the provisions under the Compact remain effective for the implementation of the Compact. Given that the Compact has a strict five-year implementation period, any legislative changes in the country during that time can adversely affect the timely delivery of these projects. For example, if there are changes in the Land Acquisition Act of Nepal, the timeline of Compact implementation could be affected. Another example of this is the provision for the procurement of all goods, works, and services, to be in accordance with the MCC Program Procurement Guidelines rather than Public Procurement Act of Nepal. Since the Compact is an international agreement and as such will be governed by the principles of international law, it is imperative that it requires parliamentary endorsement to give effect to this understanding. The prevalence of the agreement over domestic laws is not only included in the agreement with Nepal, but has been included in Compact agreements signed with other countries, such as Mali, Moldova, Mongolia, Senegal, Tanzania, Zambia, Morocco, Ghana, Namibia etc. It should also be noted that the Compact—unlike what some opinion writers in various outlets have claimed—is not above the Constitution of Nepal.

Bidding and Contracting
All bids and contracts will follow an open and transparent international procurement procedure. This is clearly stated in the MCC Program Procurement Guidelines, which highlights the need to provide all eligible prospective bidders with timely and adequate notification and an equal opportunity to bid for the required goods, works, and non-consulting services. The Compact will undertake a global tendering process with no preference for American companies as speculated by few sections of our society. In fact, most construction contracts in the 49 countries where MCC Compacts or Threshold Programs are being implemented are non-US companies. Therefore, it is not true that only companies from the US will receive the contracts. On 18 and 29-30 November, two outreach events in Nepal and India were held to inform potential construction and service providing organizations—including many Nepali companies—about upcoming procurement opportunities and to ensure that the best contractors from around the world participate in the global competitive bidding for the construction of the projects.

Agreement with India
The cross-border transmission line is a critical component of the Electricity Transmission Project. In developing the Compact and determining the conditions precedent, MCC actively engaged with both the Governments of Nepal and India to identify areas of mutual interest and synergies. Consultations in 2015 and 2016 highlighted both countries’ focus on cross-border electricity trade and the importance of several cross-border transmission lines, particularly the Butwal-Gorakhpur line. To ensure that the line would connect to the Indian grid—so that Nepal can export excess electricity in the future or import as per Nepal’s needs—MCC and Nepal agreed to this condition precedent during the signing of the Compact. There appears to have been some confusion that the need for India to agree was related to the entire Compact, when instead it is just for the Government of India to agree to a plan to build infrastructure within its own territory. On October 15, 2019, the governments of Nepal and India agreed to the financing and ownership framework that will govern the implementation of New Butwal-Gorakhpur cross-border transmission line. With respect to route alignment, design, tendering and construction of 312 km of 400 kV transmission lines and three substations within Nepal, Nepal does not need to have any prior or subsequent agreements with a third country.  

Intellectual property rights
The Compact will not restrict the rights of any intellectual property exclusively to the MCC. The GoN can offer the intellectual property to other authorities based on its requirement and usefulness. Nepal does not have to pay any royalty to the MCC against the use of those intellectual properties as claimed in some media reports. Section 3.2 (f) of the Compact clearly highlights the use of intellectual property by Nepal. Therefore the claim that Nepal has abandoned the copyright or patent over all intellectual property is blatantly untrue. Furthermore, the intellectual property produced for the construction of the electricity transmission lines and road maintenance, such as design, frameworks etc, will be project specific, and it may not be practical to use those in other projects. Useful intellectual property such as monitoring and evaluation reports will be made available to the public through our website. We would like to clarify that Nepal will be the rightful owner of all intellectual property and there are no encumbrances on its use by Nepal. 

Audit and Termination
The Office of the Auditor General of Nepal can audit the projects of the Compact at any given time, contrary to the ongoing public debate on whether the audits are only limited to the US Government. The Formation Order 2074 (BS) issued by the GoN mentions in Section 11 that MCA-Nepal will be audited by the Auditor General of Nepal. Section 3.8 (a) of the Compact also clearly states the provision for any auditing by GoN. For the past four years, the Auditor General of Nepal has been auditing all the expenditures of both MCA-Nepal and the Office of the Millennium Challenge Nepal (OMCN), which was created to develop the Compact and MCA-Nepal. Additionally, the US Government or the GoN can terminate the Compact by giving 30 days’ prior written notice. Section 5.1 (a) in the Compact clearly states that the agreement can be terminated by either party. If the Government of Nepal wishes, it has the right to terminate the agreement without any cause. Therefore, there is no truth in the rumor that the Compact can be cancelled only by the US Government.

Link to IPS
The Compact was signed much before the Indo-Pacific Strategy (IPS) came into existence and there is no mention of the strategy, or anything related to militaries, in the Compact. MCC and Nepal signed the Compact to spur economic growth through investments in electricity and transportation—areas that the government has identified as critical and that is expected to make Nepal more prosperous and resilient. The sole goal of the Compact is to implement domestic infrastructure projects which will help Nepal reduce poverty by fostering economic growth. After the IPS was unveiled by the US Government, no changes have been made in the Compact to incorporate the US Government policies under the IPS. More importantly, US Government legislation on MCC clearly prohibits the use of MCC funding for training of military or any other security forces. This has also been reflected in the Compact in Section 2.7(a). 

In conclusion, I would like to reiterate that no articles, sections and/or conditions in the Nepal Compact are against the spirit of Nepal’s constitution, nor do they threaten Nepal’s independence and sovereignty. The Compact is based on the principles of accountability, transparency, and mutual prosperity and will open up a new chapter in the infrastructure development in Nepal. I urge all citizens to read the Compact documents on the MCA-Nepal website or the MCC website before forming their opinions.

The author is Executive Director of Millennium Challenge Account Nepal (MCA-Nepal)


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