Nepal, US sign grant agreement of $500m for energy, transportation

Published On: September 16, 2017 07:21 AM NPT By: Republica | @RepublicaNepal

KATHMANDU, Sept 16: The largest single grant for Nepal aims to address inadequate supply of electricity and high cost of transportation

Nepal has signed an agreement with the US for a grant of $500 million to Nepal from the US Government’s Millennium Challenge Corporation (MCC).

Minister for Finance Gyanendra Bahadur Karki and MCC Acting-CEO Jonathan Nash signed the agreement for the five-year compact on Thursday at the US State Department in Washington DC, paving the way for Nepal to receive $500 million in grant for investment in the energy and transportation sectors.

This is the largest single foreign grant for Nepal and the MCC’s first compact in South Asia. Deputy Secretary of State John J Sullivan was also present at the signing ceremony.

The agreement for such an enormous amount of grant for Nepal comes at a time when the two countries are celebrating the 70th anniversary of the establishment of US-Nepal diplomatic ties. The MCC compact combined with the government’s commitment of $130 million is planned to be invested on the Electricity Transmission Project and the Road Maintenance Project to address the binding constraints for the economic growth of Nepal.

Inadequate supply of electricity and high cost of transportation were the two major factors that were most significantly constraining the country’s growth, a joint analysis conducted by the MCC and the Government of Nepal had identified.

According to the MCC, this investment will help the government better deliver critical services to its people, ease the movement of goods around the country, and open up new opportunities for private investment.

Out of the $500 million, $398.2 million will be spent on the electricity transmission project while $52.3 million has been allocated for the transportation project. The remaining fund of $49.5 million is for the monitoring and evaluation and program administration, according to the MCC.

Speaking at the signing ceremony, MCC Acting-CEO Jonathan Nash termed the signing of the compact an ‘important milestone’ in the US-Nepal relationship.

“The Nepal Compact is recognition of the progress Nepal has made in establishing rule of law, democratic institutions, and investments in its people. It’s an opportunity to help the country build its capacity to deliver critical services to its people to benefit the economy, regional security and the broader global community,” he added.

The investment is expected to benefit about 23 million people, according to the MCC.

The electricity transmission project includes the construction of approximately 300 km of high voltage power lines in addition to a second cross-border transmission line to facilitate greater electricity trade with India as well as activities to improve sector governance to increase private investment.

Likewise, the road maintenance project includes a matching fund to maintain up to 300 km of roads and incentivize the Government of Nepal to allocate more resources for periodic maintenance, particularly for key roads that are vital to the movement of goods and people in the country.

The MCC compact is a funding that requires the recipient country to complete the projects ‘on time and on budget’. Following Nepal’s strong performance on the MCC policy indicators like economic freedom, rule of law, and control of corruption, Nepal was selected as the eligible country to develop the compact in December 2014.