Millennium Challenge Corporation (MCC) Nepal: Is it really worth the risk ?

Millennium Challenge Corporation (MCC) Nepal: Is it worth the risk?

Like other developing nations, Nepal relies heavily on grants. MCC will be the biggest grant worth $500 million that Nepal ever received if it is ratified. While the whole world is fighting the battle for survival, Nepal politics is as lively as ever due to the MCC dispute. While Nepali Congress and P.M. Oli government are in favor of approving MCC, there’s another group within NCP (Nepal Communist Party) that is against MCC, labeling it as treason. Like always, Nepalese are let in confusion and mass seem to be divided into two fractions over MCC. Opposition is arguing the consequences of this Compact will be worse than the Sugauli Treaty.

Millennium Challenge Corporation (MCC): Is it really worth the risk ? : MCC Logo

It's safe to assume, Nepalese who are not fighting food crises or waiting for evacuation from a foreign land or not struggling in Indian borders to enter their homeland are well aware of MCC. In these desperate times, the focus should be on COVID-19 and economy restoration but MCC (Millennium Challenge Corporation ) is the hot topic of discussion and has divided Nepal into two fractions. One fraction is trying to pass it through parliament quickly and the other fraction is protesting against it. This division is not limited to parliament or politicians this time, it has created a division among the citizens who are also split in half. Terms and conditions of the MCC Compact are debatable and people feeding on these have created false news and conspiracy theories. Who doesn't like sensationalism and conspiracy theories? If it's only a grant with no hidden agenda then why is there so much fuss about MCC? Why are so many countries interested in the Nepals' signing of MCC? What’s all this fuss about? Let’s find out.

So, What is MCC?

Millennium Challenge Corporation (MCC ) is a United States (US) aid agency established in 2004 after the 9/11 attack. The US congress concluded that underdevelopment and poverty engender attacks like 9/11 and terrorism. The whole idea behind MCC is that economic development cannot succeed unless it is linked to free-market policies and democratic principles. 

There are eligibility criteria for countries to receive aid. There are 22 indicators in total and to be eligible a country has to tick 17 indicators. Only 29 countries have been awarded the compact until 2019. 

22 indicators for countries to qualify for MCC aid
Indicators (Source: MCC Report )

It's astonishing to know Nepal's Government passed 17 criterias for MCC. 

An eligible country must apply for a grant with a specific project in mind. In Nepal's case, it's Energy and Roadways (Transmission line and Road construction/maintenance). MCC signs either a Compact or Threshold agreement with the partner country. MCC has offered a Compact agreement for Nepal because it passed the criteria with flying colors (scored highly on selection criteria indicators). If Nepal signs the MCC Compact, $500 million will be provided as a grant to Nepal and Nepal has to invest $130 million for the development of transmission line and road network. Fund will be used to set up a 400 kV transmission line running 400 km, three substations, and maintenance of around 300 Km roads on Mahendra Highway. This will be the biggest grant that Nepal will have ever received received if the Compact is ratified. (Detailed MCC Compact Agreement:   MCC Compact )

Nepal started receiving foreign assistance since 1952. Nepal has been surviving because of grants for a very long time as it relies heavily on foreign aids and donors like any other developing country.  Few notable achievements due to grants and donors are presented below:

Largest Donors to Nepal

1. Japan: The single pillar bridge in Karnali, New Buspark, Tribhuvan University Teaching Hospital, Melamchi drinking water project, few hydropower projects, B. P. Koirala Highway, and Koteshwor- Suryabinayak extended road were built by Japan. Additionally, Japan agreed to write off a loan of $200m in 2004. (More on Nepal - Japan Relationship)

2. UK: The United Kingdom is currently the largest bilateral donor in Nepal. DFID (Department for International Development) has been working in various fields to eliminate poverty and empower girls in disadvantaged societies. It has been investing around $60m every year in Nepal through DFID .

Bills which consists Euro, dollars and pound
Source: Photo by Annie Spratt on Unsplash

3. US: Since 1951, the US has provided more than $791m in bilateral economic assistance to Nepal. United States grants supported village development, agriculture, education, and public health. The United States also helped to build the Balaju Industrial Area and start the Nepal Industrial Development Corporation, which granted loans to several industries. USAID, an agency of the United States responsible for foreign aid and development assistance, has been working in food security, natural resource management, health and education, democracy and governance, disaster risk reduction and resilience and reconstruction.

4. India: Grants from India helped to build the airport in Kathmandu, the Koshi Dam, Bir Hospital, Trauma Center, highways like Tribhuvan Highway, Siddhartha Highway, and several irrigation projects. (For more information: India - Nepal Relationship)

5. The Soviet Union (Russia): Russia built cigarette and sugar factories, a hydroelectric plant, and part of the East-West Highway (Nepal).  (More on: Nepal - Russia Relationship)

6. China: Recently, China has been very active with the grants and assistance for Nepal. Previously, it helped to construct roads; a trolley bus line in Kathmandu; BICC, Rastriya Sabha Griha, Civil Hospital in New Baneshwor, Bharatpur Cancer Hospital in Chitwan and leather, shoe, brick and tile factories and transit trade treaty and nine other pacts in 22 March 2016 were recently signed. (For more: Nepal - China Relationship)

7. Switzerland: Swiss assistance has concentrated on the hill regions and emphasized rural development with projects and programs in rural infrastructure, agriculture, forestry, skills development, and social services. The Swiss Cooperation Strategy for Nepal 2018-2021 foresees total disbursements of approximately USD 130 million (equivalent to NPR. 14.7 billion) over four years. (For more: Nepal - Switzerland Relationship)

And there are few others like Germany, Norway etc.

MCC will be the largest grant agreement ($500 m) for Nepal. There is no doubt that Nepal has gained a lot due to grants and financial aids. They have been instrumental in the development of Nepal. If the grants/aids were well managed and work was done effectively, Nepal would have been a different country. The effect of aids has been limited due to corruption and improper governance. Nobody knows how long these grants will continue to flow and what will Nepal do when grants stop.

There was no debate about MCC until David J. Ranz, assistant secretary for South Asia and Alice Wells of the United States, said that MCC was an integral part of the Indo-Pacific Strategy (IPS) (ekantipur). Many experts believe, IPS is a counter-strategy to China's Belt and Road Initiative (BRI). IPS has a military component to it but military affairs is not mentioned in MCC Compact Nepal. There is a report that mentions support under the MCC compact is a part of the IPS [TKP]. Can we upset a neighbor like China after facing three blockades from India and especially in a situation like this? 

Question mark symbolizing confusion and controversy
Photo by Jon Tyson on Unsplash

There has been a lot of controversy about MCC and opposition have declared it as treason. Politicians against the MCC have argued that all the relevant documents are not made public yet and there is a hidden agenda in the Compact. Specifically, Clause 7 and 3 in the document which was unveiled is the root cause of this dispute.

There is a clause which states the provisions in the compact will prevail over Nepal's constitution in case of conflicts. This has been the biggest issue due to which the government is unable to ratify Compact. MCC compact is the first grant agreement that requires parliamentary approval due to the clause or term which puts the agreement above Nepal's constitution. Another clause Section 5.1 (a), which states " either party can terminate the Compact without Cause in int's entirety by giving the other Party 30 days' prior written notice ", and the US has already canceled the compact in few countries. Though the amount given by the US government is much higher than the amount invested by the Nepal government, the impact will be much bigger for Nepal than the US. Many fear that a country like Nepal will not be able to do anything against an overwhelming country like the United States if it cancels the contract without proper reasoning. 

Recently in February 2020, the Cabinet of Sri Lanka decided it would not sign the proposed MCC agreement in its present form. A panel of experts determined that it contained clauses/provisions which were not compatible with the Constitution of Sri Lanka and would harm the country's sovereignty. [Colombopage]

Mistakes from the past

Though the treaties/agreements mentioned below are not grants but they have somehow shaped Nepal politically, economically, socially, and geographically. Grants are generally short term aid by one country to another however treaties lasts centuries and normally, they are for the sake of parties involved. The treaties below show when the big decisions are done in haste without understanding the importance and the impact it will have for generations to come, disaster happens. 

Treaty which was signed in Sugauli between Nepal and British India Company

Treaties are done for the betterment of both parties involved but most of Nepal's treaties are one-sided. Before signing something important like MCC, we can learn from the mistakes of the past treaties to prevent the catastrophes that we have been suffering. 

Quick background/history with short analysis of few of the tragedies of Nepal which were transpired due to war, the wrong attitude of leaders and lack of democracy practices are as follows:
1. Sugauli Treaty: To end the Anglo War, this treaty was signed. This war occurred mainly due to 2 reasons: first, political safety: Nepal was expanding its territory in East, West, and South. British were ruling in the south and they had a fear they might lose their grip, and, second, trade: they wanted a way to Tibet and its territories for trade especially for shawl wool. After an unsuccessful first campaign/attempt, British India Company under the leadership of Major-General Ochterlony succeeded in reaching Makawanpur winning famous battles like Nalapani, Jaithak, Makwanpur Gadhi, and Jitgadh in second campaign. The British troops did not approach Sindhuli Gadhi and fell back to Makawanpur by the end of March 1816. 

This war created a crisis for Nepal and British India Company which eventually led to the Sugauli Treaty and Nepal lost it's 1/3 land. Though the treaty was an unfair one especially for Nepal, it remained sovereign and independent country and remains in the list of few proud nations not ruled by the British. Because of the bravery and courage of Gorkhalis, the British started recruiting Nepalese in their army and it has continued till now.

2. 1950 Treaty (Treaty of Peace and Friendship): Many believe the downfall of Nepal started with this treaty. It was signed by the last Rana Prime Minister, Mohan Shumsher, and India ambassador to Nepal, Chadreshwar Narayan Singh on July 31, 1950. There are 10 articles in total but it seems only Nepal is taking this treaty seriously. For instance, take "Article 1" which states ".. two governments agree mutually to acknowledge and respect the complete sovereignty, territorial integrity, and independence of each other". Recent news about Kalapani and Limpeyadhura and continuous encroachment in Southern parts are few of the examples which show how much India is disrespecting this treaty. 

"Article 5" which states Nepal needs India's approval to import arms and ammunition from other countries shows the one-sidedness of this treaty. Article 6 and 7 which gives access without restriction has been the one which has caused the most issue in recent times. India has started to regulate the flow of Nepalese in India by imposing new laws on air travels but Nepal is still following this treaty blindly.

1950 treaty signing ceremony between last Rana Prime Minister of Nepal and Indian Ambassador

Article 8 is the most interesting and important one which has not been brought to spotlight which clearly states " this treaty cancels all previous Treaties, agreements, and engagements entered into on behalf of India between the British Government and the Government of Nepal". This cancels the "Sugauli Treaty" in which Nepal lost it's 1/3 land, so if the 1950 treaty is to be ratified properly, Nepal should regain territories which it had to surrender to British. Past and present governments' inability to press for "Greater Nepal" with this treaty has been sorrowful. Why can't we take back which is rightly ours with the 1950 treaty?

3. Delhi Accord: It was a tripartite agreement between Ranas, Nepali Congress party, and King Tribhubhan. It was a verbal mutual agreement in Delhi which has contributed to Indian influence in Nepal's politics. 1950 treaty and Delhi Accord are the two treaties which started the downfall of Nepal and it has been used as a land for experimentation for India [Prayogshala]. Speculations about the hidden agendas of this Accord are still vibrant. 

Secret meetings between parties and Maoist in Delhi was very common during the "Civil War". Maoists who gained the trust of people by proposing propaganda of "tunnel war" with India were heavily supported and funded by India [Prayogshala]. Secret treaties and agreements between the government of India and Nepalese politicians are still unknown and one can only speculate. 

4. River Accords:

a. Koshi Treaty (Matrika Prasad Koirala): The agreement was signed on 24 April 1954. Laxman Prasad Rimal, a secretary at the then canal and power ministry, has written: “The day before the signing of the agreement, we had concluded that Nepal would hand over the Koshi barrage to India on a 99-year lease. Although the Indian side wanted it to be 199 years, we had agreed on 99. But later we found out that the formal agreement stated 199 years. I turned completely pale.” [Annapurna]. There were objections about the agreement but ministers overrode and signed the agreement. There is a yearly deluge in Nepal and the tragedy of 2008 continues every year. This barrage is under the control of the Indian government. 

b. Gandaki Treaty (B. P. Koirala): The Gandak Agreement was signed on 4 December 1959 against the objections in streets as well as parliament. Nepal was cheated as always on Article 4 and 10 and the damage each year is similar to Koshi [1]. Though, it is believed to be less harmful than the Koshi treaty however the consequences from both are similar. India benefits 33 times more than Nepal from this accord. The irrigation system of Nepal is dependent on water controlled by India [2]. Nepal is unable to divert water to other regions or valleys for irrigation or other purposes because of this agreement. There is no doubt this also favors the Indian side than its counterpart. There is a restriction on movement for Nepalese while Indians can roam and do anything freely in this area.

c. Mahakali Treaty (Girija Prasad Koirala): This has to be the most controversial water treaty between India and Nepal, you might be surprised there's something which tops Koshi and Gandak treaty but there is, which was signed in February 1996. Like other treaties, it was signed hurriedly and terms and conditions were less known to the public. You guessed it correctly, this too favors India; Nepal's right over Mahakali has been limited to as low as four percent [3]. CPN (UML) split over this treaty. Half of them (Oli and Nepal group) agreed and the other half didn't. It is being considered that then Nepalese Government, led by Girija Prasad Koirala, did not appreciate the legal, socio-economic and political ramifications involved in the issue, or decided to overlook them to appease India. Besides this, the stationing of the Indian troops at Kalapani presents the Mahakali treaty in a bad light for the people of Nepal. Both are inextricably linked with each other (Gywali and Dixit 2008,282). Kalapani case is so fresh for us so it needs no further explanation, Nepal lost its territorial sovereignty. This treaty was raised by Maoist before joining the government but now, there is no talk about it. 

The common link in water treaties: King, Koirala Brothers, and Indian Government

All of the treaties expect the Suaguli Treaty could have been avoided with better planning, knowledge, and little love for Nepal. All the treaties are the classic case of “marry in haste and repent at leisure", so is it right to pass the MCC in a hurry? 

Concluding remarks:

Discussion or debate is a good thing in a democracy. If it was well-practiced, the treaties mentioned above could have been avoided. It's the duty of people who are in the government to clear the air with public and opposition by creating transparency. First, the current government should be clear about MCC and be sure whether it acts in the interest of Nepal and Nepalese in the long run. 

We can not undo what's already been done but we can change/modify the existing treaties and become very cautious before signing MCC. The tension between the US and China is at its peak so it's wise to take time and think how the future might look like in the coming days. And many experts claim it will be suicidal to reject MCC and anger Unites States. But MCC can wait or ignored if it comes to the existence or sovereignty of Nepal. A few month's delay is better than decades of horror. The whole world has stopped, why can't MCC wait until COVID-19 crisis is over ?

National Flag of Nepal ( Only non-rectangular flag in the world)

Slogans like "Of the people by the people " have been limited to speeches and citizens have never experienced it. During this crisis, when people are dying every day and the rate of infection is increasing exponentially, how wise is it to bring a topic that divides the nation? People in politics are apprising that they were not shown all documents and it would be foolish for anyone to come up with any conclusion without proper facts. If it's only a financial aid/grant, we should accept it with a thankful heart but lopsided clauses like 3, 5, and 7 should be removed or revised. 

If the benefits of MCC are clear and well explained, why would anyone go against it? But if it's against the interest of Nepal then it should be rejected. 

Is it worth the risk? If it comprises the Constitution and Sovereignty of Nepal, it should be rejected without hesitation but if it's just a financial aid/grant, it should be accepted with open arms. 

What do you think? Is it just a financial grant or more than that? Let's engage in a healthy discussion. 

Thank you for your visit. I hope everything was clear, if not please do not hesitate to contact me for suggestions or queries regarding this topic. Honest feedback is highly appreciated. You can contact me via “ “. Thanks again. 


  1. your points are interesting and well said. thank you for sharing it.


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