The response comes as House session starts in Kathmandu amid differences among ruling partners over the US programme's parliamentary ratification.

Image via mcc.gov

A day before the visit of its officials to Nepal, the US-based Millennium Challenge Corporation on Wednesday responded to Nepal’s Finance Ministry, trying to assuage concerns raised in Nepal regarding the MCC Nepal Compact, under which the country would receive $500 million in grants.

The response comes on the eve of the scheduled visit to Nepal by Fatema Z Sumar and Jonathan Brooks, vice president and deputy vice president of the Department of Compact Operations, and on the day when Nepal’s Parliament convened its new session.

The US programme, which has become a cause of controversy in Nepal, with Nepali political parties sharply divided, has been awaiting its parliamentary ratification for over two years now. Nepal and the United States signed the agreement four years ago—in September 2017.
In its 13-page response, the MCC has attempted to provide clarifications to 11 major questions and supplementary concerns raised by the Finance Ministry, including whether the MCC agreement is above Nepal’s constitution and whether it is part of the Indo-Pacific Strategy.
Regarding the concern, if the MCC agreement is above the Nepal constitution, the MCC has said, “no.”
“The Constitution of Nepal prevails over the MCC Compact,” the MCC said in its response.
“Based on MCC’s experience in other countries, a compact’s status as an international agreement is critical to ensuring the implementation can proceed without delay, which is particularly important given the limited five-year implementation period of a compact,” the MCC said. “In practical terms, the status of an international agreement means that the implementation of compact projects will proceed in accordance with laws of Nepal except in rare instances where local law conflicts with a specific provision of the compact. In such a case, compact projects will be implemented according to the mutually agreed upon terms of the compact and the Constitution of Nepal.”

In response to the concern if Nepal is a member of the Indo-Pacific Strategy, the MCC has said the MCC Nepal Compact is not an agreement under it.
“MCC compacts are agreements between the MCC and the partner government,” said the MCC. “Any decision of Nepal regarding the Indo-Pacific Strategy is separate and independent from the MCC Nepal Compact.”
The Ministry of Finance on September 3 had written to the MCC headquarters, saying some concerns had been raised in Nepal’s public sphere with regard to the MCC compact.
Most of the questions raised by the Finance Ministry are what have been hotly debated in the public sphere in recent months. Those opposed to the MCC say it is part of Washington’s Indo-Pacific Strategy, which aims to countervail Beijing’s bid to expand its influence in the region through its Belt and Road Initiative (BRI), an ambitious programme that seeks to connect Asia with Africa and Europe via land and maritime networks.
Though tabled in 2019, the MCC agreement is stuck in Parliament due to controversies surrounding it. As a result, two key projects under it—electricity transmission and transport (road) improvement—have yet to be implemented.
When Nepal signed the MCC agreement, incumbent Prime Minister Sher Bahadur Deuba of the Nepali Congress led the government, and he is now under pressure to get it ratified through Parliament.
However, his coalition partners—the Communist Party of Nepal (Maoist Centre) and the CPN (Unified Socialist)—are opposed to it.

Both the parties have been saying that the MCC cannot be passed in its “current form”.
For both the coalition partners, especially the Maoist Centre, a response from the MCC on some concerns raised by the party is of importance, as they need some face-saving.
During the ongoing House session, the MCC is going to take centre stage, apart from two other key issues—the budget and an ordinance to amend the Political Parties Act.
The CPN-UML, which when in power was all for the parliamentary ratification of the MCC, now appears opposed to it. The UML did not let the House function on Wednesday, objecting to Speaker Agni Sapkota’s refusal to act on its recommendation to expel 14 lawmakers, including Madhav Nepal, on August 17.
Madhav Nepal, however, aided by the ordinance to amend the Political Parties Act, has formed a new party, CPN (Unified Socialist), which is currently Prime Minister Deuba’s coalition partner.
The UML has not spoken specifically against the MCC, but it has passed the buck to the Congress and the Maoist Centre, saying they were leading the government when the agreement was signed.
The MCC headquarters’ response, signed by Sumar, has been addressed to Finance Minister Janardan Sharma and cc’d to Prime Minister Deuba, US Ambassador Randy Berry, Finance Secretary Madhu Marasini and deputy vice president of the MCC Jonathan Brooks. The response is also sent to Dhani Ram Sharma, joint secretary at the Finance Ministry, Troy Kofroth, MCC resident country director for Nepal, and Khadga Bahadur Bisht, executive director, Millennium Challenge Account, Nepal.

Sources said the MCC response has already been received by Prime Minister Deuba and Finance Minister Sharma as well as leaders of the ruling alliance, who are currently “studying” it.
A source close to Finance Minister Sharma said since he is currently working on the budget, he has not gone through the US response yet.
“Since it is a political issue, it will be discussed within the ruling alliance,” the source said.
Another source close to Deuba said the prime minister will discuss the US response with coalition members within a day or two.
The MCC actually has become an albatross around the Maoist Centre’s neck, or chair Pushpa Kamla Dahal’s neck for that matter, as he was the one to initially weaponise the US programme against Oli.
When Oli and Dahal were in the same party—the Nepal Communist Party (NCP), Dahal vehemently opposed the MCC, largely to create unease for Oli, who was then prime minister. After the Nepal Communist Party (NCP) was invalidated and the UML and the Maoist Centre revived, Dahal formed an alliance with Deuba.
Dahal is now a key coalition partner of Deuba, who is keen to get the MCC through Parliament.

Officials at the Finance Ministry told the Post last week that the concerns sent to the MCC headquarters were more political, which were sent at the finance minister’s level. Sharma, the finance minister, is a key leader in the Maoist party.
Yet another concern raised by the ministry was whether Nepal would have any rights over the intellectual property generated through the implementation of projects with 26 percent domestic resources given that section 3 (f) of the agreement stated that intellectual property rights would belong to the MCC.
“The Nepali government owns all intellectual property created in connection with the compact programme,” said the US response. “The MCC has no ownership rights to any such intellectual property.”
On whether the US-based or US-certified public accounting firm auditing the MCC Compact undermine and invalidate the existence and legitimacy of Nepal’s Auditor General Office, the US aid agency has said the Auditor General of Nepal can conduct audits of the Millenium Challenge Account-Nepal (MCA-Nepal) and “has, in fact, already done so”.
On why the MCC needs parliamentary ratification, as many agreements related [to] development, construction and investment do not seem to require so, the MCC has said “all MCC compacts are international agreements”.
“During compact development, MCC asks each government what their country’s domestic law requires in order for the compact to have the status of an international agreement that will avoid any specific conflict with domestic law,” the MCC has said. “For Nepal, the government, through Nepal’s Ministry of Law, Justice and Parliamentary Affairs, concluded that, under Nepali law, parliamentary ratification is required for the compact to be such an international agreement.”
The MCC has also made it clear that the signed MCC Nepal Compact cannot be amended “at this time”.

In response to whether such strict provisions have been put in place because of Nepal’s strategic location in global politics and conflict, MCC said: “The MCC Nepal Compact was signed in September 2017 following extensive discussions between MCC and the government of Nepal’s Ministry of Law, Justice and Parliamentary Affairs.”
“Compact Section 6.2 (b) allows for medications by mutual agreement of certain aspects of the compact annexes in limited circumstances, which can be necessary from time to time to reflect changing project realities and dynamics,” said the MCC.
“Section 6.2(c) specifically provides that any such modifications are not ‘amendments’ and do not need compact agreement or alter the allocations of funding, the implementation framework, monitoring and evaluation framework for tax exemption provisions.”
Whether the MCC falls under the Indo-Pacific Strategy, a new strategic initiative undertaken by the previous Donald Trump administration focusing on development opportunities across a range of issues across the broader pan-Asian region, is one of the major concerns raised in Nepal’s public sphere.
Citing some US officials’ statement during their visit to Nepal that the MCC falls under the Indo-Pacific Strategy, Nepal in its concerns also sought to know whether it is under the Washington-led security strategy, which by some sections in Nepal is believed to be an attempt to corner China.
The MCC clarified that the Compact signed with Nepal is not an agreement under the Indo-Pacific Strategy. “The strong relationship between the United States and Nepal long pre-dates the Indo-Pacific Strategy,” the MCC responded.
On a key concern by Nepal regarding the basis for the claims that Nepal is not prioritised under a military strategy, MCC has said the US law that governs MCC prohibits the programme from using funding for any military purpose.

“The compact is explicit about this legal prohibition,” said the MCC. “Therefore, there is no connection between the MCC Nepal Compact and any military alliance or defence strategy.”