Nepal, US near agreement to extend MCC Compact by one year

Kathmandu, October 7

Nepal and the United States are moving closer to an agreement to extend the implementation period of the Millennium Challenge Corporation (MCC) Compact in Nepal by up to one year, according to sources at the Ministry of Finance.

The extension is being considered after the implementation of MCC-funded projects was disrupted for several months amid a US review of foreign assistance following Donald Trump’s return to the White House, as well as delays caused by major floods in the Trishuli River.

The MCC Compact normally requires projects to be completed within five years of entering into force. Nepal’s Compact entered into force on August 30, 2023, meaning the projects are currently scheduled to be completed by August 2028.

According to ministry sources, the proposed extension would be a “no-cost extension”, meaning the project timeline would be extended without increasing its cost.

“Work is underway to extend the implementation period by up to 12 months without increasing the project cost,” a ministry source said.

The issue was also discussed during Finance Minister Swarnim Wagle’s recent visit to the United States, when he met Jason Small, MCC’s acting vice president. According to the ministry source, both sides agreed in principle that the projects should be completed successfully, even if an extension is required.

“There is an in-principle understanding between the two sides that the project should be implemented as an exemplary programme and that its deadline should be extended if necessary to ensure successful completion,” the source said.

The Millennium Challenge Account Nepal (MCA-Nepal) has already submitted a proposal to the Ministry of Finance seeking an extension. The ministry will need to take the proposal to the Cabinet, which would then formally communicate Nepal’s decision to MCC.

The MCC Board could consider Nepal’s request at its meeting scheduled for December, according to the ministry source. However, the Ministry of Finance has not yet submitted the extension proposal to the Cabinet.

The US fiscal year 2026 appropriations law also provides for a possible one-year extension of the MCC Compact with Nepal, subject to the availability of funds and notification to the relevant congressional committees.

Seven-month suspension also affected implementation

The MCC Compact entered into force on August 30, 2023, more than six years after Nepal and the United States signed the agreement.

Implementation was subsequently halted after US President Donald Trump launched a review of foreign assistance on January 20, 2025. The US government recommended continuing the MCC programme in Nepal in late July 2025, resulting in an interruption of around seven months.

The projects have also faced delays because of major floods in the Trishuli River last year and again this year.

In March, while the US was still reviewing its foreign assistance programmes, MCC wrote to Nepal allowing certain essential procurement and office-operating activities to continue.

Projects worth $747 million

Nepal and the United States signed the MCC Compact on September 14, 2017, to develop electricity transmission infrastructure and improve road infrastructure.

The original agreement provided for a $500 million US grant. The United States later added another $50 million, bringing its total contribution to $550 million.

Nepal initially committed $130 million to the programme. As project costs increased, the government committed an additional $67 million in May 2023.

The total programme cost therefore stands at $747 million, comprising $550 million from the United States and $197 million from Nepal.

The programme includes the construction of electricity transmission lines and substations, as well as road upgrades.

An 18-kilometre transmission line from the New Butwal substation to the Indian border has already been completed. Construction of another 297 kilometres of transmission lines and three substations has also been contracted.

A contract has also been awarded for upgrading the East-West Highway section between Dhanakhet in Dang and Lamahi.

MCA-Nepal completed the 18-kilometre New Butwal–Indian border transmission line within nine months of its groundbreaking. The project was completed on September 14.

The MCC programme is also constructing 400 kV substations in Damauli, Tanahun; Ratmate, Nuwakot; and Nawalparasi.

Why an extension is being considered

The transmission-line component has itself experienced delays.

A tender launched three years ago for the construction of a total of 315 kilometres of transmission lines was cancelled after the lowest bid submitted was about 60 percent higher than the estimated cost.

Following a reassessment of the transmission-line project, the previously allocated budget was found to be insufficient. The US Congress subsequently approved an additional $50 million grant, equivalent to around Rs 7 billion.

The 18-kilometre section to the border was then tendered separately, while the remaining 297 kilometres were divided into three packages and awarded to contractors.

The contracts for these projects extend beyond the current MCC Compact deadline, meaning an extension of the Compact will be needed for the projects to be completed under the programme.

What is MCC?

The Millennium Challenge Corporation is a US government foreign assistance agency established by the US Congress in 2004. It provides time-bound grants aimed primarily at reducing poverty and supporting economic growth and institutional development.

MCC says its programmes are intended not only to promote stability and prosperity in partner countries but also to advance US interests.

MCC began showing interest in Nepal in 2011 and selected Nepal as eligible for its programme in 2014. Following continued efforts by the Nepali government, the US agreed to provide Nepal with a $500 million grant.

The programme is being implemented by the Nepali government through the Millennium Challenge Account Nepal, or MCA-Nepal, an organisation established under the Development Committee Act, 1956, through a government formation order.

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