Context: Recently, Nepal’s House of Representatives has ratified 500 million US Dollar grant assistance-Millennium Challenge Corporation (MCC) pact along with the “interpretative declaration”.
Background

• MCC’s partnership with Nepal began in 2011, when the country requested assistance.
• MCC first chose Nepal for a smaller threshold grant, and subsequently in December 2014, for a larger compact.
• In 2017, the US government’s Millennium Challenge Corporation (MCC) pact was signed by Nepal for infrastructure projects but its ratification had been on hold as there were divisions within political parties, including the coalition that was ruling.

About Millennium Challenge Corporation (MCC) 

• It is an innovative and independent U.S. foreign assistance agency that is helping lead the fight against global poverty.
• MCC forms partnerships with developing countries who are committed to good governance, economic freedom and investing in their citizens.
• Under the MCC programme, the US government will provide the grant assistance which will be mainly utilised on strengthening Nepal's transmission line that would facilitate the export of hydro-electricity to India in the near future and also improve the country's road networks.

Issues with the project

• It is estimated that if the agreement is not passed by Parliament, the power producers in the country are likely to lose a staggering Rs. 142 billion every year.
• As a result, PM Sher Bahadur Deuba is striving to get the MCC passed in Parliament as soon as possible, even if it means splitting the coalition government.
• In addition, if he fails to get it through Parliament, there is a possible risk of losing his international credibility.

Investments made by MCC

Compact and threshold programmes are the two types of programmes in which MCC invests.

• Compacts are large, five-year grants implemented by an accountable entity established by each partner nation.
• Thresholds are smaller funds focusing on policy and institutional transformation in selected countries implemented by MCC.

Objections around MCC

• The MCC agreement has created a political divide in Nepal.
• The compact has been criticised in Nepal as endangering the country’s sovereignty, integrity, and constitutional autonomy.
• The claim that the MCC agreement supersedes the national charter and shall prevail over Nepal’s domestic laws.
• Many have interpreted this to suggest that the compact replaces the constitution, compromising Nepal’s sovereignty.
• The MCC’s inclusion in the Indo-Pacific Strategy (IPS) is considered problematic for Nepal, as the majority of the country’s political class views the US strategy as anti-China.

India’s role in the ongoing political crisis in Nepal

• Few claim that the electricity generated by MCC will be only for export to India and will not be for the local public.
• As a result, it will not benefit the local economy directly.
• Nepal’s hydroelectric generation potential is huge, with over 6,000 large and small rivers.
• However, through a series of barrages and dams, India has control over the majority of Nepal’s major rivers.
• Nationalists in the Himalayan country have strongly objected to this.
• In Nepal, where India is still perceived as a meddling big brother, its goal of strengthening India’s military capabilities through this agreement to counter China’s was questioned.