Millennium Challenge Account (MCA) Nepal, the agency responsible for implementing the Millennium Challenge Corporation (MCC) grant, spent Rs 1.92 billion in nine months of the current fiscal year 2024/25.

The Ministry of Finance provided this data based on figures of up to mid-April. For the current fiscal year, it allocated a total budget of Rs 13.36 billion to MCA Nepal, including grants and other sources. The allocation included Rs 1.24 billion for recurrent expenditure and Rs 12.12 billion for capital expenditure.

By mid-April, MCA Nepal was supposed to spend Rs 7.13 billion-Rs 845.8 million for recurrent expenses and Rs 6.28 billion for capital expenditure.

Instead, it spent only Rs 465 million on recurrent expenses and Rs 1.43 billion on capital expenditure, totaling Rs 1.90 billion.

Compared to the annual budget, MCA Nepal spent just 37.5 percent of its recurrent allocation and 11.9 percent of its capital budget, averaging only 14.2 percent of total spending by mid-April. Stakeholders have called this spending level unsatisfactory. They say expenditure reflects progress-and low spending typically signals weak project implementation.

However, the United States suspended the MCC grant in Falgun (mid-February to mid-March). Although it has yet to make a final decision, officials say the three-month suspension significantly contributed to the low spending.

Nepal and the U.S. signed a bilateral agreement on September 14, 2017, under which the U.S. agreed to provide a $500 million grant through the MCC to support road and electricity infrastructure. As a part of the agreement, Nepal committed to contribute $130 million.

Nepal recently pledged an additional $67 million to the project, while the MCC committed another $50 million in grants. This brought the total funding to $747 million, $550 million from the MCC and $197 million from the Government of Nepal. However, the suspension of the MCC grant has thrown the project into uncertainty.

Under the project, contractors are building 315 kilometers of 400 kV transmission lines, three 400 kV substations, a 40-kilometer stretch of the East-West Highway, and repairing the Narayanghat-Mugling road. After signing contracts, they already started work on the substations. Similarly, they launched construction on the 18-kilometer Butwal-India border transmission line following a contract agreement. MCA Nepal provided advance payments to the respective contractors, which it recorded under capital expenditure.

Authorities have progressed the contract process for constructing three transmission lines totaling 297 kilometers and a 40-kilometer road. However, they have yet to call the contract for maintaining the Mugling-Narayanghat road. Although the MCC grant suspension has stalled work on the MCC project, MCA Nepal continues to operate its office and carry out the tendering process.

Low spending casts doubt on timely project completion

MCA Nepal has spent little since the beginning, and the current grant suspension has further reduced spending. Slow progress has limited expenditures, raising concerns about whether the project will finish on time. If the MCC grant continues, the project must meet the conditions set by the United States.

The agreement with the US requires completing the work within five years of implementation. Since the project began on August 30, 2023, authorities face pressure to finish construction by August 2028. However, low initial spending reflects slow progress, creating challenges for timely completion. The current grant suspension has increased uncertainty around the project's future.