The future of the Millennium Challenge Corporation (MCC) Compact has once again been thrown into confusion.

The six-member task force assigned to suggest ways to minimise differences within the party recommended that the government ratify the compact with necessary amendments and modifications in favour of national interest.

But amendments to MCC compact is not possible, according to the US and this has already been communicated to Prime Minister KP Sharma Oli, Foreign Minister Pradeep Gyawali, Finance Minister Yubraj Khatiwada and other senior officials of Nepal government, two knowledgeable sources told the Post.

While rejecting the prospect of an amendment or adjustment to the MCC compact, the US Embassy in Kathmandu said in an email response: “The U.S. Embassy continues to stand ready to provide clarifications where necessary. In August 2017, Nepal and MCC negotiated the Compact in good faith. The Compact negotiations included careful analysis of each compact provision by representatives of Nepal and MCC. “

The task force also suggested discussing both the MCC compact agreement and an internal report submitted by former prime minister Jhalanath Khanal at the party Secretariat and Standing Committee meetings before taking the final decision.

Meanwhile, the US government has stopped releasing funds from the $500 million grant assistance under the MCC Compact that the two governments signed in 2017, as Nepal failed to ratify the agreement from Parliament within the June 30 deadline.

The grant would be the largest single grant in Nepal’s history and fund two 400KV transmission line projects—Lapsiphedi-Ratmate-Hetauda and Lapsiphedi-Ratmate-Damauli— and maintenance of around 300 kilometres of roads on the East-West Highway.

The House of Representatives could not ratify the compact in June because the anti-Oli factions within the party were against it, and the prime minister’s position looked shaky within the party.

A section of ruling party leaders says House ratification of the US programme in its existing form undermines Nepal’s sovereignty and it has been demanding some amendments to the agreement.

Those in the ruling party opposing the MCC also argue that the programme is part of the US-led Indo-Pacific Strategy aimed at ‘containing China’. Some have also taken exception to a clause in the MCC agreement that says the compact will prevail over existing Nepali laws.

The Ministry of Finance, while citing the unprecedented situation emerged after Covid-19 pandemic, had written to MCC headquarters requesting an extension to programme until the next Parliament session convenes, which the MCC headquarters had already agreed to.

“The US Embassy looks forward to the Government of Nepal ratifying the compact as signed,” the embassy said in an email on Monday.

With other pressing issues within the party, the task force that submitted its report to party co-chairs Oli and Dahal on Saturday has not dwelt at length on the compact.

“We did not discuss much on what to do regarding the MCC compact and largely left the issue to the discretion of the government,” Surendra Pandey, a member of the task force, told the Post.

The task force has reiterated the same old position of the ruling party, two senior government officials said, and it is neither flexible nor rigid, but it has largely left the party and government to take a call.

“The MCC pact is approved by the US Senate so it is impossible to make changes or amend it,” Rameshwor Khanal, a former finance secretary, told the Post. “The MCC pact cannot be amended only for Nepal.”

The MCC is an aid agency under the US government and the MCC compact is a large, five-year grant programme under which the fund is provided to the countries that pass the MCC’s eligibility criteria.

“The same terms, conditions and negotiations apply to Nepal and other receiving countries,” said Khanal. “The US government or its embassy may clarify if there are some confusions.”

Only through a supplementary exchange or through the letter of exchange, the US government, upon the request from the government of Nepal, will clarify the confusion but modification or amendment of the MCC compact is not possible, the two officials from two different ministries who are directly handing the US assistance, told the Post.

After Nepal failed to ratify the compact through Parliament at the end of June, the United States said that availability of the funding under the Millennium Challenge Corporation Compact Programme was not open-ended and whether to accept the grant under the programme was Nepal’s choice.

“Tangible, near-term steps in Nepal are necessary to ensure the continued viability of the programme,” said the US embassy in Kathmandu in June.

A ruling party leader said that politically speaking, the party is in a difficult position due to the MCC. But it is also a fact that Nepal should not lose out on such a huge grant in this time of a pandemic.

With the United States government withholding the funds that were to be released through a project implementation agreement, Nepal is putting in the money to execute the project including providing salaries and remuneration to the staff, according to the Nepal office of the MCC.

According to Khanal, it looks like the ruling party is looking for further explanation from the American side on security issues, like the MCC is not part of Indo-Pacific Strategy, the MCC does not have provisions of stationing the US Army, and on the issue of patent rights.

“It is now up to the government to deal with the US government and clear the confusion,” said Pandey, a member of the task force.