MCC Nepal Compact Explained: Transmission Line & Road Project Tracker

The Millennium Challenge Corporation (MCC) is an independent United States foreign-assistance agency, created by the US Congress in 2004, that provides large, time-bound grants known as 'compacts' to selected developing countries that meet its policy performance criteria. MCC's board selected Nepal for compact development in December 2014, and on 14 September 2017 (Bhadra 29, 2074 BS) the two governments signed the MCC Nepal Compact in Washington, DC, making Nepal the first country in South Asia to sign an MCC compact. Nepal's then finance minister Gyanendra Bahadur Karki signed on behalf of the Government of Nepal.

The compact began as a US$500 million US grant - the largest single grant Nepal had received from the United States - paired with a US$130 million Nepali contribution. Nepal raised its share by US$67 million in May 2023 to US$197 million, which MCC calls the largest up-front partner-country contribution in its history, and in December 2024 the MCC board approved a further US$50 million to bridge a transmission-line cost gap, lifting the US grant to US$550 million and the total program to about US$747 million. The money is entirely grant assistance: it is not a loan and carries no repayment obligation.

The program is implemented by the Millennium Challenge Account Nepal (MCA-Nepal), a Government of Nepal agency established on 18 April 2018 under the Development Committee Act, 2013 BS (1956 AD), with a board chaired by the Secretary of the Ministry of Finance. Under MCC rules the compact runs on a strict five-year clock from its entry into force, and the Government of Nepal has designated the electricity component a 'national pride project'.

The Electricity Transmission Project is the heart of the compact, with roughly US$399 million allocated according to MCC. Its goal is to strengthen Nepal's high-voltage backbone so that electricity generated by new hydropower plants can actually reach consumers, reduce load-shedding risk and technical losses, and open a high-capacity route for power trade with India. MCC estimates about 22.7 million people will benefit from the electricity investments over their lifetime.

The project builds a 297-kilometre network of 400 kV transmission lines - among the highest-capacity lines ever built in Nepal - together with three new 400 kV substations at Ratmate (Nuwakot district), New Damauli (Tanahun district) and New Butwal (Nawalparasi West district). Earlier project documents cited a total of around 300-315 km; the final design settled at 297 km for the main network, plus a separate 18-km cross-border section. Once complete, Ratmate and New Damauli are expected to rank among Nepal's largest high-voltage substations.

The cross-border element connects the New Butwal substation towards Gorakhpur in India's Uttar Pradesh. MCA-Nepal fast-tracked the 18-km Nepali section as a separate contract (Transrail Lighting Limited, about US$12.36 million) so it could be ready in step with the Indian portion, which is being developed by a joint venture involving the Nepal Electricity Authority and India's Power Grid Corporation. Together with the existing Dhalkebar-Muzaffarpur line, the Butwal-Gorakhpur link is central to Nepal's plan to export surplus wet-season hydropower.

The compact's second component, the Road Maintenance Project, has an allocation of about US$52.3 million. Its purpose is to lower Nepal's very high road-transport costs by demonstrating modern, preventive maintenance on the strategic road network - covering up to about 90 kilometres of highway according to MCC - rather than the rebuild-after-failure cycle that has dominated Nepali road management. The project also funds technical assistance and an incentive mechanism to encourage the government to budget for periodic maintenance.

In December 2025 MCA-Nepal signed two contracts worth US$23.66 million: a US$20 million construction contract with the Sharma-Kumar Joint Venture to upgrade the 40-km Dhan Khola-Lamahi stretch of the East-West (Mahendra) Highway in Dang district, and a US$3.66 million supervision contract with Intercontinental Consultants and Technocrats Pvt Ltd that also covers periodic maintenance of the busy Narayanghat-Muglin road. Physical works on the Dhan Khola-Lamahi section began in late April 2026 (Baisakh 2083 BS).

The Dang works introduce two technologies new to Nepal at this scale: full-depth reclamation (FDR), which recycles the existing pavement in place instead of trucking in fresh aggregate, and Superpave asphalt design, used widely in the United States for longer-lasting road surfaces. The upgraded highway section will be about 12 metres wide, with a 7-metre carriageway and 2.5-metre shoulders on both sides. MCC estimates roughly 925,000 beneficiaries from the road investments.

Although signed in 2017, the compact sat unratified for nearly four and a half years. It was tabled in the House of Representatives on 15 July 2019, but stalled as Nepal's major parties split over it. Opposition intensified after visiting US officials in 2019 publicly framed MCC assistance as part of the US Indo-Pacific Strategy, feeding claims that the compact was a security arrangement rather than a development grant. Critics argued that provisions on intellectual property, audits and the compact's precedence over domestic law compromised sovereignty, while social-media misinformation went further, alleging it would bring American troops to Nepal.

In September 2021 Nepal's Ministry of Finance sent MCC a list of written questions, and MCC replied that the compact is not part of the Indo-Pacific Strategy, involves no military component, and that Nepal remains free to exit the agreement. With MCC signalling that its board would review the compact's future at the end of February 2022, the ruling coalition moved it through parliament under intense pressure, even as two coalition partners simultaneously supported street protests against it.

On 27 February 2022 (Falgun 15, 2078 BS) the House of Representatives ratified the compact by majority alongside a 12-point 'interpretive declaration'. The declaration states, among other points, that Nepal will not be part of any US strategic, military or security alliance - including the Indo-Pacific Strategy - and that the Constitution of Nepal prevails over the compact. Demonstrators clashed with police outside parliament that day, with tear gas, water cannons and rubber bullets used to disperse stone-throwing crowds. MCC formally acknowledged the declaration, and around the compact's entry into force in August 2023 it reiterated in writing that Nepal's constitution prevails over the agreement.

On 20 January 2025 the new Trump administration issued an executive order freezing most US foreign assistance for review. On 18 February 2025 MCC notified Nepal that payments under the compact had been halted, and MCA-Nepal paused most activities. Because the compact must finish by August 2028 regardless of interruptions, even a short freeze raised fears that major works could run out of time, and Nepal's Ministry of Finance began examining fallback financing options.

The picture darkened in the spring of 2025, when reports emerged that the Department of Government Efficiency (DOGE) intended to drastically shrink MCC itself and wind down many of its compacts worldwide. In late March 2025, however, the US government authorised select MCA-Nepal activities to resume, keeping essential contracts alive while the broader review continued.

The uncertainty ended in July 2025. In a letter received by the Ministry of Finance on 23 July 2025, MCC confirmed that the US review of foreign assistance had concluded and recommended continuing the Nepal Compact, a decision the US Embassy in Kathmandu publicly affirmed within days. A senior MCC delegation visited Kathmandu in August 2025 as implementation restarted, and the final transmission-line construction contract was awarded in September 2025.

As of mid-2026 (Asar 2083 BS), every major component of the compact is under contract and in construction. The first construction contract was signed back in May 2024, when Linxon India Pvt Ltd was engaged to build the 400 kV New Butwal substation in Nawalparasi West on a roughly 39-month schedule. The fast-tracked 18-km cross-border line section from New Butwal towards the Indian border followed under Transrail Lighting Limited.

Procurement of the main 297-km line proved harder: MCA-Nepal relaunched the transmission-line tender in November 2024, and the freeze of early 2025 added delay. Contracts for the line packages and the two remaining substations were completed through 2025, and on 10 June 2026 MCA-Nepal formally broke ground at Ratmate in Nuwakot on the Ratmate and New Damauli substations and the 297-km line - the compact's largest single milestone so far.

The hard deadline shapes everything: MCC compacts end five years after entry into force, so funding stops in August 2028 whether or not works are finished, and any remaining tasks would fall to the Government of Nepal. Tower foundations across roughly 300 km of hill terrain, forest clearances and land-access issues along the right-of-way are the main risks to watch between now and 2028.

Nepal's installed hydropower capacity has grown rapidly, but its transmission grid has not kept pace: generation projects in the Trishuli, Marsyangdi and other river corridors routinely face bottlenecks getting power to load centres, and surplus wet-season electricity is wasted when it cannot be exported. The compact's 400 kV backbone - running from Lapsiphedi on the Kathmandu Valley's rim through Ratmate, New Hetauda, New Damauli and New Butwal - is designed to relieve exactly this constraint, roughly paralleling one-third of the country's length.

The New Butwal-Gorakhpur interconnection gives Nepal a second high-capacity gateway to the Indian market alongside Dhalkebar-Muzaffarpur, supporting the government's ambition to scale up electricity exports to India and, eventually, Bangladesh. MCC's own economic analysis projects an estimated 12 percent economic rate of return on the electricity project and about 29 percent on the road works. For ordinary consumers, the promised gains are more reliable supply, lower system losses and a grid able to absorb the next generation of hydropower plants.

The compact is also a test case with wider significance: it is MCC's flagship program in South Asia, and it survived both Nepal's most divisive foreign-aid debate in decades and a sweeping US aid retrenchment. Whether the towers are strung and the substations energised by August 2028 will be one of the clearest measures of Nepal's ability to deliver large infrastructure on time.