Given the challenges related to the acquisition of lands for project development and bid price dilemmas, the MCC-Nepal Compact stands at a critical juncture in terms of balancing financial considerations and the imperative to ensure a successful and timely implementation.
the HRM
O ne month into the implementation phase of the Millennium Challenge Corporation (MCC) -Nepal Compact, MCC CEO Alice Albright embarked on a five-day visit to Kathmandu starting October 3, 2023. The primary purpose of her visit was to commemorate the initiation of the MCC-Nepal Compact. Albright went on to meet comprehensively with crucial Nepali political figures, including Prime Minister Pushpa Kamal Dahal and other significant stakeholders.
Given the contentious history of the MCC-Nepal Compact, which faced prolonged controversy before receiving parliamentary approval, Albright’s strategic engagement with political figures was prudent. This approach aimed to secure the successful progression of the project, recognizing the substantial interests that the United States has invested in the MCC implementation.
Albright, daughter of former US Secretary of State Madeleine Albright and appointed as MCC CEO by US President Joe Biden in August 2021, addressed concerns from Nepali political parties during her visit. These concerns were explicitly related to the 12-point interpretative declaration adopted by the Nepali Parliament on February 27, 2022, as it gave the green light to the MCC agreement. At a press conference in Kathmandu, Albright assured that the MCC had acknowledged and agreed to the terms outlined in the 12-point interpretative declaration. She emphasized, “This is the rationale behind initiating the MCC implementation in Nepal.”
On October 4, Prime Minister Pushpa Kamal Dahal and senior ministers participated with MCC CEO Albright in commemorating the launch of the MCC Nepal Compact in Kathmandu. Prime Minister Dahal, Finance Minister Dr Prakash Sharan Mahat, and the main opposition leader, KP Sharma Oli, collectively reassured Albright that Nepal is committed to exerting its utmost efforts to ensure the timely implementation of the Nepal Compact.
The extensively debated Nepal Compact was formally inaugurated on August 30, 2023, through the exchange of a letter marking the Entry into Force (EIF) between Nepal’s Finance Minister, Dr Prakash Sharan Mahat, and MCC Vice President of Compact Operations, Cameron Alford. The EIF constitutes a crucial milestone for MCC compacts, signifying the fulfillment of necessary conditions and ample preparations to ensure the successful completion of compact projects within a five-year timeline.
Originally scheduled to commence the implementation stage on June 30, 2020, the Nepal Compact faced a setback due to delays in the ratification process by Nepal’s Parliament amidst controversy, causing uncertainty regarding US assistance. Ultimately, the Nepal Compact progressed when the parliament endorsed it in February 2022.
MCC, the bilateral aid agency of the United States, has committed to providing USD 500 million, and the government had previously pledged USD 197 million to implement transmission line and road improvement projects under the MCC-Nepal Compact.
Land Acquisition Challenges
MCC-Nepal Compact has already faced delays in implementation. The approval from the parliament took nearly five years after signing the agreement with the MCC. Still, there are significant roadblocks to the timely implementation of the Compact within the designated five-year timeframe, given that essential preparatory work still needs to be completed, particularly the land acquisition for the transmission lines project. The task involves procuring approximately 104 hectares of land across ten districts to accommodate the electricity towers necessary for the 315 km transmission line corridor. Acquiring land has proven to be a persistent challenge for infrastructure projects in Nepal, especially those involving transmission lines.
Bid Price Dilemmas
Nevertheless, MCA-Nepal, the entity overseeing MCC projects, confronts an additional significant challenge that poses a potential setback to the 315 km transmission line project. The predicament arises from all five technically qualified bidders presenting quotations substantially exceeding the estimated construction cost for the transmission line. This has put MCA-Nepal and the Finance Ministry into a quandary regarding the appropriate action. The elevated bid prices have placed them in a challenging position, compelling a decision on whether to proceed with the current set of bidders or to initiate a new tender by discarding the existing one.
MCA-Nepal opened the financial proposals of five eligible bids for the construction of the transmission line on September 5, 2023. MCA-Nepal initially estimated the construction cost of the transmission line at USD 220.60 million. However, upon opening the financial proposals submitted by the shortlisted bidders, the aggregate price for the three packages skyrocketed to USD 365.93 million. This represents a substantial and alarming 66 percent increase over MCA Nepal’s initial cost projections.
Starting a fresh tender process will reduce the project’s implementation time. On the other hand, persisting with the existing tender process would necessitate the Nepal government to shoulder the burden of additional costs, given the US government’s commitment of USD 500 million for the project. With a roadblock in the contractor selection process, MCA Nepal is exploring negotiating with the lowest bidders as an alternative course of action.
As per the MCC Program Procurement Guidelines, if the lowest evaluated responsive bid surpasses the MCA Entity’s pre-bid cost estimates by a significant margin, the MCA Entity must investigate the factors contributing to the high cost. Additionally, the entity may contemplate soliciting new bids as a potential course of action. The guidelines also stipulate an alternative approach, wherein, subject to prior approval from the MCC, the MCA Entity is permitted to negotiate with the lowest evaluated bidder. The aim is to secure a satisfactory contract through adjustments in the project’s scope or the reallocation of risk and responsibility, which can ultimately reduce the contract price.
Transrail Lighting Pvt. Ltd. has quoted the lowest bid in the first package and Tata Projects Limited in the second and third packages. Five Indian companies submitted bids for the power line construction, segmented into three packages. Among these contenders, Transrail Lighting Pvt Ltd has submitted the lowest bid for the first package, while Tata Projects Limited submitted the lowest bids for the second and third packages. MCA-Nepal, the designated project implementing agency under the Millennium Challenge Corporation (MCC), has signaled its intent not to cancel the current bidding process. The agency is evaluating the bid proposals, with a decision expected to be reached promptly.
Nepal Government’s Concerns
However, reports suggest high-ranking Nepali government officials pressured MCA Nepal to abandon the ongoing bidding process. This push to cancel the ongoing bidding process is fueled by concerns that the bid amounts significantly surpass the estimated figures, and the government of Nepal needs to shoulder the additional financial burden. Finance Minister Prakash Sharan Mahat and the then Finance Secretary Arjun Prasad Pokharel harbored suspicions of potential collusion among the bidders. Consequently, they have advocated canceling the present bidding process and proposing a fresh start to ensure transparency and fiscal responsibility. The final decision on whether to proceed with the existing bidding process or initiate a re-tendering process is awaited, adding an element of uncertainty to the fate of the MCC project in Nepal.
However, MCA Nepal appears inclined to persist with the existing bidding processes. Negotiations with the lowest bidder are on the horizon, suggesting an attempt to reduce the bidding amount and move forward with the transmission line project.
The MCC-Nepal Compact stands at a critical juncture in terms of balancing financial considerations and the imperative to ensure a successful and timely implementation. The decisions made in the coming days will not only determine the fate of this transformative project but profoundly impact the broader landscape of infrastructure development in Nepal.
