MCA–Nepal: Governance & Infrastructure

• MCA-Nepal is a state-owned entity created to manage a US$500M MCC compact focused on large-scale investments in electricity and road infrastructure.
• It operates under rigorous legal and institutional frameworks that emphasize host-country ownership, transparency, and robust public governance.
• The entity applies the Institutional Foundations for Economic Development (IFED) framework to link infrastructure projects with economic reforms and sustainable growth.

The Millennium Challenge Account–Nepal (MCA-Nepal) is a Nepalese parastatal entity established to receive, manage, and implement the United States Millennium Challenge Corporation’s (MCC) US-$500 million compact. Designed for high development and regulatory standards, MCA-Nepal is responsible for large-scale investments in electricity transmission and road infrastructure with a mandate grounded in both economic and institutional reform. Its establishment directly embeds principles of host-country ownership, transparency, and geopolitical neutrality while serving as a laboratory for applying the Institutional Foundations for Economic Development (IFED) framework in practice (Loebell et al., 30 Nov 2025).

1. Legal and Institutional Foundations

MCA-Nepal draws its authority from a multilayered structure grounded in bilateral and national law. The Millennium Challenge Corporation itself was created by the U.S. Congress in January 2004 as an independent foreign assistance agency. Nepal and the MCC signed a US-$500 million compact on September 14, 2017, with Nepal providing an additional US-$197 million of domestic co-financing. A subsequent 2019 Program Implementation Agreement defined operational procedures and implementation frameworks.

The compact’s ratification in 2022 by Nepal’s Federal Parliament—after extended parliamentary debates and public protest—was accompanied by a “Twelve Point Interpretative Declaration" affirming Nepalese sovereignty. MCA-Nepal's legal authority to contract, hire, and operate according to Nepali law formally began after the compact “entered into force” on August 30 (year implied as 2018).

2. Governance Architecture and Decision-Making

MCA-Nepal is wholly owned by the Government of Nepal, subject to national procurement laws and financial regulations. Its governance structure comprises:

• A Governing Board chaired by the Secretary of the Ministry of Finance, with representatives from critical line ministries (Energy, Physical Infrastructure, Finance) and civil-society observers.
• A Chief Executive Officer (CEO) or Country Director with oversight of program administration and operational management.
• Dedicated Project Management Units (PMUs) for the Electricity Transmission and Road Maintenance Projects, staffed by technical, financial, and safeguards specialists.

All major procurement and contract decisions require approval by the Governing Board, while routine disbursements and Monitoring & Evaluation (M&E) reports fall under the purview of the CEO. MCA-Nepal is obligated to post quarterly public reports on its operations.

3. Mandate, Funding Structure, and Budget Deployment

MCA-Nepal’s primary mandate is the technical and fiduciary implementation of compact activities, including project design, procurement, contracts, financial management, M&E, and compliance with environmental, social, and resettlement safeguards.

The funding model is summarized as follows:

• MCC-to-MCA-Nepal: Direct budgetary allocation from MCC to MCA-Nepal’s bank accounts.
• MCA-Nepal-to-Implementers: Disbursement to contractors, suppliers, and partners.
• Government of Nepal Co-financing: Domestic funding routed through Nepali budget lines to MCA-Nepal trust accounts.

Budget Status as of September 30, 2023:

Category	Amount (US$)	% of Total
Grant Total	500,000,000	100.00%
Grant Committed	150,721,459	30.14%
Grant Expended	43,342,150	8.67%

4. Safeguards: Ownership, Transparency, Accountability, and Geopolitics

MCA-Nepal institutionalizes host-country ownership by embedding the compact within an autonomous Nepali legal entity, consistent with Kantian state autonomy and mutual benefit principles. Safeguards include:

• Transparency: All procurement notices, bidding documents, and quarterly reports are posted publicly on mcanp.org. M&E results are accessible both to parliament and the public.
• Accountability: Governance includes civil-society observers and regular audits by both the Office of the Auditor General of Nepal and the MCC Inspector General.
• Geopolitical Neutrality: The 2022 “Twelve Point Interpretative Declaration” reaffirms Nepal’s policy of non-alignment. MCC remains MCA-Nepal’s sole financier, conferring insulation from direct bilateral influence by China or India.

5. Operationalization of the IFED Framework

MCA-Nepal’s infrastructure investments address the critical “capacity for possibility” shortfall in Shiping Tang’s Institutional Foundations for Economic Development (IFED) framework. In this logic, institutions shape development via four primary drivers—Possibility, Incentive, Capability, and Opportunity—underpinned by six institutional dimensions:

IFED Driver	Institutional Dimension
Possibility	1. Hierarchy for order & stability
	2. Liberty for protecting innovation
Incentive	1. Property rights & beyond
	2. Channels of social mobility
Capability	Redistribution impacting capabilities
Opportunity	Equality of opportunity (incl. affirmative action)

MCA-Nepal’s physical infrastructure investments (315 km of 400 kV transmission lines, road upgrades) establish enabling conditions for institutional reforms in property rights, social mobility, redistribution, and equality of opportunity (Loebell et al., 30 Nov 2025). This approach aims to catalyze productive initiatives by entrepreneurs and investors under improved institutional parameters.

6. Programmatic Interventions: Electricity and Road Project Cases

Electricity Transmission Project (ETP):

• Construction of 315 km of 400 kV transmission lines from Lapsiphedi to New Butwal.
• Creation of three new substations.
• Strategic objective: Commercialize Nepal’s ∼40 GW hydropower potential, facilitate cross-border trade with India.
• Oversight includes technical PMUs and independent environmental and resettlement monitors.

Road Maintenance Project (RMP):

• Periodic maintenance of 90 km of the East–West Highway in Dang District.
• Application of Full-Depth Reclamation (FDR) technologies to 40 km of pavement, leveraging material recycling to optimize costs.
• Capacity building through partnerships with the Department of Roads, Road Board Nepal, and Tribhuvan University’s Institute of Engineering.
• Outcomes include improved road safety under International Road Assessment Programme (iRAP) standards and lower life-cycle maintenance costs.

7. Quantitative Performance and Macro-Level Indicators

MCA-Nepal’s performance metrics as of September 30, 2023, include:

• Budget Metrics: 8.67% of grant expended and 30.14% committed.
• Physical Outputs: 315 km of new 400 kV transmission lines, 3 substations, and 77 km of highway upgrades (in Dang, plus 40 km of FDR; 90 km periodic maintenance).
• Macro Indicators: Nepal’s installed power capacity was 2,205 MW (2,022 MW hydro) in March 2022. The Electricity Transmission Project is projected to serve 23 million people, or 94% of the population, with further increases anticipated.
• Electricity–HDI Correlation: Attigah & Mayer-Tasch (2013) demonstrate strong positive correlation between kWh/capita and the Human Development Index (HDI). By raising kWh/capita through expanded transmission capacity, MCA-Nepal is positioned to contribute to future HDI gains.

MCA-Nepal functions as the operational nexus for managing US$697 million in infrastructure investments, leveraging robust governance, transparent procurement, and explicit sovereignty protection mechanisms. The entity operationalizes Tang’s IFED framework, translating infrastructure investments directly into enhanced agency for institutional reform and growth (Loebell et al., 30 Nov 2025).