By Nirmal P. Acharya

The US Government has informed the Government of Nepal that it will tentatively disburse funds for the MCC project. President Trump himself has publicly expressed disdain for the MCC program.

As a result, the MCC project in Nepal is highly uncertain and its prospects are affected by multiple factors, which necessitated a comprehensive analysis:

1. Project status and reasons for suspension

In 2022, the US forced Nepal's parliament to ratify the MCC agreement through an ultimatum, promising $500 million in grants for transmission lines and road construction. However, Trump froze foreign aid funding after taking office, resulting in a suspension of program funding for at least 90 days. The Trump administration has long been skeptical of international aid, considering such projects to be “low value for money,” and its policy pivot inward has further exacerbated the funding crisis for Nepal's projects.

2. Difficulties and risks in Nepal

- Debt and economic stress: Nepal has raised $200 million of its own money for projects, and a US default would increase its debt burden, potentially triggering a fiscal crisis.

- Geopolitical commitments: The core of the project is the construction of transmission lines to connect to India's power grid, and if it is not completed, Nepal will not only be unable to profit from the sale of electricity, but may also face legal liability in India for breach of contract.

- Domestic political fragmentation: The MCC agreement has long been controversial in Nepal, with opponents arguing that the agreement infringes on sovereignty (such as the “agreement trumps domestic law” clause), while supporters worry about losing trust in the West. The suspension of funding has exacerbated tensions between pro-US and pro-China forces.

3. Position and possible direction of the US

-Waiver Application and Policy Swing: The Millennium Challenge Corporation (MCC) plans to apply to the State Department for a waiver to maintain the project, subject to approval by the Trump administration. If the waiver fails, the Nepal project could be stalled for a long time.

- Disputes over strategic intent: The MCC agreement is seen by the US as part of its “Indo-Pacific strategy” aimed at reducing China's influence in Nepal and South Asia. However, Trump is more inclined to unilateralism and may ignore such strategic layouts.

4. China's potential role

Although Nepal has put cooperation with China on hold due to the choice of US assistance, China has said that it “supports Nepal’s independent choice of development path” and has not closed the door to cooperation. If the US withdraws altogether, China could re-engage, taking into account Nepal’s debt risks and the complexity of trilateral relations with India. Previously, China and Nepal have established a foundation for cooperation in railway, energy and other fields, and China may provide alternative solutions through the framework of the Belt and Road Initiative.

5. Future options for Nepal

- Diplomatic balancing act: Nepal may seek to “sit on the fence” between China and the US, for example by emphasizing “not joining military alliances” through interpretative statements to appease domestic opposition while gaining support from both sides.

- Domestic pressure for reform: If projects fail, Nepal needs to accelerate domestic power and infrastructure autonomy or turn to regional cooperation (such as the South Asian Association for Regional Cooperation) to reduce dependence.

Summary

The dilemma of the MCC project in Nepal is a microcosm of the conflict between geopolitical jockeying and the country's development needs. In the short term, its fate depends on the outcome of US policy changes and funding waivers; In the long run, Nepal will need to find a balance between sovereignty preservation and external assistance. If the US continues to disinvest, Nepal could turn to China or other international partners, but that choice would come with new political and economic risks. Lessons like the Vietnam high-speed rail project show that Nepal needs to carefully assess the long-term reliability of its partners in great power competition.

In my personal opinion, MCC is doomed to become a dead-end project. I have written countless articles repeatedly warning people not to have unrealistic dreams about the MCC. Unfortunately, I was right. However, Nepal is lucky to have suffered less than Ukraine. At this point, I don't want to talk about MCC anymore, because readers don't seem to care. This is my last article on MCC. Bye, MCC.