Nepal and US Move Toward One-Year Extension of MCC Compact

Nepal and the United States are moving toward extending the implementation period of the Millennium Challenge Corporation (MCC) Compact by up to one year, according to officials familiar with the discussions.

The proposed extension would allow Nepal more time to complete projects under the $500 million US grant after delays caused by a review of American foreign assistance and disruptions from severe flooding.

The Nepal Compact entered into force on August 30, 2023, and is designed to remain active for five years. Under the agreement, the programme is expected to be completed within that period unless the Compact is amended or extended through the appropriate process.

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Officials involved in the programme say the proposed extension would be a no-cost extension, meaning additional time would be granted without increasing the overall project cost.

Extension could run for up to 12 months

The proposal under discussion would extend the implementation period by as much as 12 months.

The delay is attributed to several factors, including a temporary suspension of parts of the programme during the US review of foreign assistance and disruptions caused by major floods in the Trishuli River area.

The extension is particularly important for the transmission-line component because several major construction contracts were awarded only after an earlier procurement process was cancelled when bids came in substantially above the original cost estimates.

MCC subsequently approved an additional $50 million in funding for the Nepal Compact, while the Nepali government increased its contribution by $67 million.

According to MCC documents, the original $500 million Compact was signed in 2017 and entered into force in August 2023. Nepal's contribution was increased from $130 million to $197 million to help cover additional costs and preserve the intended scope of the electricity transmission project.

Major transmission projects still under construction

The MCC programme is centred on two major areas: electricity transmission infrastructure and road maintenance.

The Electricity Transmission Project is intended to strengthen Nepal's high-voltage transmission network, improve the reliability of the electricity grid and support greater electricity trade with India. The Road Maintenance Project focuses on improving the quality and maintenance of key sections of Nepal's road network.

Several major contracts are already under implementation.

A total of 297 kilometres of transmission lines have been divided into construction packages, while three major substations are also being developed.

A separate 18-kilometre cross-border transmission line connecting the New Butwal substation to the Indian border has already been completed.

The transmission network is expected to play a significant role in Nepal's plans to expand hydropower generation and increase electricity exports to India.

Why the project was delayed

The MCC programme faced an unexpected interruption after US President Donald Trump ordered a review of US foreign assistance in January 2025.

The suspension affected the implementation of the Nepal programme for several months. The US government later moved to allow the Nepal Compact to continue.

The project has also faced delays caused by natural disasters, including severe flooding in the Trishuli River corridor.

These delays have reduced the effective time available to complete contracts before the original Compact deadline.

The proposed extension is therefore intended to provide additional time without fundamentally changing the scope of the programme.

Government approval still required

The extension is not automatic.

MCA-Nepal, the government body responsible for implementing the Compact in Nepal, has submitted a proposal to the Ministry of Finance concerning an extension.

The Ministry of Finance would then need to take the proposal to the Cabinet for approval before Nepal formally requests the extension from MCC.

The MCC Board would subsequently need to approve the request.

Earlier this year, US legislation created a legal mechanism allowing the Nepal Compact's implementation period to be extended by up to one year if necessary. BBC reporting in April 2026 also noted that the US had approved legislation allowing the Nepal programme to be extended when required.

Nepal's $747 million programme

The original MCC agreement provided Nepal with a $500 million grant.

The United States later added another $50 million, bringing total US funding to $550 million.

Nepal increased its own contribution from the originally agreed $130 million by a further $67 million, bringing the government's contribution to $197 million.

The combined programme is therefore worth approximately $747 million.

MCC's official documentation confirms that the additional US funding was intended to address the increased cost of the transmission-line programme and help maintain the original scope of the Compact.

From political controversy to implementation

The MCC Compact was signed by Nepal and the United States in September 2017, but it took several years before the agreement received parliamentary approval.

Nepal's Parliament ratified the Compact in February 2022 following prolonged political debate and the adoption of an interpretive declaration.

The Compact subsequently entered into force in August 2023.

The programme has since moved into the construction phase, although procurement difficulties, rising costs, natural disasters and the US foreign-aid review have affected its implementation timeline.

What is the MCC?

The Millennium Challenge Corporation is a US government development agency established by Congress in 2004.

It provides time-limited grants to countries that meet a set of eligibility requirements, with programmes designed to promote economic growth and reduce poverty.

MCC says its programmes focus on addressing major constraints to economic growth while maintaining country ownership, accountability and measurable results. The agency also describes its work as supporting economic opportunities and stronger markets that can benefit the United States and its partner countries.

Nepal was selected for the MCC programme after years of engagement with the US agency. The Nepal Compact was eventually designed around two major constraints identified as important to economic growth: unreliable electricity and high transportation costs.

If the proposed extension is approved, Nepal and the United States will have an additional year to complete the remaining construction and fulfil the objectives of a programme that has already undergone years of political debate, procurement delays and implementation challenges.