About MCC

MILLENNIUM CHALLENGE COMPACT
BETWEEN
THE UNITED STATES OF AMERICA
ACTING THROUGH
THE MILLENNIUM CHALLENGE CORPORATION
AND
THE FEDERAL DEMOCRATIC REPUBLIC OF NEPAL
ACTING THROUGH
THE MINISTRY OF FINANCE
MILLENNIUM CHALLENGE COMPACT
TABLE OF CONTENTS
Page
ARTICLE 1. GOAL AND OBJECTIVES.................................................................................. 1
Section 1.1 Compact Goal ....................................................................................... 1
Section 1.2 Project Objectives................................................................................. 1
ARTICLE 2. FUNDING AND RESOURCES ........................................................................... 2
Section 2.1 Program Funding .................................................................................. 2
Section 2.2 Compact CDF ....................................................................................... 2
Section 2.3 MCC Funding ....................................................................................... 3
Section 2.4 Disbursement ........................................................................................ 3
Section 2.5 Interest................................................................................................... 3
Section 2.6 Government Resources; Budget ........................................................... 3
Section 2.7 Limitations on the Use of MCC Funding ............................................. 3
Section 2.8 Taxes..................................................................................................... 4
ARTICLE 3. IMPLEMENTATION ........................................................................................... 5
Section 3.1 Program Implementation Agreement.................................................... 5
Section 3.2 Government Responsibilities................................................................ 5
Section 3.3 Policy Performance............................................................................... 6
Section 3.4 Accuracy of Information....................................................................... 6
Section 3.5 Implementation Letters......................................................................... 6
Section 3.6 Procurement and Grants........................................................................ 6
Section 3.7 Records; Accounting; Covered Providers; Access ............................... 7
Section 3.8 Audits; Reviews.................................................................................... 7
ARTICLE 4. COMMUNICATIONS.......................................................................................... 8
Section 4.1 Communications ................................................................................... 8
Section 4.2 Representatives ..................................................................................... 9
Section 4.3 Signatures.............................................................................................. 9
ARTICLE 5. TERMINATION; SUSPENSION; EXPIRATION............................................. 10
Section 5.1 Termination; Suspension .................................................................... 10
Section 5.2 Consequences of Termination, Suspension, or Expiration ................. 10
Section 5.3 Refunds; Violation .............................................................................. 11
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Section 5.4 Late Payment Interest ......................................................................... 11
Section 5.5 Survival............................................................................................... 11
ARTICLE 6. COMPACT ANNEXES; AMENDMENTS; GOVERNING LAW.................... 11
Section 6.1 Annexes............................................................................................... 11
Section 6.2 Amendments and Modifications......................................................... 12
Section 6.3 Inconsistencies.................................................................................... 12
Section 6.4 Governing Law ................................................................................... 12
Section 6.5 Additional Instruments........................................................................ 12
Section 6.6 References to MCC Website............................................................... 12
Section 6.7 References to Laws, Regulations, Policies, and Guidelines,
References to Compact Expiration and Termination.......................... 13
Section 6.8 MCC Status......................................................................................... 13
ARTICLE 7. ENTRY INTO FORCE....................................................................................... 13
Section 7.1 Domestic Requirements...................................................................... 13
Section 7.2 Conditions Precedent to Entry into Force ........................................... 13
Section 7.3 Date of Entry into Force ..................................................................... 14
Section 7.4 Compact Term .................................................................................... 14
Section 7.5 Provisional Application ...................................................................... 14
ARTICLE 8. ADDITIONAL GOVERNMENT COVENANTS.............................................. 14
Section 8.1 Covenant for the Electricity Transmission Project ............................. 14
Annex I: Program Description
Annex II: Multi-Year Financial Plan Summary
Annex III: Compact Monitoring & Evaluation Summary
Annex IV: Conditions to Disbursement of Compact CDF
Annex V: Additional Conditions Precedent to Entry Into Force
Annex VI: Definitions
Annex VII: Tax Schedules
MILLENNIUM CHALLENGE COMPACT
PREAMBLE
This MILLENNIUM CHALLENGE COMPACT (this “Compact”) is between the United
States of America, acting through the Millennium Challenge Corporation, a United States
government corporation (“MCC”), and the Federal Democratic Republic of Nepal (“Nepal”),
acting through its Ministry of Finance (the “Government”) (individually, a “Party” and
collectively, the “Parties”). Capitalized terms used in this Compact will have the meanings
provided in Annex VI.
Recognizing that the Parties are committed to the shared goals of promoting economic
growth and the elimination of poverty in Nepal and that MCC assistance under this Compact
supports Nepal’s demonstrated commitment to strengthening good governance, economic
freedom and investments in people;
Recalling that the Government consulted with the private sector and civil society of
Nepal to determine the priorities for the use of MCC assistance and developed and submitted to
MCC a proposal for such assistance to achieve lasting economic growth and poverty reduction;
and
Recognizing that MCC wishes to help Nepal implement the program described herein to
achieve the goal and objectives described herein (the “Program”);
The Parties hereby agree as follows:
ARTICLE 1.
GOAL AND OBJECTIVES
Section 1.1 Compact Goal. The goal of this Compact is to reduce poverty through economic
growth in Nepal (the “Compact Goal”). MCC’s assistance will be provided in a manner that
strengthens good governance, economic freedom, and investments in the people of Nepal.
Section 1.2 Project Objectives. The Program consists of the projects described in Annex I
(each a “Project” and collectively, the “Projects”). The objective of each of the Projects (each a
“Project Objective” and collectively, the “Project Objectives”) is to:
(a) Increase electricity consumption by facilitating power trade and by improving the
availability and reliability of electricity supply in Nepal’s electricity grid; and by facilitating
power trade, and
(b) Maintain road quality across the strategic road network.
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ARTICLE 2.
FUNDING AND RESOURCES
Section 2.1 Program Funding. Upon entry into force of this Compact in accordance with
Section 7.3, MCC will grant to the Government, under the terms of this Compact, an amount not
to exceed Four Hundred Fifty-Nine Million Five Hundred Thousand United States Dollars
(US$459,500,000) (“Program Funding”) for use by the Government to implement the Program.
The allocation of Program Funding is generally described in Annex II.
Section 2.2 Compact CDF.
(a) Upon the signing of this Compact, MCC will grant to the Government, under the
terms of this Compact and in addition to the Program Funding described in Section 2.1, an
amount not to exceed Forty Million Five Hundred Thousand United States Dollars
(US$40,500,000) (“Compact CDF”) under Section 609(g) of the Millennium Challenge Act of
2003, as amended (the “MCA Act”), for use by the Government to facilitate implementation of
this Compact, including for the following purposes:
(i) financial management and procurement activities;
(ii) administrative activities (including start-up costs such as staff salaries) and
administrative support expenses such as rent, computers, and other information technology or
capital equipment;
(iii) monitoring and evaluation activities;
(iv) feasibility, design, and other project preparatory studies and activities; and
(v) other activities to facilitate Compact implementation as approved by
MCC.
The allocation of Compact CDF is generally described in Annex II.
(b) In accordance with Section 7.5, this Section 2.2 and other provisions of this
Compact applicable to Compact CDF will be effective, for purposes of Compact CDF only, as of
the date this Compact is signed by MCC and the Government.
(c) Each Disbursement of Compact CDF is subject to satisfaction of the conditions
precedent to such disbursement as set forth in Annex IV.
(d) If MCC determines that the full amount of Compact CDF available under Section
2.2(a) exceeds the amount that reasonably can be utilized for the purposes set forth in Section
2.2(a), MCC, by written notice to the Government, may withdraw the excess amount, thereby
reducing the amount of the Compact CDF available under Section 2.2(a) (such excess, the
“Excess Compact CDF Amount”). In such event, the amount of Compact CDF granted to the
Government under Section 2.2(a) will be reduced by the Excess Compact CDF Amount, and
MCC will have no further obligations with respect to such Excess Compact CDF Amount.
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(e) MCC, at its option by written notice to the Government, may elect to grant to the
Government an amount equal to all or a portion of such Excess Compact CDF Amount as an
increase in the Program Funding, and such additional Program Funding will be subject to the
terms and conditions of this Compact applicable to Program Funding.
Section 2.3 MCC Funding. Program Funding and Compact CDF are collectively referred to in
this Compact as “MCC Funding,” and includes any refunds or reimbursements of Program
Funding or Compact CDF paid by the Government in accordance with this Compact.
Section 2.4 Disbursement. In accordance with this Compact and the Program Implementation
Agreement, MCC will disburse MCC Funding for expenditures incurred in furtherance of the
Program (each instance, a “Disbursement”). Subject to the satisfaction of all applicable
conditions precedent, MCC will make the proceeds of Disbursements available to the
Government either by (a) deposit to one or more bank accounts established by the Government
and acceptable to MCC (each, a “Permitted Account”) or (b) direct payment to the relevant
provider of goods, works or services for the implementation of the Program. MCC Funding may
be expended only for Program expenditures.
Section 2.5 Interest. The Government will pay or transfer to MCC, in accordance with the
Program Implementation Agreement, any interest or other earnings that accrue on MCC Funding
prior to such funding being used for a Program purpose.
Section 2.6 Government Resources; Budget.
(a) The Government will provide all funds and other resources, and will take all
actions, that are necessary to carry out the Government’s responsibilities under this Compact. In
addition, the Government will make a contribution towards meeting the Project Objectives of
this Compact (“Government Contribution”). Annex II describes the Government Contribution in
more detail.
(b) The Government will use its best efforts to ensure that all MCC Funding it
receives or is projected to receive in each of its fiscal years is fully accounted for in its annual
budget for the duration of the Program.
(c) The Government will not reduce the normal and expected resources that it would
otherwise receive or budget from sources other than MCC for the activities contemplated under
this Compact and the Program.
(d) Unless the Government discloses otherwise to MCC in writing, MCC Funding
will be in addition to the resources that the Government would otherwise receive or budget for
the activities contemplated under this Compact and the Program.
Section 2.7 Limitations on the Use of MCC Funding. The Government will ensure that MCC
Funding is not used for any purpose that would violate United States law or policy, as specified
in this Compact or as further notified to the Government in writing, including but not limited to
the following purposes:
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(a) for assistance to, or training of, the military, police, militia, national guard or
other quasi-military organization or unit;
(b) for any activity that is likely to cause a substantial loss of United States jobs or a
substantial displacement of United States production;
(c) to undertake, fund or otherwise support any activity that is likely to cause a
significant environmental, health, or safety hazard, as further described in MCC’s Environmental
Guidelines and any guidance documents issued in connection with such guidelines (collectively,
the “MCC Environmental Guidelines”); or
(d) to pay for the performance of abortions as a method of family planning or to
motivate or coerce any person to practice abortions, to pay for the performance of involuntary
sterilizations as a method of family planning or to coerce or provide any financial incentive to
any person to undergo sterilizations or to pay for any biomedical research which relates, in whole
or in part, to methods of, or the performance of, abortions or involuntary sterilization as a means
of family planning.
Section 2.8 Taxes.
(a) Unless the Parties specifically agree otherwise in writing, the Government will
ensure that all MCC Funding is free from the payment or imposition of any existing or future
taxes, duties, levies, contributions or other similar charges (but not fees or charges for services
that are generally applicable in Nepal, reasonable in amount and imposed on a nondiscriminatory basis) (“Taxes”) of or in Nepal (including any such Taxes imposed by a national,
federal, state, local, or other governmental or taxing authority of or in Nepal). Specifically, and
without limiting the generality of the foregoing, MCC Funding will be free from the payment of
(i) any tariffs, customs duties, import taxes, export taxes, and other similar charges on any goods,
works or services introduced into Nepal in connection with the Program; (ii) value added tax,
sales tax, excise duty, property transfer tax, and other similar charges on any transactions
involving goods, works or services in connection with the Program, (iii) taxes and other similar
charges on ownership, possession or use of any property in connection with the Program, and
(iv) taxes and other similar charges on income, profits or gross receipts attributable to work
performed in connection with the Program and related social security taxes and other similar
charges on all natural or legal persons performing work in connection with the Program except
(1) natural persons who are citizens or permanent residents of Nepal and (2) legal persons
formed under the laws of Nepal (but excluding MCA-Nepal and any other entity formed for the
purpose of implementing the Government’s obligations hereunder).
(b) The mechanisms that the Government will use to implement the tax exemption
required by Section 2.8(a) for certain principal taxes are set forth in Annex VII. Such
mechanisms may include exemptions from the payment of Taxes that have been granted in
accordance with applicable law, refund or reimbursement of Taxes by the Government to MCC,
MCA-Nepal or to the taxpayer, or payment by the Government to MCA-Nepal or MCC, for the
benefit of the Program, of an agreed amount representing any collectible Taxes on the items
described in Section 2.8(a).
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(c) If a Tax has been paid contrary to the requirements of Section 2.8(a) or Annex
VII, the Government will refund promptly to MCC (or to another party as designated by MCC)
the amount of such Tax in United States dollars or the currency of Nepal within 30 days (or such
other period as may be agreed in writing by the Parties) after the Government is notified in
writing (whether by MCC or MCA-Nepal) that such Tax has been paid. Failure to refund such
amount within the specified time will result in interest accruing on the unpaid amount in
accordance with Section 5.4.
(d) No MCC Funding, proceeds thereof or Program Assets may be applied by the
Government in satisfaction of its obligations under Section 2.8(c).
ARTICLE 3.
IMPLEMENTATION
Section 3.1 Program Implementation Agreement. The Parties will enter into an agreement
providing further detail on the implementation arrangements, fiscal accountability and
disbursement and use of MCC Funding, among other matters (the “Program Implementation
Agreement” or “PIA”); and the Government will implement the Program in accordance with this
Compact, the PIA, any other Supplemental Agreement and any Implementation Letter.
Section 3.2 Government Responsibilities.
(a) The Government has principal responsibility for overseeing and managing the
implementation of the Program.
(b) With the prior written consent of MCC, the Government will designate an entity
to be established through a formation order issued by the Council of Ministers of Nepal, as the
accountable entity to implement the Program and to exercise and perform the Government’s
right and obligation to oversee, manage and implement the Program, including without
limitation, managing the implementation of Projects and their Activities, allocating resources and
managing procurements. Such entity will be referred to herein as “MCA-Nepal,” and will have
the authority to act on behalf of the Government with regard to all Program activities. The
Government hereby also designates MCA-Nepal to exercise and perform the Government’s
rights and responsibilities to oversee, manage, and implement the activities defined in the
Amended and Restated Initial Engagement Technical Assistance Grant Agreement, dated July
20, 2016. The designation contemplated by this Section 3.2(b) will not relieve the Government
of any obligations or responsibilities hereunder or under any related agreement, for which the
Government remains fully responsible. MCC hereby acknowledges and consents to the
designation in this Section 3.2(b).
(c) The Government will ensure that any Program Assets or services funded in whole
or in part (directly or indirectly) by MCC Funding are used solely in furtherance of this Compact
and the Program unless MCC agrees otherwise in writing.
(d) The Government will take all necessary or appropriate steps to achieve the Project
Objectives during the Compact Term (including, without limiting Section 2.6(a), funding all
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costs that exceed MCC Funding and are required to carry out the terms hereof and achieve such
objectives, unless MCC agrees otherwise in writing).
(e) The Government will ensure that the Program is implemented and that the
Government carries out its obligations hereunder with due care, efficiency and diligence in
conformity with sound technical, financial, and management practices, and in conformity with
this Compact, the Program Implementation Agreement, each other Supplemental Agreement and
the Program Guidelines.
(f) The Government grants to MCC a perpetual, irrevocable, royalty-free, worldwide,
fully paid, assignable right and license to practice or have practiced on its behalf (including the
right to produce, reproduce, publish, repurpose, use, store, modify, or make available) any
portion or portions of Intellectual Property as MCC sees fit in any medium, now known or
hereafter developed, for any purpose whatsoever.
Section 3.3 Policy Performance. In addition to undertaking the specific policy, legal and
regulatory reform commitments identified in Annex I (if any), the Government will seek to
maintain and to improve its level of performance under the policy criteria identified in Section
607 of the MCA Act, and the selection criteria and methodology used by MCC.
Section 3.4 Accuracy of Information. The Government assures MCC that, as of the date this
Compact is signed by the Government, the information provided to MCC by or on behalf of the
Government in the course of reaching agreement with MCC on this Compact is true, correct, and
complete in all material respects.
Section 3.5 Implementation Letters. From time to time, MCC may advise the Government in
writing on any matters relating to this Compact, MCC Funding, or implementation of the
Program (each, an “Implementation Letter”). The Government will use such advice in
implementing the Program. The Parties may also issue jointly agreed-upon Implementation
Letters to confirm and record their mutual understanding on aspects related to the
implementation of this Compact, the PIA, or other related agreements.
Section 3.6 Procurement and Grants.
(a) The Government will ensure that the procurement of all goods, works, and
services by the Government or any Provider to implement the Program will be in accordance
with MCC’s Program Procurement Guidelines (the “MCC Program Procurement Guidelines”).
The MCC Program Procurement Guidelines include the following requirements, among others:
(i) open, fair, and competitive procedures must be used in a transparent
manner to solicit, award and administer contracts and to procure goods, works and services;
(ii) solicitations for goods, works, and services must be based upon a clear and
accurate description of the goods, works and services to be acquired;
(iii) contracts must be awarded only to qualified contractors that have the
capability and willingness to perform the contracts in accordance with their terms on a cost
effective and timely basis; and
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(iv) no more than a commercially reasonable price, as determined, for
example, by a comparison of price quotations and market prices, will be paid to procure goods,
works, and services.
(b) Unless MCC otherwise consents in writing, the Government will ensure that any
grant issued in furtherance of the Program (each, a “Grant”) is awarded, implemented, and
managed pursuant to open, fair and competitive procedures administered in a transparent manner
acceptable to MCC. In furtherance of this requirement, and prior to the issuance of any Grant,
the Government and MCC will agree upon written procedures to govern the identification of
potential Grant recipients, including, without limitation, appropriate eligibility and selection
criteria, and award procedures. Such agreed procedures will be posted on the MCA-Nepal
website.
Section 3.7 Records; Accounting; Covered Providers; Access.
(a) Government Books and Records. The Government will maintain, and will use its
best efforts to ensure that all Covered Providers maintain, accounting books, records, documents
and other evidence relating to the Program adequate to show, to MCC’s satisfaction, the use of
all MCC Funding and the implementation and results of the Program (“Compact Records”). In
addition, the Government will furnish or cause to be furnished to MCC, upon its request,
originals, or copies of such Compact Records.
(b) Accounting. The Government will maintain and will use its best efforts to ensure
that all Covered Providers maintain Compact Records in accordance with generally accepted
accounting principles prevailing in the United States, or at the Government’s option and with
MCC’s prior written approval, other accounting principles, such as those (i) prescribed by the
International Accounting Standards Board, or (ii) then prevailing in Nepal. Compact Records
must be maintained for at least five years after the end of the Compact Term or for such longer
period, if any, required to resolve any litigation, claims or audit findings, or any applicable legal
requirements.
(c) Access. Upon MCC’s request, the Government, at all reasonable times, will
permit, or cause to be permitted, authorized representatives of MCC, the Inspector General of
MCC (“Inspector General”), the United States Government Accountability Office, any auditor
responsible for an audit contemplated herein or otherwise conducted in furtherance of this
Compact, and any agents or representatives engaged by MCC or the Government to conduct any
assessment, review or evaluation of the Program, the opportunity to audit, review, evaluate or
inspect facilities, assets, and activities funded in whole or in part by MCC Funding.
Section 3.8 Audits; Reviews.
(a) Government Audits. Except as the Parties may agree otherwise in writing, the
Government will, on at least a semi-annual basis, conduct, or cause to be conducted, financial
audits of all disbursements of MCC Funding covering the period from signing of this Compact
until the earlier of the following September 30 or March 31 and covering each six-month period
thereafter ending September 30 and March 31, through the end of the Compact Term. In
addition, upon MCC’s request, the Government will ensure that such audits are conducted by an
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independent auditor approved by MCC and named on the list of local auditors approved by the
Inspector General or a United States–based certified public accounting firm selected in
accordance with MCC’s Guidelines for Financial Audits Contracted by the Millennium
Challenge Corporation’s Accountable Entities issued and revised from time to time by the
Inspector General (the “Audit Guidelines”). Audits will be performed in accordance with the
Audit Guidelines and be subject to quality assurance oversight by the Inspector General. Each
audit must be completed and the audit report delivered to MCC no later than 90 days after the
applicable audit period, or such other period as the Parties may otherwise agree in writing. The
requirements of this Section 3.8(a) do not preclude the Office of the Auditor General of Nepal
from conducting audits of MCA-Nepal.
(b) Audits of Other Entities. The Government will ensure that MCC financed
agreements between the Government or any Provider, on the one hand, and (i) a United States
nonprofit organization, on the other hand, state that the United States nonprofit organization is
subject to the applicable audit requirements contained in the Uniform Administrative
Requirements, Cost Principles and Audit Requirements for Federal Awards, issued by the United
States Office of Management and Budget; (ii) a United States for-profit Covered Provider, on the
other hand, state that the United States for-profit organization is subject to audit by the applicable
United States Government agency, unless the Government and MCC agree otherwise in writing;
and (iii) a non-US Covered Provider, on the other hand, state that the non-US Covered Provider
is subject to audit in accordance with the Audit Guidelines.
(c) Corrective Actions. The Government will use its best efforts to ensure that each
Covered Provider (i) takes, where necessary, appropriate and timely corrective actions in
response to audits, (ii) considers whether the results of the Covered Provider’s audit necessitates
adjustment of the Government’s records, and (iii) permits independent auditors to have access to
its records and financial statements as necessary.
(d) Audit by MCC. MCC will have the right to arrange for audits of the
Government’s use of MCC Funding.
(e) Cost of Audits, Reviews, or Evaluations. MCC Funding may be used to fund the
costs of any audits, reviews, or evaluations required under this Compact.
ARTICLE 4.
COMMUNICATIONS
Section 4.1 Communications.
Any document or communication required or submitted by either Party to the other under this
Compact must be in writing and, except as otherwise agreed with MCC, in English. All such
documents or communication must be submitted to the address of each Party set forth below or
to such other address as may be designated by any Party in a written notice to the other Party.
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To MCC:
Millennium Challenge Corporation
Attention: Vice President, Compact Operations
(with a copy to the Vice President and General Counsel)
1099 Fourteenth Street NW
Washington, DC 20005
United States of America
Facsimile: +1 (202) 521-3700
Telephone: +1 (202) 521-3600
Email: VPOperations@mcc.gov (Vice President, Compact Operations)
VPGeneralCounsel@mcc.gov (Vice President and General Counsel)
To the Government:
Ministry of Finance
Attention: Finance Secretary
(With a copy to the Joint Secretary, International Economic Cooperation
Coordination Division)
Singh Durbar
Kathmandu
Nepal
Facsimile: +977-1-4211161
Telephone: +977-1-4211164
Email: secretary@mof.gov.np
Section 4.2 Representatives. For all purposes of this Compact, the Government will be
represented by the individual holding the position of, or acting as, the Minister of Finance of the
Federal Democratic Republic of Nepal, and MCC will be represented by the individual holding
the position of, or acting as, Vice President, Compact Operations (each of the foregoing, a
“Principal Representative”). Each Party, by written notice to the other Party, may designate one
or more additional representatives (each, an “Additional Representative”) for all purposes of this
Compact except Section 6.2(a). The Government hereby designates the future Executive Director
of MCA-Nepal as an Additional Representative. MCC hereby designates the Deputy Vice
President, Department of Compact Operations, Europe, Asia, Pacific, and Latin America as an
Additional Representative. A Party may change its Principal Representative to a new
representative that holds a position of equal or higher authority upon written notice to the other
Party.
Section 4.3 Signatures. Signatures to this Compact and to any amendment to this Compact
will be original signatures appearing on the same page or in an exchange of letters or diplomatic
notes.
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ARTICLE 5.
TERMINATION; SUSPENSION; EXPIRATION
Section 5.1 Termination; Suspension.
(a) Either Party may terminate this Compact without cause in its entirety by giving
the other Party 30 days’ prior written notice. MCC may also terminate this Compact or MCC
Funding without cause in part by giving the Government 30 days’ prior written notice.
(b) MCC may, immediately, upon written notice to the Government, suspend or
terminate this Compact or MCC Funding, in whole or in part, and any obligation related thereto,
if MCC determines that any circumstance identified by MCC, as a basis for suspension or
termination (as notified to the Government in writing) has occurred, which circumstances
include but are not limited to the following:
(i) the Government fails to comply with its obligations under this Compact or
any other agreement or arrangement entered into by the Government in connection with this
Compact or the Program;
(ii) an event or series of events has occurred that makes it probable that any of
the Project Objectives will not be achieved during the Compact Term or that the Government
will not be able to perform its obligations under this Compact;
(iii) a use of MCC Funding or continued implementation of this Compact or
the Program violates applicable law or United States Government policy, whether now or
hereafter in effect;
(iv) the Government or any other person or entity receiving MCC Funding or
using Program Assets is engaged in activities that are contrary to the national security interests of
the United States;
(v) an act has been committed or an omission or an event has occurred that
would render Nepal ineligible to receive United States economic assistance under Part I of the
Foreign Assistance Act of 1961, as amended (22 U.S.C. 2151 et seq.), by reason of the
application of any provision of such act or any other provision of law;
(vi) the Government has engaged in a pattern of actions inconsistent with the
criteria used to determine the eligibility of Nepal for assistance under the MCA Act; and
(vii) the Government or another person or entity receiving MCC Funding or
using Program Assets is found to have been convicted of a narcotics offense or to have been
engaged in drug trafficking.
Section 5.2 Consequences of Termination, Suspension, or Expiration.
(a) The Parties agree that they will endeavor in good faith to consult the other Party
in the event of a termination under Section 5.1(a).
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(b) MCC may reinstate any suspended or terminated MCC Funding under this
Compact if MCC determines that the Government or other relevant person or entity has
committed to correct each condition for which MCC Funding was suspended or terminated.
(c) Upon the suspension or termination, in whole or in part, of this Compact or any
MCC Funding, or upon the expiration of this Compact, the provisions of Section 4.2 of the
Program Implementation Agreement will govern the post-suspension, post-termination or postexpiration treatment of MCC Funding, any related Disbursements and Program Assets. Any
portion of this Compact, MCC Funding, the Program Implementation Agreement, or any other
Supplemental Agreement that is not suspended or terminated will remain in full force and effect.
Section 5.3 Refunds; Violation.
(a) If any MCC Funding, any interest or earnings thereon, or any Program Asset is
used for any purpose in violation of the terms of this Compact, then MCC may require the
Government to repay to MCC in United States Dollars the value of the misused MCC Funding,
interest, earnings, or asset, plus interest within 30 days after the Government’s receipt of MCC’s
request for repayment. The Government will not use MCC Funding, proceeds thereof or Program
Assets to make such payment.
(b) Notwithstanding any other provision in this Compact or any other agreement to
the contrary, MCC’s right under Section 5.3(a) to obtain a refund will continue during the
Compact Term and for a period of (i) five years thereafter or (ii) one (1) year after MCC receives
actual knowledge of such violation, whichever is later.
Section 5.4 Late Payment Interest. If the Government fails to pay any amount under this
Compact or the Program Implementation Agreement when due (including amounts under
Section 2.8(c) and 5.3(a)), interest will be paid on such unpaid amount. Interest will accrue on
such unpaid amount at a rate equal to the then current US Treasury Current Value of Funds Rate,
calculated on a daily basis and a 360-day year from the due date of such payment until such
amount is paid in full. Any such payment will first be credited against interest due, and once the
interest due amount is extinguished, then payments will be credited against outstanding principal.
Section 5.5 Survival. The Government’s responsibilities under this Section and Sections 2.7,
2.8, 3.2(f), 3.7, 3.8, 5.2, 5.3, 5.4 and 6.4 will survive the expiration, suspension or termination of
this Compact, provided that the terms of Section 2.8 will survive for only 120 days following this
Compact’s expiration.
ARTICLE 6.
COMPACT ANNEXES; AMENDMENTS; GOVERNING LAW
Section 6.1 Annexes. Each annex to this Compact constitutes an integral part hereof, and
references to “Annex” mean an annex to this Compact unless otherwise expressly stated.
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Section 6.2 Amendments and Modifications.
(a) The Parties may amend this Compact only by a written agreement. Such
agreement will specify how it enters into force.
(b) Notwithstanding subsection (a) the Parties agree that the Government and MCC
may by written agreement, which will enter into force upon signature, modify any Annex to (i)
suspend, terminate or modify any Project or Activity, (ii) change the allocations of funds as set
forth in Annex II, (iii) modify the implementation framework described in Annex I, (iv) add,
change or delete any indicator, baseline or target or other information set forth in Annex III in
accordance with the MCC M&E Policy, (v) add, delete or waive any condition precedent
described in Annex IV or (vi) modify the mechanisms for exempting MCC Funding from Taxes
as set forth in Annex VII; provided that, in each case, any such modification (1) is consistent in
all material respects with the Project Objectives, (2) does not cause the amount of Program
Funding to exceed the aggregate amount specified in Section 2.1 (as may be modified by
operation of Section 2.2(e)), (3) does not cause the amount of Compact CDF to exceed the
aggregate amount specified in Section 2.2(a), (4) does not reduce the Government’s
responsibilities or contribution of resources required under Section 2.6(a), and (5) does not
extend the Compact Term.
(c) The Parties understand that any modification of any Annex pursuant to Section
6.2(b) may be entered into by the Government without the need for further action by the
Government (including any parliamentary action), or satisfaction of any additional domestic
requirements of Nepal.
Section 6.3 Inconsistencies. In the event of any conflict or inconsistency between:
(a) any Annex and any of Articles 1 through 8, such Articles 1 through 8, as
applicable, will prevail; or
(b) this Compact and any other agreement between the Parties regarding the Program,
this Compact will prevail.
Section 6.4 Governing Law. This Compact is an international agreement and as such will be
governed by the principles of international law.
Section 6.5 Additional Instruments. Any reference to activities, obligations or rights
undertaken or existing under or in furtherance of this Compact or similar language will include
activities, obligations and rights undertaken by, or existing under or in furtherance of any
agreement, document or instrument related to this Compact and the Program.
Section 6.6 References to MCC Website. Any reference in this Compact, the PIA or any other
agreement entered into in connection with this Compact, to a document or information available
on, or notified by posting on the MCC Website will be deemed a reference to such document or
information as updated or substituted on the MCC Website from time to time.
13
Section 6.7 References to Laws, Regulations, Policies, and Guidelines, References to
Compact Expiration and Termination.
(a) Each reference in this Compact, the PIA or any other agreement entered into in
connection with this Compact, to a law, regulation, policy, guideline or similar document will be
construed as a reference to such law, regulation, policy, guideline or similar document as it may,
from time to time, be amended, revised, replaced, or extended and will include any law,
regulation, policy, guideline or similar document issued under or otherwise applicable or related
to such law, regulation, policy, guideline or similar document.
(b) Each reference in this Compact, the PIA or any other agreement entered into in
connection with this Compact, to the Compact’s “expiration” refers to the date on which the
Compact Terms ends if the Compact is not terminated earlier, which in accordance with Section
7.4 is five years after its entry into force. Each reference in any of the aforementioned documents
to the Compact’s “termination” refers to the Compact ceasing to be in force prior to its expiration
in accordance with Section 5.1.
Section 6.8 MCC Status. MCC is a United States government corporation acting on behalf of
the United States Government in the implementation of this Compact. MCC and the United
States Government assume no liability for any claims or loss arising out of activities or
omissions under this Compact. The Government waives any and all claims against MCC or the
United States Government or any current or former officer or employee of MCC or the United
States Government for all loss, damage, injury, or death arising out of activities or omissions
under this Compact, and agrees that it will not bring any claim or legal proceeding of any kind
against any of the above entities or persons for any such loss, damage, injury, or death. The
Government agrees that MCC and the United States Government or any current or former officer
or employee of MCC or the United States Government will be immune from the jurisdiction of
all courts and tribunals of Nepal for any claim or loss arising out of activities or omissions under
this Compact.
ARTICLE 7.
ENTRY INTO FORCE
Section 7.1 Domestic Requirements. The Government will proceed in a timely manner to
complete all of its domestic requirements for this Compact to enter into force. The Parties
understand that this Compact, upon entry into force, will prevail over the domestic laws of
Nepal.
Section 7.2 Conditions Precedent to Entry into Force. Before this Compact enters into force:
(a) the Program Implementation Agreement must have been signed by the parties
thereto;
(b) The Government must have delivered to MCC:
(i) a letter signed and dated by the Principal Representative of the
Government, or such other duly authorized representative of the Government acceptable to
14
MCC, confirming that the Government has completed its domestic requirements necessary for
this Compact to enter into force and that the other conditions precedent to entry into force in this
Section 7.2 have been met;
(ii) a signed legal opinion from the Minister of Law and Justice of Nepal (or
such other legal representative of the Government acceptable to MCC), in form and substance
satisfactory to MCC;
(iii) complete, certified copies of all decrees, legislation, regulations or other
governmental documents relating to the Government’s domestic requirements necessary for this
Compact to enter into force, which MCC may post on its website or otherwise make publicly
available;
(c) MCC will not have determined, at the time of this Compact’s entry into force, that
the Government has engaged in a pattern of actions inconsistent with the eligibility criteria for
MCC Funding; and
(d) The conditions set forth in Annex V have been satisfied.
Section 7.3 Date of Entry into Force. This Compact will enter into force on the date of the
letter from MCC to the Government in an exchange of letters confirming that MCC and the
Government have completed their domestic requirements for entry into force of this Compact
and that the conditions precedent to entry into force in Section 7.2 have been met to MCC’s
satisfaction.
Section 7.4 Compact Term. This Compact will remain in force for five years after its entry
into force, unless terminated earlier under Section 5.1 (the “Compact Term”).
Section 7.5 Provisional Application. Upon signature of this Compact, and until this Compact
has entered into force in accordance with Section 7.3, the Parties will provisionally apply the
terms of this Compact; provided that, no MCC Funding, other than Compact CDF, will be made
available or disbursed before this Compact enters into force.
ARTICLE 8.
ADDITIONAL GOVERNMENT COVENANTS
Section 8.1 Covenant for the Electricity Transmission Project. The Government will ensure
the full and expeditious cooperation of all relevant Government entities to ensure that all land
acquisition, site access, and forest clearance required to implement the Compact is provided in a
timely manner, and consistent with all MCC policies.
SIGNATURE PAGE FOLLOWS ON THE NEXT PAGE
SIGNATURE PAGE TO MILLENNIUM CHALLENGE COMPACT
BETWEEN THE UNITED STATES OF AMERICA
ACTING THROUGH THE MILLENNIUM CHALLENGE CORPORATION
AND THE FEDERAL DEMOCRATIC REPUBLIC OF NEPAL
ACTING THROUGH THE MINISTRY OF FINANCE
IN WITNESS WHEREOF, each Party, by its duly authorized representative, has signed this
Compact.
Done at Washington, DC, this 14th day of September, 2017, in the English language.
FOR THE UNITED STATES OF
AMERICA, acting through the
MILLENNIUM CHALLENGE
CORPORATION
FOR THE FEDERAL DEMOCRATIC
REPUBLIC OF NEPAL, acting
through the MINISTRY OF FINANCE
/s/
Name: Jonathan G. Nash
Title: Chief Executive Officer (Acting)
/s/
Name: Gyanendra Bahadur Karki
Title: Minister of Finance
ANNEX I
PROGRAM DESCRIPTION
This Annex I describes the Program that MCC Funding will support in Nepal during the
Compact Term.
A. PROGRAM OVERVIEW
1. Background and Consultative Process.
(a) Background.
Nepal was initially selected by MCC’s Board of Directors to develop a threshold program in
December 2011 based on the strength of its performance on MCC’s policy indicators following a
period of civil and political unrest in Nepal from 1996-2006. Before a threshold program was
finalized, MCC’s Board of Directors selected Nepal in December 2014 to develop a compact. In
this selection decision, MCC’s Board of Directors recognized Nepal’s efforts to establish rule of
law and democratic institutions and highlighted the importance to the United States and South
Asia of a politically stable and economically-growing Nepal. Much of the work prepared for the
threshold program, such as the constraints analysis, and certain power and transport policy and
institutional analyses, were completed shortly after Nepal was selected to develop a compact and
were repurposed for development of the compact.
Since December 2014, MCC and the Government have focused on developing a compact to
address the identified constraints to growth in Nepal. Following consultations with the private
sector, civil society, and development partners, the Government and MCC ultimately agreed to
focus on two of the identified constraints: inadequate supply of electricity and the high cost of
transport. Investment in Nepal’s electricity sector is particularly critical due to the impacts of
inadequate supply, as Nepal has historically suffered from the worst electricity shortages in
South Asia. Demand for electricity has historically exceeded domestic electricity supply,
resulting in load-shedding particularly during the dry winter months when hydropower
generation is low. The under-supply of electricity is further exacerbated by high losses in
transmission and distribution. Low availability of electricity creates significant costs for
businesses, which have to run generators on expensive imported fuel.
With regard to the high cost of transport, this constraint has significant economic impacts due to
the land-locked and mountainous nature of Nepal, as well as its reliance on cross-border trade.
The Program will focus on road maintenance, which suffers from insufficient funding and
ineffective technical and management practices.
(b) Consultative Process.
Since being selected to develop a compact, the Government’s efforts in Nepal have focused on
development of a compact designed around the identified constraints. Throughout the compact
development process, the Government has engaged civil society, trade associations, development
Annex I-2
partners, political parties, and other relevant communities and stakeholders to seek their support,
guidance, and feedback in project design and risk mitigation.
To ensure the investments proposed for the Nepal Compact have the widest political support and
the greatest potential for impact, MCC has worked closely with the United States Agency for
International Development (“USAID”) and the United States Department of State, as well as the
Government of India and a variety of development partners, to identify and design the
investments described further in this Annex I.
2. Description of Program and Beneficiaries.
(a) Program Description.
The Program focuses on two key binding constraints to economic growth – the inadequate
supply of electricity and the high cost of transport. The root causes of Nepal’s power sector
problems have contributed to low and slow investments in the electricity value chain, leading to
a shortage of electricity caused by: slow expansion of domestic generation; low levels of
electricity imports due to inadequate domestic and cross-border transmission infrastructure; and
high technical losses in the system. The Program intends to alleviate the inadequate supply of
electricity by increasing the flow of electricity from existing and future generation plants into the
network, while also facilitating electricity trade with India. In combination, these elements are
expected to reduce load-shedding and make new sources of domestic generation become
financially viable. In addition, proposed technical assistance is intended to strengthen the
planning and regulatory environment, thereby promoting enhanced private sector investment in
the longer term.
With regard to the high cost of transport, which has significant economic effects due to the landlocked and mountainous nature of Nepal and its reliance on cross-border trade, the root cause
analysis identified the potential causes as insufficient funding for the creation and maintenance
of roads, inefficient customs and border enforcement, an inefficient trucking industry, and
inadequate road coverage. The Program will focus on addressing insufficient funding for road
maintenance by improving technical and management practices. Funding for road maintenance
as well as technical assistance will be provided to the Department of Roads (the “DOR”) and to
the Roads Board Nepal (the “RBN”) – which is the agency responsible for collecting and
allocating road maintenance funds – to assist with the prioritization of investments.
(b) Beneficiaries.
The Program is expected to benefit more than five million households (approximately 23 million
people) by the end of the Compact Term, as detailed below:
Annex I-3
Project ERR,
Central
Estimate
Beneficiaries (‘000s)1 Beneficiary Population2
Households Individuals <US$2/
day
US$2-
US$4/day
>US$4/day
Electricity
Transmission
Project
12% 5,035 22,659 7% 31% 62%
Road
Maintenance
Project
29% 205 925 8% 39% 53%
The beneficiaries of the Electricity Transmission Project are the population of grid-connected
households within Nepal who are expected to experience increased availability of electricity for
consumption as a result of the Project. The beneficiaries of the Road Maintenance Project are
households living in village development committees and municipalities crossed by roads
selected for periodic maintenance using MCC Funding.
B. DESCRIPTION OF PROJECTS
Set forth below is a description of each of the Projects that the Government will implement, or
cause to be implemented, using MCC Funding to advance the applicable Project Objective. In
addition, specific activities that will be undertaken within each Project (each an “Activity”),
including sub-activities, are also described.
1. Electricity Transmission Project
(a) Summary of Project and Activities.
The objective of the Electricity Transmission Project (the “Electricity Transmission Project”) is
to increase domestic electricity supply for consumption by improving the availability and
reliability of electricity in Nepal’s electricity grid. To achieve the Electricity Transmission
Project Objective, MCC Funding will support the following expenditures as further detailed in
this section: (i) construction of transmission lines to expand the high voltage transmission
backbone inside Nepal and the Nepal side of a second cross-border transmission line with India;
(ii) construction of three substations along the MCC-funded transmission lines; (iii) technical
assistance activities to improve sustainability of the power sector and MCC investments; and (iv)
necessary expenditures for project management, environmental and social impact assessment,
and engineering and technical supervision to ensure the Electricity Transmission Project
complies with MCC and Government of Nepal policies and standards.

1 There is overlap between the beneficiaries of the Electricity Transmission Project and the Road Maintenance
Project, hence total compact beneficiaries cannot be estimated by adding together the beneficiaries of each Project.
2
Income categories based on constant 2005 PPP dollars.
Annex I-4
(i) Transmission Lines Activity.
Through the Transmission Lines Activity, MCC Funding will be used to construct approximately
300 kilometers of a double-circuit 400 kilovolt transmission line inside Nepal that includes the
following components: 1) a segment starting from the northeast of Kathmandu at Lapsiphedi to
the west of Kathmandu near Ratmate; 2) a segment from Ratmate to the industrial town of
Hetauda, which is located south of Kathmandu; 3) another segment from Ratmate to Damauli to
the west; 4) a segment from Damauli heading southwest toward Butwal; and 5) a link from
Butwal to the Indian border.
(A) BIKAS Sub-Activity. In addition to construction of the
transmission lines, the Transmission Lines Activity includes the “Benefit Integration through
Knowledge-Sharing and Social Acceptance” sub-Activity or “BIKAS.” The goal of this subActivity is to build relationships within affected communities by delivering direct benefits that
complement the improvements in electricity supply that will be realized by Nepal as a whole.
Historically, transmission lines have crossed communities while contributing little to no direct
benefits to their well-being. As a result of not realizing direct benefits and dissatisfaction with
land valuation, communities in Nepal have often protested the construction of such infrastructure
leading to disruptions, delays, and even damage to infrastructure assets. Recognizing potential
challenges like these, the BIKAS sub-Activity seeks to pre-emptively provide services to
communities beyond resettlement compensation and the environmental management measures
typically found under environmental and social management plans. This approach both ensures
that Project-affected communities experience clear gains from the Electricity Transmission
Project and responds to lessons learned from other donor-funded projects in Nepal that suggest
that this form of community engagement can help reduce opposition to and disruption of
implementation of the Electricity Transmission Project. The final scope of this sub-Activity will
be determined through a consultative process after Compact-signing, and may include a variety
of services to ensure the affected communities are benefiting from the Program with an emphasis
on electricity consumption. Possible benefit sharing services may include but shall not be limited
to, connecting communities to the electricity grid as well as off-grid solutions using technology
such as micro-hydro turbines or solar photovoltaic panels.
(ii) Substations Activity.
This Activity is complementary to the Transmission Lines Activity. MCC Funding will be used
to construct three substations to increase or decrease transmitted voltages for further transmission
or distribution to consumers. The substations will be located at or close to Ratmate, Damauli, and
Butwal. Separately from the Program, the Government has agreed to upgrade two other
substations that are connected to electricity pooling hubs along the transmission lines constructed
as part of the Transmission Lines Activity, at or near Lapsephedi and Hetauda. The
Government’s upgrade of substations at Lapsephedi and Hetauda will not be considered part of
the Government’s contribution to the Program.
(iii) Power Sector Technical Assistance Activity.
This Activity aims to support the establishment of an independent electricity sector regulator (the
Electricity Regulatory Commission or “ERC”), as well as capacity-building through technical
Annex I-5
assistance to help bring transparency, efficiency, and competition into Nepal’s power sector.
MCC Funding will be used to embed experts within ERC to improve ERC’s skills in rulemaking, dispute resolution, and economic and technical regulation. Similarly, one or more
advisors will be embedded in the Ministry of Energy, and/or the Department of Electricity
Development to facilitate coordination of sector regulation. This Activity will also focus on
helping the Nepal Electricity Authority (“NEA”) improve its transmission business in the areas
of regulatory cost recovery, improved grid operations, and better system planning. Specific
efforts may involve: (a) training in system and market operations; (b) financial management
system improvements for transmission transactions and assets; and (c) targeted human resource
policies and job classifications, so that when the Government is ready to establish an
independent transmission company, the NEA has the tools and skills to become an effective
operation. This Activity will also support a study to examine and address key social issues such
as low income and/or marginalized groups’ ability to pay for electricity or access electricity and
the institutionalization of a lifeline tariff into the Government’s policy statement. Finally, the
Activity will support NEA’s Environment and Social Studies Department in strengthening
institutional capacity in social impact assessment and inclusive stakeholder engagement through
the development of guidelines, tools, and training.
(iv) Program Management and Technical Oversight Activity.
The Program Management and Technical Oversight Activity will complement the Transmission
Lines and Substations Activities. To successfully implement the proposed Electricity
Transmission Project infrastructure investments while complying with MCC’s technical,
environmental and social standards, MCC Funding will support necessary expenditures for
Project management, environmental and social impact assessment and mitigation, and
engineering and technical supervision of the Electricity Transmission Project.
(b) Beneficiaries.
The Electricity Transmission Project will affect all grid-connected consumers in Nepal. The
Project will therefore benefit at least the 72 percent of households that are currently believed to
be connected to the electricity grid. Given that Nepal’s projected population at the end of the
Compact is 31.5 million people, an estimated 23 million beneficiary individuals living in five
million beneficiary households are expected to benefit from the Electricity Transmission Project.
(c) Environmental and Social Mitigation Measures.
The Electricity Transmission Project is classified as Category A in accordance with MCC’s
Environmental Guidelines. Based on a preliminary evaluation, seven of the eight International
Finance Corporation Environment and Social Performance Standards (the “IFC Performance
Standards”), which are incorporated by reference into the MCC Environmental Guidelines, will
apply.
There are some unavoidable environmental and social impacts of the Electricity Transmission
Project, such as tree cutting, land acquisition, and resettlement. However, consistent with MCC
policies, all risks will be properly addressed through relevant compensation, mitigation, or
management measures. Environmental and social considerations have already been taken into
Annex I-6
account during route selection for the Transmission Lines Activity to avoid or minimize impacts
to sensitive environmental and social characteristics of the Project areas. The Electricity
Transmission Project will also complete a domestic environmental impact assessment permitting
process and a subsequent forest clearance permitting process prior to the start of construction
works. The BIKAS sub-Activity will also be implemented in those communities traversed by the
Electricity Transmission Project that are not realizing direct benefits from construction of the
Transmission Lines Activity. Environmental and social risks, impacts, and opportunities will be
managed through an environmental and social management system for all Compact activities.
MCC Funding will be used to undertake an environmental and social impact assessment,
environmental and social management plan, and any necessary resettlement action plans.
(d) Social Inclusion and Gender Integration.
The Electricity Transmission Project, through the BIKAS sub-Activity, is intended to have
significant and positive social benefits. The principal idea of benefit-sharing is to share the
benefits resulting from infrastructure projects in order to satisfy the electricity needs of the
concerned communities. The BIKAS sub-Activity intends to explore the provision of electricity
and associated services to gain acceptance of the affected communities, keeping in mind the
demographic and social context of those communities. Section B.1.a.iii of this Annex I further
outlines proposed activities to better address social inclusion and gender integration issues
related to the power sector.
(e) Donor Coordination.
Throughout the multi-year development of the Compact, MCC and the Government have
engaged in an inclusive process that included consultations with the United States Government,
Nepali communities and key private sector actors, non-government actors, and other donors as
well as multilateral organizations. In particular, MCC worked closely with the World Bank and
the Asian Development Bank in reviewing and agreeing on various power sector reforms
required in Nepal for future programming by the two banks. MCC also consulted frequently with
the United Kingdom’s Department for International Development (“DFID”) during its
preparation of a political economy analysis of power sector reform.
(f) USAID.
The Electricity Transmission Project benefits from close inter-agency collaboration between
MCC and USAID. Specifically, MCC has coordinated closely with USAID on its US$10 million
ongoing technical assistance activity, which provides a review of the Government’s regulatory
regime and provides ongoing assistance to the Government to achieve financial close on several
large hydropower project transactions. USAID’s assistance is complementary to MCC’s efforts
in the electricity sector.
(g) Sustainability.
Sustainability of the Electricity Transmission Project will be enhanced by investments in
technical assistance that are focused directly on improving the regulatory regime to create greater
transparency, accountability, and efficiency of the electricity market. Furthermore, the technical
assistance provided under the Compact is intended to improve the Government’s capacity to
Annex I-7
better manage and maintain transmission assets. A sustained increase in the consumption of
reliable and affordable electricity supply should promote economic growth, create jobs, increase
incomes, and consequently reduce poverty.
(h) Policy, Legal, and Regulatory Reforms.
In addition to Section 8.1 of the Compact, the Parties have identified the following policy, legal,
regulatory, and institutional reforms and actions that the Government will pursue in support of
the Project. MCC and the Government agree that two key requirements for improvement of the
electricity sector are (i) the creation of an independent electricity sector regulator, and (ii)
passage of a new law for electricity sector regulation, which will grant the regulator the authority
to license sector operators, provide operating certificates, set rates in the public interest, and
make rules for transparent sector operations. Technical assistance for the proposed regulator and
for the Ministry of Energy will be dependent upon passage of legislation creating the regulator
and providing the regulator with the appropriate authorities
2. Road Maintenance Project
(a) Summary of Project and Activities.
The objective of the Road Maintenance Project (the “Road Maintenance Project”) is to maintain
road quality across Nepal’s primary or strategic road network (the “SRN”). To achieve the Road
Maintenance Project Objective, MCC Funding will support: (i) funding for technical assistance
and capacity building to Nepal’s DOR and RBN, and (ii) up to 305 kilometers of maintenance
works on Nepal’s SRN.
(i) Technical Assistance Activity.
This Activity will provide training and capacity building for the DOR and RBN. Compact
funding will support training and capacity building for DOR and RBN, as applicable, in the areas
of: 1) improved data collection and techniques; 2) preparation of appropriate road maintenance
plans driven by economic justification; 3) improved prioritization of periodic maintenance; 4)
improved contracting and contracting management, including integration of improved road
safety features; and 5) improved project management. The training and capacity-building
provided will also entail the transfer of modern road maintenance methods, technologies, and
business processes under this Activity.
(ii) Strategic Road Maintenance Works Activity.
The Strategic Road Maintenance Works Activity is intended to complement and build upon the
Technical Assistance Activity and will include two components: (i) a pilot sub-Activity focused
on pavement recycling (the “Pavement Recycling sub-Activity”); and (ii) a matching fund to
finance periodic maintenance works. The Pavement Recycling sub-Activity will be undertaken
using new technology which has the potential to address some of the issues associated with
carrying out works on narrow roads, namely traffic congestion, difficult work conditions, and
extended construction times. This sub-Activity is proposed to be tested and evaluated prior to
entry into force of the Compact to inform the remaining program design for the Strategic Road
Maintenance Works Activity.
Annex I-8
To incentivize additional Government spending on road maintenance, MCC Funding will be
used to establish a matching fund that would provide US$2 for every US$1 the Government
spends above its current average annual amount for periodic road maintenance up to a total of
US$15,000,000 annually for three years. The matching fund would be used to fund periodic road
maintenance works on up to 305 kilometers in total, selected from a pool of 2,000 kilometers of
Nepal’s SRN. Using the HDM-4 Model, the Government has initially selected five road
segments for periodic maintenance. At the time of implementation, if it is no longer feasible to
perform periodic maintenance on the selected road segments, the Government will use the HDM4 model to select substitute road segments of up to 305 kilometers in total. The overall program
of works will be confirmed through a multi-year maintenance plan to be generated through
technical assistance support of the Project, which will focus on utilization of improved data and
an economic prioritization of works.
(b) Beneficiaries.
The Road Maintenance Project is estimated to benefit approximately 924,000 individuals (in
approximately 205,000 households) spread over the local administrative units crossed by the
proposed five road segments.
(c) Environmental and Social Mitigation Measures.
The Road Maintenance Project is classified as Category B under MCC’s Environmental
Guidelines where the proposed activities have potentially limited adverse environmental or
social risks, or impacts that are few in number, generally site-specific, largely reversible, and
readily addressed through mitigation measures. The Project is limited to maintenance and
rehabilitation of existing roads and is unlikely to have significant adverse environmental and
social impacts for which standard management measures are unavailable. Environmental or
social impact caused by construction activities, such as temporary road closures, excavation and
borrow pits, noise, dust, and worker and community health and safety, will be managed through
targeted environmental and social management plans based on the findings of an abbreviated
environmental and social impact assessment. No land acquisition or physical resettlement is
anticipated.
In addition, the Road Maintenance Project will promote road safety through improved road
design, and through information and awareness campaigns by the Government to help with more
responsible and safer use of roads by both vehicle operators as well as non-motorized users of
Nepal’s primary or “strategic road network.” The information and awareness campaign will raise
awareness about truck and bus driver responsibilities, vehicle maintenance, and safe and
responsible use of highways by both vehicles and pedestrians. To mitigate the accident risks, the
Project will support building “shoulders” along selected roads with high incidents of accidents to
pedestrians and non-motorized means of transport.
(d) Social and Gender Inclusion.
MCC Funding under the Road Maintenance Project will also be used to engage with contractors
and the DOR to encourage the participation of women and marginalized groups in higher skilled
and higher paying maintenance jobs.
Annex I-9
(e) Donor Coordination.
There are two primary donors working on maintenance related work on the SRN: the Asian
Development Bank and DFID. MCC will coordinate its technical assistance efforts under the
Compact, to the extent possible, to reinforce these technical assistance efforts.
(f) USAID.
USAID is not currently funding any programs in Nepal specifically targeting the transport sector.
Throughout the implementation of the Compact, MCC will coordinate with USAID if any
transport-related activities are supported by USAID.
(g) Sustainability.
Investments in road maintenance are an investment in longer-term sustainability. The Road
Maintenance Project is expected to help the Government move towards addressing its long-term
maintenance needs through improved data collection on the SRN, improved maintenance
planning, and prioritization, the mobilization of an appropriate amount of financial resources,
and developing an improved system contractor performance mechanism.
(h) Policy, Legal, and Regulatory Reforms.
Road maintenance has suffered from inadequate resources and management practices not
consistent with international best practices. Even though the RBN has been established to
manage funding for maintenance, rehabilitation, reconstruction, pavement upgrading, and road
safety, only part of the financial resources meant for road maintenance actually reach the RBN.
To address these issues, development partners are providing technical assistance to the
Government, including the RBN and DOR and assisting with the amendment or, if necessary, the
replacement of the Road Board Act.
Both the technical assistance and the infrastructure components of the Road Maintenance
Project should help raise DOR’s capacity to manage road maintenance to international standards
and use lessons learned to implement 305 kilometers of road maintenance projects, including the
possible use of performance-based maintenance contracting. In particular, the matching fund
should incentivize the Government to increase its road maintenance budget beyond the historic
average.
C. IMPLEMENTATION FRAMEWORK
1. MCA-Nepal
(a) Structure and Establishment.
The Government will establish MCA-Nepal as a development board through passage of a
formation order approved by the Council of Ministers and published in the Nepal Gazette.
Development boards are independent and flexible entities, and are commonly used in Nepal to
implement a variety of projects including foreign grant or loan-funded projects. MCA-Nepal will
have full decision-making autonomy, including, inter alia, the ability, without the consent or
Annex I-10
approval of any other party, to: (i) enter into contracts in its own name, (ii) sue and be sued, (iii)
establish an account in a financial institution in the name of MCA-Nepal and hold MCC Funding
in that account, (iv) expend MCC Funding, (v) engage contractors, consultants and/or grantees,
including, without limitation, procurement and fiscal agents, and (vi) competitively engage one
or more auditors to conduct audits of its accounts. The governance of MCA-Nepal will be set
forth in more detail in the Program Implementation Agreement, the formation order and internal
regulations of MCA-Nepal (“Internal Regulations”) or as otherwise agreed in writing by the
Parties. The Internal Regulations will be in accordance with the Governance Guidelines.
MCA-Nepal will be administered, managed and supported by the following bodies: a board of
directors (the “Board of Directors”), a management unit (the “Management Unit”), and one or
more Stakeholders Committees. MCA-Nepal will use various Government entities to help
implement the Projects.
(b) Board of Directors.
The Board of Directors will have ultimate responsibility for the oversight, direction, and
decisions of MCA-Nepal, as well as the overall implementation of the Compact. The Board of
Directors will be comprised of seven voting members. As of the date hereof, the voting members
of the Board of Directors will include the following representatives:
(i) the Finance Secretary of the Ministry of Finance;
(ii) a Joint Secretary of the Ministry of Energy;
(iii) a Joint Secretary of the Ministry of Physical Infrastructure and Transport;
(iv) the Executive Director of MCA-Nepal;
(v) the Managing Director of the Nepal Electricity Authority;
(vi) a representative from civil society; and
(vii) a private sector representative.
The number of voting members and their identities may be changed through amendments to the
Internal Regulations with MCC’s approval. The members of the Board of Directors may be
represented by alternates appointed pursuant to MCA-Nepal’s Internal Regulations. In addition,
MCC’s Resident Country Director in Nepal will serve as a non-voting observer to the Board. In
addition, representatives from the following ministries, as well as any other experts the Board of
Directors finds helpful, may be invited on an as needed basis: (a) the Ministry of Land Reform
and Management, (b) the Ministry of Home Affairs, (c) the Ministry of Forests and Soil
Conservation, and (d) the Ministry of Population and Environment.
The process of selecting the Board members will be further stipulated in the Internal Regulations
and will be consistent with the Governance Guidelines.
Annex I-11
(c) Management Unit.
The Management Unit, as defined below, will report to the Board of Directors and will have
principal responsibility for the day-to-day operations and management of the Compact.
The Management Unit will be led by an Executive Director and will be composed of the
directors and officers as agreed between the Parties and consistent with the Governance
Guidelines. The Management Unit will be selected after an open, competitive, and nondiscriminatory recruitment and selection process (or its equivalent), and the appointment of each
member of the Management Unit is subject to MCC no-objection. The officers will be supported
by appropriate additional staff to enable the Management Unit to execute its roles and
responsibilities. Upon written notice by MCC to MCA-Nepal, the selection of candidates for
additional positions within MCA-Nepal will be subject to MCC approval.
(d) Stakeholders’ Committees.
The Parties recognize the importance of establishing one or more stakeholders’ committees,
(each, a “Stakeholders’ Committee”), both to promote transparency and ongoing consultation
among Compact stakeholders, as well as to further the overall goals and objectives of the
Compact. The Stakeholders’ Committee will be identified and operated in accordance with
procedures described in the Governance Guidelines and the Stakeholder Engagement Plan (the
“SEP”). The Parties agree that (a) MCA-Nepal will regularly update the SEP; (b) MCA-Nepal
will ensure that each Stakeholders’ Committee identified in the SEP will meet or engage in
coordinated collaboration with MCA-Nepal on at least a semi-annual basis; (c) the SEP will
provide MCA-Nepal’s oversight and procedures for receiving, sharing, and responding to
feedback from and in collaboration with each Stakeholders’ Committee identified in the SEP;
and (d) MCA-Nepal will provide regular updates regarding the SEP to its Board of Directors.
2. Project Partners.
Subject to the terms and conditions of this Compact, the Program Implementation Agreement
and any other related agreement entered into in connection with this Compact, the Government
may engage one or more entities of the Government to assist with implementation and carry out
any Project or Activity (or a component thereof) under this Compact (each, a “Project Partner”).
The appointment of any Project Partner will be subject to review and approval by MCC. The
Government will ensure that the roles and responsibilities of each Project Partner and other
appropriate terms are set forth in an agreement, in form and substance satisfactory to MCC (each
a “Project Cooperation Agreement”).
3. Fiscal Agent.
Unless MCC agrees otherwise in writing, the Government will engage a fiscal agent (a “Fiscal
Agent”), which will be responsible for assisting the Government with its fiscal management and
assuring appropriate fiscal accountability of MCC Funding, and whose duties will include those
set forth in the Program Implementation Agreement and such agreement as the Government
enters into with the Fiscal Agent, which agreement will be in form and substance satisfactory to
MCC.
Annex I-12
4. Procurement Agent.
Unless MCC agrees otherwise in writing, the Government will engage one or more procurement
agents (collectively, the “Procurement Agent”) to carry out and certify specified procurement
activities in furtherance of this Compact. The roles and responsibilities of the Procurement Agent
will be set forth in the Program Implementation Agreement or such agreement as the
Government enters into with the Procurement Agent, which agreement will be in form and
substance satisfactory to MCC. The Procurement Agent will adhere to the procurement standards
set forth in the MCC Program Procurement Guidelines and ensure procurements are consistent
with the procurement plan adopted by the Government pursuant to the Program Implementation
Agreement, unless MCC agrees otherwise in writing.
ANNEX II
MULTI-YEAR FINANCIAL PLAN SUMMARY
This Annex II summarizes the Multi-Year Financial Plan for the Program.
1. General.
A multi-year financial plan summary (“Multi-Year Financial Plan Summary”) is attached
hereto as Exhibit A to this Annex II. By such time as specified in the Program Implementation
Agreement, the Government will adopt, subject to MCC approval, a multi-year financial plan
that includes, in addition to the multi-year summary of estimated MCC Funding and the
Government’s contribution of funds and resources, the annual and quarterly funding
requirements for the Program (including administrative costs) and for each Project, projected
both on a commitment and cash requirement basis.
2. Government Contribution.
The Government Contribution may include in-kind and financial contributions (including
obligations of Nepal on any debt incurred toward meeting these contribution obligations). In
connection with this obligation, the Government has developed a budget over the Compact Term
to complement MCC Funding through budget allocations to the Compact Program. The
Government Contribution is US$130,000,000. The Government Contribution includes a
contribution of US$40,000,000 following Compact-signing but prior to entry into force of the
Compact. The remaining contribution of US$90,000,000 will be committed by the Government
prior to the initial disbursement of Program Funding and subsequently disbursed within the
Compact Term. The Government Contribution is exclusive of the Government’s other
obligations in the Compact including exemption of all Taxes. The Government Contribution will
be subject to any legal requirements in Nepal for the budgeting and appropriation of such
contribution, including approval of the Government’s annual budget by its legislature. The
Parties may set forth in the Program Implementation Agreement or other appropriate
Supplemental Agreements certain requirements regarding this Government Contribution, which
requirements may be conditions precedent to the Disbursement of MCC Funding.
Annex II-2
EXHIBIT A TO ANNEX II
MULTI-YEAR FINANCIAL PLAN SUMMARY
(US$)
Component CDF Year 1 Year 2 Year 3 Year 4 Year 5 Total
1. Electricity Transmission Project
(a) Transmission Lines Activity 2,489,000 55,677,000 41,235,000 41,235,000 55,320,000 32,291,000 228,247,000
(b) Substations Activity 2,050,000 19,712,000 22,122,000 22,122,000 30,121,000 17,895,000 114,022,000
(c) Power Sector Technical
Assistance Activity 435,000 6,398,000 4,054,000 2,886,000 4,331,000 4,301,000 22,405,000
(d) Program Management and
Technical Oversight Activity 17,375,000 4,115,000 3,207,000 3,207,000 4,207,000 1,448,000 33,559,000
Subtotal 22,349,000 85,902,000 70,618,000 69,450,000 93,979,000 55,935,000 398,233,000
2. Road Maintenance Project
(a) Technical Assistance Activity 2,632,000 1,843,000 1,227,000 1,142,000 165,000 36,000 7,045,000
(b) Strategic Road Maintenance
Works Activity 3,520,000 1,033,000 11,645,000 16,011,000 13,031,000 --- 45,240,000
Subtotal 6,152,000 2,876,000 12,872,000 17,153,000 13,196,000 36,000 52,285,000
3. Monitoring and Evaluation
M&E Component Activities 198,000 732,000 1,977,000 1,898,000 1,355,000 3,332,000 9,492,000
4. Program Management and Administration
(a) MCA-Nepal Program
Administration 9,281,000 2,480,000 2,550,000 2,020,000 2,553,000 4,466,000 23,350,000
(b) Procurement, Fiscal, and Audit
Services 2,520,000 4,110,000 2,310,000 2,310,000 2,310,000 3,080,000 16,640,000
Subtotal 11,801,000 6,590,000 4,860,000 4,330,000 4,863,000 7,546,000 39,990,000
MCC INVESTMENT 40,500,000 96,100,000 90,327,000 92,831,000 113,393,000 66,849,000 500,000,000
GOVERNMENT
CONTRIBUTION 40,000,000 ----------------------------------------- 90,000,000 -------------------------------------------- 130,000,000
GRAND TOTAL 80,500,000



630,000,000
ANNEX III
COMPACT MONITORING & EVALUATION SUMMARY
This Annex III summarizes the monitoring and evaluation plan for this Compact (“M&E Plan”).
The actual structure and content of the M&E Plan, which may differ from those specified in this
Annex III, will be agreed to by MCC and the Government in accordance with MCC’s Policy for
Monitoring and Evaluation of Compacts and Threshold Programs (the “MCC M&E Policy”). In
addition, the M&E Plan may be modified from time to time as described in the MCC M&E
Policy without requiring an amendment to this Annex III. The M&E Plan will be posted publicly
on the MCC Website and updated as necessary.
1. Objective
MCC and the Government will formulate and agree to, and the Government will implement or
cause to be implemented, an M&E Plan that explains in detail how and what MCC and MCANepal will: (i) monitor to determine whether the Projects are on track to achieve their intended
results (“Monitoring Component”); and (ii) evaluate to assess implementation strategies,
provide lessons learned, determine cost effectiveness and estimate the impact of Compact
interventions (“Evaluation Component”). The M&E Plan will summarize all indicators that
must be reported to MCC on a regular basis, as well as a description of any complementary data
to be collected for evaluation of the Program. The M&E Plan will also include any monitoring
and evaluation (“M&E”) requirements that MCA-Nepal must meet in order to receive
Disbursements, and will serve as a communication tool so that MCA-Nepal staff and other
stakeholders clearly understand the objectives and targets the MCA-Nepal is responsible for
achieving. The results of M&E activities, measured by monitoring data and evaluations, will be
made publicly available on the website of MCA-Nepal and on the MCC Website.
2. Program Logic
The M&E Plan will summarize the clearly defined Project-level logic models, which for each
Project will illustrate how the Activities, and sub-Activities (as necessary) contribute to the
Project Objectives and Compact Goal. All logic models will clearly summarize the outputs,
outcomes, and goal expected to result from the Program. A description of the logic underlying
each Project is included below:
(a) Electricity Transmission Project
The objective of the Electricity Transmission Project is to increase electricity consumption by
improving the availability and reliability of electricity supply in Nepal’s electricity grid and by
facilitating power trade. Compact investments in Nepal’s transmission network and cross-border
interconnection will support increased supply of electricity to consumers by providing a path for
delivery for a pipeline of new domestic electricity generation as well as increased electricity
trade with India. The transmission backbone will allow more efficient movement of electricity
across the grid, with lower technical losses, such that supply is better able to meet demand. This
is contingent on the pipeline of domestic generation coming to fruition in a timely manner or the
successful introduction of increased cross-border electricity trade with India.
Annex III-2
The cross-border interconnection will facilitate the import of electricity from India to meet
demand, particularly in the dry season when domestic generation is at its lowest. It will also
facilitate exports to India in the rainy season when domestic generation is expected to exceed
domestic demand. Export revenues are expected to facilitate more investment in domestic
generation by the Government and private investors including independent power producers and
electricity traders. Results related to electricity trade with India are contingent on the negotiation
of power trade agreements between Nepal and India and the appropriate calibration of the two
grids, both of which are directly addressed by the Government.
The Power Sector Technical Assistance Activity investments in establishing a new regulator and
assisting the Government with better planning, cost recovery, and grid operation will result in: 1)
a power sector that balances the economic and financial interests for sector stakeholders and
promotes the safe operation of the grid; and 2) improved sustainability of MCC infrastructure
investment by enabling NEA to operate, manage, and maintain the new 400 kilovolt (“kV”)
system, with which it has no prior experience. These investments are expected to increase the
financial and physical sustainability of the infrastructure investment.
The increase of electricity in Nepal’s grid is expected to increase the amount of electricity
supplied to consumers and increase electricity trade with India. Increased, more reliable, and
potentially more affordable electricity should allow consumers to use more electricity to meet
their energy needs and incur less expenditures per unit of energy consumed than experienced
currently. The savings generated from this are expected to be reinvested to produce growth and
reduce poverty.
A detailed program logic diagram for the Electricity Transmission Project is below.
Annex III-3
The M&E Plan will also outline key assumptions and risks that underlie the accomplishment of
the theory of change summarized in the program logic. However, such assumptions and risks
will not excuse any party’s performance unless otherwise expressly agreed to in writing by the
other party. The known assumptions and risks for the Electricity Transmission Project include:
(i) Implementation delays;
(ii) Appropriate technical/commercial arrangements and infrastructure are in
place to facilitate increased electricity trade with India;
(iii) Slow commissioning of domestic new generation projects can reduce
utilization of the electricity transmission line;
(iv) Slow implementation of complementary transmission and distribution
projects can restrict delivery of electricity to consumers;
(v) Land acquisition is too slow and difficult to execute;
(vi) Communities oppose MCC projects;
(vii) Failure to enact legislation to authorize the electricity regulator and to
fund its initial and ongoing operations; and
(viii) Savings from cheaper electricity are invested in the economy to produce
growth.
(c) Road Maintenance Project
The objective of the Road Maintenance Project is to maintain road quality across the SRN. First,
this Project will provide technical assistance related to road maintenance planning, assessment,
and implementation to strengthen the DOR’s and RBN’s capacity to plan and execute routine
and periodic maintenance. Second, these interventions will be reinforced through a learning-bydoing approach to conducting maintenance on a subset of the SRN. This maintenance work will
reduce road roughness and associated vehicle operating costs. These funds will be applied using
a matching scheme aimed at incentivizing allocation of greater amounts of road maintenance
resources. The expectation is that by equipping the DOR with the data, skills, and experience
necessary to plan and implement road maintenance, combined with an increased level of funding
under an improved road maintenance funding regime, the SRN will be adequately maintained
and the road quality will not deteriorate.
Annex III-4
A detailed program logic diagram for the Road Maintenance Project is below.
Problem Statement: The high cost of transport in Nepal is a binding constraint to economic growth. The underlying root cause for this is poor road quality due to insufficient road maintenance.
Road maintenance is limited by the lack of both adequate funding and modern techniques and systems.
Objective Statement: To maintain road quality across the strategic road network.
Objective:
Outputs:
MCC Goal:
Avoided increases in transportation costs across the strategic road network
(through avoided deterioration of maintained roads and better DoR road maintenance)
Avoided road rehabilitation/upgrading expenditures (as a result of more timely
maintenance) across the strategic road network
[this branch of the logic, i.e. SRN-level impacts, is not modeled in the economic analysis]
Technical Assistance
Population of DoR database with complete information about
deflection, as-builts, and geo-referencing. Training on use of HDM-4,
asset management, and road safety.
Improved Maintenance Planning:
Increased DoR/RBN Capacity for
Prioritization of Maintenance (use of HDM-4)
Improved Maintenance Implementation:
Improved DoR procurement practices and improved
project management of implementation
Poverty Reduction Through Economic Growth
Maintenance works on 5
roads, including enhanced
road safety features
Outcomes:
Incentive matching
fund for periodic
maintenance
Increased maintenance
spending by DoR
Avoided road rehabilitation/upgrading expenditures on 5
maintained roads
Nepal Road Maintenance Project Logic
(Learning by doing)
The known assumptions and risks for the Road Maintenance Project include:
(i) The Project does not receive strong political and institutional support
making implementation uncertain and risky; and
(ii) Construction capacity to perform high quality works in a timely manner is
low.
3. Projected Economic Benefits and Beneficiaries
3.1 Economic Benefits
(a) Electricity Transmission Project
The primary benefit from the Electricity Transmission Project is an increase in the supply of
electricity to Nepali consumers. A separate but related benefit results from a decrease in loadshedding so that electricity is available for a greater proportion of the day. Incremental
improvements in the supply of electricity would be the result of increased imports from India,
increases in domestic production, and decreases in technical losses from the newly constructed,
higher capacity transmission system. Decreases in load-shedding are expected as a result of
increased supply of electricity to the system and continued improvements at the distribution and
sub-transmission level.
Exports are a separate benefit stream valued at the tariff rate for electricity sales to India, as
benefits for Indian consumers are not counted in the economic rate of return (“ERR”) estimate.
Annex III-5
While this means that exports are technically valued at a lower rate than domestic consumption
in the ERR, the opportunity cost of Nepal’s exports is lower as well, since much of this
electricity would otherwise be spilled. Moreover, sales of wet season surplus electricity are
critical for encouraging new investments from independent power producers.
In addition to MCC costs, the ERR model includes cost contributions from the Government,
costs paid in user fees, and estimated costs of complementary investments in new generation
attributable to the Project. Benefits, including electricity consumed, imports, exports, and
reductions in transmission losses, are estimated for years 2023 and 2030. The economic analysis
assumes that Nepal’s electricity generation capacity will increase by 360 percent between 2016
and 2023 (from 856 megawatts (“MW”) to 3,946 MW).
The estimated ERR for the Electricity Transmission Project is 12 percent.
(b) Road Maintenance Project
The Road Maintenance Project is designed to maintain road quality across the SRN by
promoting improved road maintenance practices. The Project will provide technical assistance to
the DOR and RBN and hands-on learning through the maintenance of approximately 305
kilometers of roads. Maintenance interventions will include pavement improvement (overlays or
surface dressings), safety enhancements, and slope stability improvements to reduce road
closures caused by landslides.
Roads that will receive periodic maintenance under the Project were selected through a
prioritization process that analyzed the economic efficiency of maintenance interventions by
road. The selection started with a schedule of approximately 2,000 kilometers of roads proposed
by the DOR, all of which are part of the SRN. The economic returns to periodic maintenance of
these 2,000 kilometers were estimated using the HDM-4 Model, which estimates the increase in
consumer surplus from a decline in transport costs as represented by the decrease in vehicle
operating costs and travel time caused by a road improvement. Roads were then ranked by the
ratio of economic benefit to cost and those with the highest benefit-to-cost ratio, within the
available budget envelope, were selected for Compact-funded maintenance. This prioritization
resulted in the selection of five roads in Nepal’s Eastern, Central, and Mid-Western development
regions, comprising a total of approximately 305 kilometers.
The five roads selected for periodic maintenance currently have relatively high traffic volumes
compared to many other roads in Nepal and the road surfaces are in poor condition (high
international roughness index (“IRI”) values). However, the roads have not deteriorated to the
point where a major rehabilitation is required. The purpose of the periodic maintenance
interventions is to prevent further deterioration that would be very expensive to repair. The
economic analysis assumes that traffic growth will be the same in the “with Project” and the
“without Project” scenarios. In other words, only normal traffic growth is assumed in the HDM-4
models; no assumption is made regarding the Project’s potential to generate additional traffic.
Comparing Project cost with the economic benefit of road maintenance over a 20-year period, as
estimated by HDM-4, the present value of economic costs comes to US$38,400,000, the present
value of benefits is US$158,500,000, and the net present value of the Project is US$120,100,000.
Annex III-6
The estimated ERR for the Road Maintenance Project is 29 percent.
3.2 Beneficiary Analysis
The M&E Plan will also define in detail the persons or entities expected to benefit from the
Program. Beneficiary analysis is an extension of ERR analysis that seeks to disaggregate the
total increase in income to determine specifically which segments of society will benefit from the
Program. MCC considers beneficiaries3
to be those people who experience better standards of
living as a result of the Program through higher real incomes. The expected beneficiaries the
Program are shown in the following table:
Project Estimated Beneficiaries
Electricity Transmission Project 23 million*
Road Maintenance Project 0.92 million*
*There is some overlap, hence the Project beneficiaries cannot be
added together to estimate Compact beneficiaries.
4. Monitoring Component
As defined in the MCC M&E Policy, monitoring is the continuous, systematic collection of data
on specified indicators to provide indications of progress toward objectives and the achievement
of intermediate results along the way. To monitor progress toward the achievement of results of
this Compact, the Monitoring Component of the M&E Plan will identify (i) the Indicators (as
defined below), (ii) the definitions of the Indicators, (iii) the sources and methods for data
collection, (iv) the frequency for data collection, (v) the party or parties responsible for collecting
and analyzing relevant data, and (vi) the timeline for reporting on each Indicator to MCC. It
should be noted that some indicators will continue to be tracked after the Compact Term as
necessary.
4.1 Goal, Outcome, Output, and Process Indicators.
The M&E Plan will measure the results of the Program using quantitative, objective, and reliable
data (“Indicators”).
(a) The M&E Plan will establish baselines for every Indicator (each a, “Baseline”).
An Indicator’s Baseline should be established prior to the start of the corresponding Project,
Activity, and/or sub-Activity. Baselines demonstrate that the problem can be specified in
measurable terms, and are thus a pre-requisite for adequate intervention design. The Government
will collect Baselines on the selected Indicators or verify already collected Baselines where
applicable.
(b) The M&E Plan will establish a benchmark for each Indicator that specifies the
expected value and the expected time by which the result will be achieved (“Target”).

3 As used in this Compact, the term “beneficiary” has the meaning described in MCC’s Guidelines for Economic
and Beneficiary Analysis.
Annex III-7
(c) The M&E Plan will indicate which Indicators will be disaggregated by gender,
income level, age, and beneficiary types to the extent practical and applicable.
(d) MCC’s Common Indicators (as described in the MCC M&E Policy) will also be
included as relevant. These will be denoted by the Common Indicator code.
(e) Subject to prior written approval from MCC and in accordance with the MCC
M&E Policy, the Government may add Indicators or refine the definitions and Targets of
existing Indicators.
(f) MCA-Nepal must report to MCC on monitoring Indicators in the M&E Plan on a
quarterly basis using an Indicator Tracking Table (“ITT”) in the form provided by MCC. No
changes to Indicators, Baselines, or Targets may be made in the ITT until the changes have been
approved in the M&E Plan. Additional guidance on Indicator reporting is contained in MCC’s
Guidance on Quarterly MCA Disbursement Request and Reporting Package. In the case that
MCA-Nepal submits a six-month disbursement request, the ITT must still be submitted
quarterly.
Key Indicators that can be reported on at least an annual basis will be included in quarterly
monitoring indicator reports, while Indicators that require survey data or a longer time period to
track will be tracked for evaluation purposes. The M&E Plan will contain the monitoring
Indicators listed in the following tables:
Electricity Transmission Project:
Result Indicator Definition Unit Baseline Compact
Target
Outcome Indicators
Reduced LoadShedding Load-shedding
The deliberate shutdown of
electric feeders, generally to
prevent the failure of the
entire electricity system when
power supply is lower than
demand at transmission level.
Calculated as the annual
difference between supply
delivered through the
distribution system and
estimated load.
Gigawatt
hours
(“GWh”)
3,161
(2016)
Source: NEA
2014/15
Annual
Report, p109
(Projected
Consumption)
NEA 2015/16
Annual
Report, p 124
(Total
Available
Electricity,
minus Losses)
1,726.4
(2023)
Source: PSSE in
TT Feasibility
Study
(Volume 1,
Table 3.23)
Increased Imports Imported electricity Annual quantity of electricity
purchased from India GWh
1,758.41
(2016)
Source:
NEA 2015/6
Annual
5,823.2
(2023)
Source: PSSE in
TT Feasibility
Study
Annex III-8
Electricity Transmission Project:
Result Indicator Definition Unit Baseline Compact
Target
Report, page
120, 124
(Volume 1,
Table 3.23)
Increased Exports
Increased Revenues
from Exports
Exported electricity Annual quantity of electricity
sold to India GWh
3.25
(2016)
Source: NEA
2015/6
Annual
Report, page
124
2,895.8
(2023)
Source: PSSE in
TT Feasibility
Study
(Volume 1,
Table 3.23)
Reduced
Transmission
Technical Losses
Transmission system
technical losses (%)
1- (Total megawatt hours
transmitted out from
transmission substations/Total
megawatt hours received from
generation to transmission
substations)
Percentage
4.82%
(2016)
Source: NEA
2015/6
Annual
Report, page
38 (2072/73
in Nepali
years)
1.89%
(2023)
Source: PSSE in
TT Feasibility
Study
(Volume 1,
Table 3.23)
Increased
utilization of
Transmission
Network
Capacity utilization
factor of a transmission
line
The ratio of peak loading on
the transmission line (in
amperes) segment in a quarter
and design capacity of the
line. (Disaggregation by
transmission line segment)
Percentage 0% TBD
Benefit Sharing
Keeps Construction
on Schedule
Days of work missed
Number of days reported by
the construction contractor
that work must be stopped
due to community unrest
Number TBD TBD
Economic/ERC:
Balancing the
financial and
economic interests
of the sector
stakeholders.
TBD TBD TBD TBD TBD
Technical/ERC:
Promoting the safe
and reliable
operation of the
system.
TBD TBD TBD TBD TBD
Annex III-9
Electricity Transmission Project:
Result Indicator Definition Unit Baseline Compact
Target
Licensing/ERC:
Establishing and
Monitoring the
Legal Framework
for Efficient Power
Sector Operations.
TBD TBD TBD TBD TBD
Stakeholder/ERC:
Provide a
mechanism for
licensees,
consumers, and
other stakeholders
to resolve disputes
and to provide
public
consultations.
TBD TBD TBD TBD TBD
Assist NEA to
implement its
obligation to
comply with
transmissions
regulations as
defined by an
independent
regulator
TBD TBD TBD TBD TBD
Improving NEA’s
transmission
system planning
and project
preparation
activities
TBD TBD TBD TBD TBD
Improve NEA’s
capacity to manage
and operate its
transmission
system
TBD TBD TBD TBD TBD
Improve DOED’s
performance in
management and
oversight of the
electricity sector
TBD TBD TBD TBD TBD
Output Indicators
Transmission
Infrastructure
Transmission
throughput capacity
added
The increase in throughput
capacity, measured in
megawatts, added by new,
reconstructed, rehabilitated, or
upgraded transmission lines
Megawatts 0
3,920
Source: WSP
Technical
Directive 6,
Annex III-10
Electricity Transmission Project:
Result Indicator Definition Unit Baseline Compact
Target
that have been energized,
tested, and commissioned
with MCC support. This is the
throughput capacity for each
of the five segments of
transmission lines
individually.
New Hetauda – Ratmate 400
kV D/C
Ratmate to Lapsiphedi 400 kV
D/C
Ratmate to New Damauli 400
kV D/C
New Damauli to New Butwal
400 kV D/C
New Butwal to Indian Border
(Further to Gorakhpur, India)
Mission Report,
March 2017,
Annex E, pg 2,
Table 2
Substation
Infrastructure
Transmission substation
capacity added
The total added transmission
substation capacity, measured
in mega volt-amperes, which
is energized, commissioned,
and accompanied by a test
report and supervising
engineer’s certification
resulting from new
construction or refurbishment
of existing substations that is
due to MCC support. In
Nepal, this comprises 3
400/220 kV Substations in
New Butwal, New Damauli,
and Ratmate.
Mega volt
ampere
0
Total: 2,330
Ratmate
(640)
New Damauli
(640)
New Butwal
(1,050)
Source: WSP
Technical
Directive 6,
Mission Report,
March 2017,
Annex E, pg 1
Transmission
Infrastructure
Km transmission lines
upgraded or built
The sum of linear km of new,
reconstructed, rehabilitated, or
upgraded transmission lines
that have been energized,
tested, and commissioned
with MCC support.
In Nepal, this comprises a
400kV transmission line
within the East-West
transmission backbone and
the Nepal side of the New
Butwal border connection to
India. The indicator target
reflects that both the NR1 and
XB1 projects include two
circuits; therefore, the length
of the line is doubled.
Kilometers 0
NR1 – New
Damauli to
Ratmate: 88.23
km
NR1 – Ratmate
to Lapsiphedi:
57.83 km
NR1 – Ratmate
to New Hetauda:
55.59 km
New Damauli to
New Butwal: 84
km
XB1/New
Butwal to Indian
Border: 23 km
Annex III-11
Electricity Transmission Project:
Result Indicator Definition Unit Baseline Compact
Target
Total: 617.3km
Source: TT DFS
Report, Vol. 9,
p.4 (XB1 and N
Butwal-N
Damauli); p.116
(remaining three
segments)
Substation
Infrastructure
Length of entry road
constructed
The length of entry road
constructed to approach the
substation.
Kilometers 0
3.3
Source: TT DFS
Report, Vol. 9,
p.125, Scenario
3
Benefit Sharing
Activities
Implemented
TBD TBD (Connections or
provision of more electricity) TBD TBD TBD
Economic/ERC:
Balancing the
financial and
economic interests
of the sector
stakeholders.
TBD TBD TBD TBD TBD
Technical/ ERC:
Promoting the safe
and reliable
operation of the
system.
TBD TBD TBD TBD TBD
Licensing/ERC:
Establishing and
Monitoring the
Legal Framework
for Efficient Power
Sector Operations.
TBD TBD TBD TBD TBD
Stakeholder/ERC:
Provide a
mechanism for
licensees,
consumers, and
other stakeholders
to resolve disputes
and to provide
public
consultations.
TBD TBD TBD TBD TBD
Assist NEA to
implement its
obligation to
comply with
transmissions
TBD TBD TBD TBD TBD
Annex III-12
Electricity Transmission Project:
Result Indicator Definition Unit Baseline Compact
Target
regulations as
defined by an
independent
regulator
Improving NEA’s
transmission
system planning
and project
preparation
activities
TBD TBD TBD TBD TBD
Improve NEA’s
capacity to manage
and operate its
transmission
system
TBD TBD TBD TBD TBD
Improve DOED’s
performance in
management and
oversight of the
electricity sector
TBD TBD TBD TBD TBD
Road Maintenance Project
Result Indicator Definition Unit Baseline Compact
Target
Outcome Indicators
Avoided
increases in
transportation
costs across the
SRN
Avoided road
rehabilitation/
upgrading
expenditures
Roughness
performance
of the SRN
The share of the SRN that falls into bad
(IRI>8), poor (6<IRI<8), fair (4<IRI<6), and
good (IRI<4) categories of road roughness,
by Nepali standards. Road roughness will be
measured in terms of the International
Roughness Index.
Percentage
2015/16:
Bad: 44%
Poor: 34%
Fair: 15%
Good: 6%
Source:
iMC Task 1
Report,
Executive
Summary
CED:
Bad: 43%
Poor: 33%
Fair: 15%
Good: 9%
Source:
calculation
based on
improvement of
305km from
bad/poor to
fair/good
Surface
distress
performance
of the SRN
The share of SRN that falls into poor
(3.1<SDI<5), fair (1.8<SDI<3), and good
(SDI<1.8) categories of road surface distress,
by Nepali standards. Surface distress will be
measured in terms of the surface distress
index (“SDI”).
Percentage
2015/16:
Poor: 18%
Fair: 77%
CED:
Poor: 18%
Fair: 77%
Annex III-13
Road Maintenance Project
Result Indicator Definition Unit Baseline Compact
Target
Good: 4%
Source:
iMC Task 1
Report,
Executive
Summary
Good: 4%
Source: iMC
Task 1 Report,
Executive
Summary
Improved
maintenance
implementation
DOR annual
maintenance
expenditures
Annual DOR spending on routine, recurrent,
and periodic maintenance.
US$
2014/15:
35.8M
(3.692B
Nepali
Rupees
converted
at 103.16
NPR/US$)
Source:
iMC Task 1
Report, p.
13
US$22.5M
above spending
in the year prior
to the start of
the compact
maintenance
works,
cumulative over
3 years
Source: Road
Maintenance
Project design
Output Indicators
Maintenance
works
Kilometers of
roads
completed
The length of roads in km on which
construction of new roads or reconstruction,
rehabilitation, resurfacing or upgrading of
existing roads is complete (certificates
handed over and approved). The targeted
road segments initially include:
H02: Hetauda – Bhimphedi, H07: Charali –
Phidim, H08: Dharan – Basantapur/Chitre,
H09: Kadmaha – Gaighat, and H11: Amelia
– Tulsipur.
Kilometers 0
Total: Up to
305 (the exact
target will be
updated based
on signed
maintenance
contracts)
Source: RMP
design and 2017
RMP CBA
Maintenance
works Roughness
The measure of the roughness of the road
surface, in meters of height per kilometer of
distance traveled. This measure reflects the
IRI at completion of Compact-funded road
maintenance works. Calculated as sum of IRI
measure per kilometer / total road length.
Meters per
kilometer
H07
(Charali –
Phidim):
8.0
H08
(Dharan –
Basantapur/
Chitre): 8.9
H09
(Kadmaha
– Gaighat):
9.0
At contract
completion
(estimated 2022):
H07: 3.5
H08: 3.5
H09: 3.5
H02: 4.1
H11: 3.5
Source:
2017 RMP
CBA
Annex III-14
Road Maintenance Project
Result Indicator Definition Unit Baseline Compact
Target
H02
(Hetauda –
Bhimphedi)
: 9.8
H11
(AmeliaTulsipur)
7.1
(2016)
Source:
2017 RMP
CBA
Technical
Assistance
Population of
Highway
Management
Information
System
database
Date on which Highway Management
Information System database is complete
with updated as-built and deflection data for
entire network.
Date N/A TBD
Matching Fund
DOR annual
maintenance
budget
Annual DOR budget allocated for routine,
recurrent, and periodic maintenance. US$
FY 2016:
40M
(4.28B
Nepali
Rupees
converted
at 103.16
NPR/US$)
Source:
iMC Task 1
Report,
page 9
US$22.5M
above spending
in the year prior
to the start of
the compact
maintenance
works,
cumulative over
3 years
Source: RMP
design
5. Evaluation Component
While good program monitoring is necessary for program management, it is not sufficient for
assessing ultimate results. MCC therefore advocates the use of different types of evaluations as
complementary tools to better understand the effectiveness of its programs. As defined in the
MCC M&E Policy, evaluation is the objective, systematic assessment of a program’s design,
implementation, and results. MCC is committed to making its evaluations as rigorous as
warranted in order to understand the causal impacts of its programs on the expected outcomes
and to assess cost effectiveness. The Evaluation Component of the M&E Plan may contain three
types of evaluation activities as necessary: (i) independent evaluations (impact and/or
Annex III-15
performance evaluations); (ii) self-evaluation; and (iii) special studies, each of which is further
described in the MCC M&E Policy.
(a) Independent Evaluations.
Every Project must undergo a comprehensive, independent evaluation (impact and/or
performance) in accordance with the MCC M&E Policy. The Evaluation Component of the
M&E Plan will describe the purpose of the evaluation, methodology, timeline, required MCC
approvals, and the process for collection and analysis of data for each evaluation. All
independent evaluations must be designed and implemented by independent, third-party
evaluators. If the Government wishes to engage an evaluator, the engagement will be subject to
the prior written approval of MCC. Contract terms must be acceptable to MCC and ensure nonbiased results and the publication of results.
For each independent evaluation, MCA-Nepal is expected to review and provide feedback to
independent evaluators on the evaluation design reports, evaluation materials (including
questionnaires), baseline report (if applicable), and any interim/final reports in order to ensure
proposed evaluation activities are feasible, and final evaluation products are technically and
factually accurate.
(b) Electricity Transmission Project:
The evaluation of the Electricity Transmission Project is expected to be a performance
evaluation based largely on quantitative data. It will make use of generation, load flow, and
export/import data over time to assess what impacts may be the result of the MCC investment. It
will likely include a household or business data collection component to assess the high level
impacts, such as electricity consumption and expenditure per energy unit among grid customers.
The evaluation will include a process study, assessing the fidelity of implementation to the
original design, and setting the stage for the assessment of results further down the logical chain.
The questions that will guide the design of the evaluation include:
• Was the Electricity Transmission Project implemented as planned? Did the
quality of the work meet the specifications initially laid out?
• Was load-shedding in Nepal reduced as a result of the Electricity Transmission
Project? This question links to the following outcome indicator: Load-shedding.
• How was cross-border electricity trade changed by the Electricity Transmission
Project? This question links to the following outcome indicators: Imported Electricity and
Exported Electricity.
• Did the Electricity Transmission Project increase the consumption of on-grid
electricity by households and businesses in Nepal? This question links to the following outcome
indicator: Electricity consumption per capita, which is the Project Objective.
• Did the BIKAS approach to transmission projects reduce community resistance to
the Project, and construction delays? This question links to the following outcome indicator:
Days of Work Missed.
• Additional evaluation questions related to the technical assistance provided
through Activity 1.3 will be articulated later, once the targeted results are better understood.
Annex III-16
The M&E Plan will contain the evaluation Indicators listed in the following table:
Electricity Transmission Project:
Result Indicator Definition Unit Baseline Target Target Date
Outcome Indicators
Cost Savings to
Households and
Businesses
Project Objective:
Increased Electricity
Consumption
Increased Supply for
Distribution
Electricity
consumption
per capita
The quantity of
electricity consumed
annually per capita in
Nepal.
kWh/
capita
133 (2016)
Source:
NEA
Annual
Report
2015/6
(Total Sales
of
Electricity),
Government
of Nepal
Central
Bureau of
Statistics,
Population
Projection
2011-2031,
National
Population
and
Housing
Census
2011,
Volume 8
NHPC 2011
(2016
Population
Estimate)
394
Source:
PSSE in TT
Feasibility
Study
(Volume 1,
Table 3.23,
Consumption
minus 15%
Technical
Losses),
divided by a
population
estimate of
32,759,302.
2023
(c) Road Maintenance Project:
The evaluation of the Road Maintenance Project is expected to be a performance evaluation with
quantitative and qualitative components. One component will be economic modeling using the
HDM-4 Model. This approach will require an independent assessment of road quality data across
the SRN both before and after the MCC investments. The final independent assessment and
HDM-4 model should occur at least 2-3 years after completion of the Project works. The
independent evaluator will assess the HDM-4 calculations that went into the investment decision
and determine whether baseline data collection is required to update the model. This quantitative
component to the evaluation will speak to the effectiveness of both the technical assistance and
maintenance works because it will evaluate achievement of the overall Project Objective of
avoiding increases in transportation costs across the SRN. The qualitative component of the
evaluation will attempt to capture the effectiveness of the technical assistance on improving
DOR’s maintenance planning and implementation. This may include process evaluation to map
how processes have changed from baseline to endline and/or document review and observation.
The questions that will guide the design of the evaluation include:
Annex III-17
• What is the economic return – calculated in terms of vehicle operating cost
savings and travel time savings – of the road maintenance investment? This question links to the
following outcome indicators: road roughness and surface distress index.
• What are the relevant road authority’s current maintenance practices and what is
the likelihood that MCC’s investment will remain adequately maintained? What were the effects
of investments in improved maintenance? Has maintenance of the overall network improved?
These questions link to the outcome indicator tracking road maintenance expenditures and the
pending indicators related to improved maintenance planning and implementation.
Road Maintenance Project
Result Indicator Definition Unit Baseline Target Target
Date
Outcome Indicators
Project
Objective:
Avoided
increases in
transportation
costs across
the SRN
Avoided road
rehabilitation/
upgrading
expenditures
Roughness
The measure of the roughness of
the road surface, in meters of
height per kilometer of distance
traveled. Calculated as sum of
International Roughness Index
(IRI) measure per kilometer /
total road length.
Meters
per
kilometer
H07: 8.0
H08: 8.9
H09: 9.0
H02: 9.8
H11: 7.1
(2016)
Source:
2017 RMP
CBA
H07: 3.7
H08: 3.8
H09: 3.7
H02: 4.4
H11: 3.7
Source:
2017
RMP
CBA
3 years
post
completion
of works
(d) Self-Evaluation.
Upon completion of the Compact Term, both MCC and MCA-Nepal will comprehensively
assess three fundamental questions: (i) Did the Program meet the Project Objectives; (ii) Why
did the Program meet or not meet the Project Objectives; and (iii) What lessons can be learned
from the implementation experience (both procedural and substantive). The MCA-Nepal staff
will draft the Compact Completion Report (“CCR”) in the last year of the Compact Term to
evaluate these fundamental questions and other aspects of Program performance. Each MCANepal department will be responsible for drafting its own section to the CCR for its own
activities, subject to cross-departmental review. After MCA-Nepal staff drafts the CCR, relevant
MCC staff will draft a Compact performance review. Similar to the CCR, each MCC division
will be responsible for drafting its own section of the document, subject to cross-department
review.
(e) Special Studies.
Plans for conducting special studies will be determined jointly between the Government and
MCC before the approval of the M&E Plan. The M&E Plan will identify and make provision for
Annex III-18
any special studies, ad hoc evaluations, and research that may be needed as part of the
monitoring and evaluating of this Compact. Either MCC or the Government may request special
studies or ad hoc evaluations of Projects, Activities, or the Program as a whole, prior to the
expiration of the Compact Term.
The results of all evaluations will be made publicly available in accordance with the MCC M&E
Policy.
6. Data Quality Reviews.
Data Quality Reviews (“DQR”) are a mechanism to review and analyze the utility, objectivity,
and integrity of performance information. DQRs are to cover: a) quality of data; b) data
collection instruments; c) survey sampling methodology; d) data collection procedures; e) data
entry, storage, and retrieval processes; f) data manipulation and analyses; and g) data
dissemination. MCC requires that an independent entity conduct the DQR, such as a local or
international specialized firm or research organization, or an individual consultant, depending on
the size of the Program or Project in review. The frequency and timing of data quality reviews
must be set forth in the M&E Plan; however, MCC may request a DQR at any time. DQRs
should be timed to occur before or early enough in the Compact Term that meaningful remedial
measures (if any) may be taken depending on the results of the review. The methodology for the
review should include a mix of document and record reviews, site visits, key informant
interviews, and focus groups.
7. Other Components of the M&E Plan.
In addition to the monitoring and evaluation components, the M&E Plan will include the
following components:
(a) Management Information System.
The M&E Plan will describe the information system that will be used to collect data, store,
process and deliver information to relevant stakeholders in such a way that the Program
information collected and verified pursuant to the M&E Plan is at all times accessible and useful
to those who wish to use it. The system development will take into consideration the requirement
and data needs of the components of the Program, and will be aligned with existing MCC
systems, other service providers, and ministries.
(b) Budget.
A detailed cost estimate for all components of the M&E Plan.
8. Responsibility for Developing the M&E Plan.
MCC desires to “[refrain] from requesting the introduction of performance indicators that are not
consistent with countries’ national development strategies.”4 For this reason, primary
responsibility for developing the M&E Plan lies with the M&E directorate of MCA-Nepal with

4 Busan Partnership for Effective Development Cooperation, Busan Outcome Document, 1 December 2011, p.5
Annex III-19
support and input from MCC’s M&E and economist staff. The M&E Plan must be developed in
conjunction with key stakeholders, including MCA-Nepal leadership and sector leads, the MCC
Resident Country Mission, and other MCC staff (such as Environmental and Social Performance
and Gender and Social Inclusion), as well as external stakeholders, as applicable. While the
entire M&E Plan must be developed collaboratively, MCC and MCA-Nepal Project/Activity
leads are expected to guide the selection of Indicators at the process and output levels that are
particularly useful for management and oversight of Projects and Activities.
9. Approval and Implementation of the M&E Plan.
The approval and implementation of the M&E Plan, as amended from time to time, will be in
accordance with the Program Implementation Agreement, any other relevant Supplemental
Agreement and the MCC M&E Policy. All M&E Plan modifications proposed by MCA-Nepal
must be submitted to MCC for prior written approval. The M&E Plan may undergo peer review
within MCC before the beginning of the formal approval process.
10. Post Compact M&E Plan.
As part of the planning process for winding up the Program at the end of the Compact Term,
MCC and MCA-Nepal will develop a post-Compact M&E Plan designed to observe the
persistence of benefits created under this Compact. This plan should describe future monitoring
and evaluation activities, identify the individuals and organizations that will undertake these
activities, and provide a budget framework for future monitoring and evaluation. The postCompact M&E Plan should build directly off the Compact M&E Plan.
ANNEX IV
CONDITIONS PRECEDENT TO DISBURSEMENT OF COMPACT CDF
This Annex IV sets forth the conditions precedent applicable to Disbursements of Compact CDF
(each a “Compact CDF Disbursement”). Upon execution of the Program Implementation
Agreement, each Compact CDF Disbursement will be subject to all of the terms of the Program
Implementation Agreement, except that the conditions to each Compact CDF Disbursement will
continue to be those set forth in this Annex IV.
1. Conditions Precedent to Initial Compact CDF Disbursement.
Each of the following must have occurred or been satisfied prior to the initial Compact CDF
Disbursement:
(a) The Government (or MCA-Nepal) has delivered to MCC:
(i) an interim fiscal accountability plan acceptable to MCC; and
(ii) a Compact CDF procurement plan acceptable to MCC.
(b) The Government will have enacted such regulations as necessary to implement
Section 2.8 of this Compact.
(c) The Government will have provided a schedule and procedures, acceptable in
form and substance to MCC, for the disbursement of the first US$40,000,000 of the Government
Contribution.
2. Conditions Precedent to all Compact CDF Disbursements (Including Initial Compact
CDF Disbursement).
Each of the following must have occurred or been satisfied prior to each Compact CDF
Disbursement:
(a) The Government (or MCA-Nepal) has delivered to MCC the following
documents, in form and substance satisfactory to MCC:
(i) a completed Disbursement Request, together with the applicable Periodic
Reports, for the applicable Disbursement Period, all in accordance with the Reporting
Guidelines;
(ii) a certificate of the Government (or MCA-Nepal), dated as of the date of
the Compact CDF Disbursement Request, in such form as provided by MCC;
Annex IV-2
(iii) if a Fiscal Agent has been engaged, a Fiscal Agent Disbursement
Certificate; and
(iv) if a Procurement Agent has been engaged, a Procurement Agent
Disbursement Certificate.
(b) If any proceeds of the Compact CDF Disbursement are to be deposited in a bank
account, MCC has received satisfactory evidence that (i) the Bank Agreement has been executed
and (ii) the Permitted Accounts have been established.
(c) Appointment of an entity or individual to provide fiscal agent services, as
approved by MCC, until such time as the Government provides to MCC a true and complete
copy of a Fiscal Agent Agreement, duly executed and in full force and effect, and the fiscal agent
engaged thereby is mobilized.
(d) Appointment of an entity or individual to provide procurement agent services, as
approved by MCC, until such time as the Government provides to MCC a true and complete
copy of the Procurement Agent Agreement, duly executed and in full force and effect, and the
procurement agent engaged thereby is mobilized.
(e) MCC is satisfied that (i) the activities being funded with such Compact CDF
Disbursement are necessary, advisable or otherwise consistent with the goal of facilitating the
implementation of this Compact and will not violate any applicable law or regulation; (ii) no
material default or breach of any covenant, obligation or responsibility by the Government,
MCA-Nepal or any Government entity has occurred and is continuing under this Compact or any
Supplemental Agreement; (iii) there has been no violation of, and the use of requested funds for
the purposes requested will not violate, the limitations on use or treatment of MCC Funding set
forth in Section 2.7 of this Compact or in any applicable law or regulation; (iv) any Taxes paid
with MCC Funding through the date 90 days prior to the start of the applicable Disbursement
Period have been reimbursed by the Government in full in accordance with Section 2.8(c) of this
Compact; and (v) the Government has satisfied all of its payment obligations, including any
insurance, indemnification, tax payments or other obligations, and contributed all resources
required from it, under this Compact and any Supplemental Agreement.
(f) For any Compact CDF Disbursement occurring after this Compact has entered
into force in accordance with Article 7: MCC is satisfied that (1) MCC has received copies of
any reports due from any technical consultants (including environmental auditors engaged by
MCA-Nepal) for any Activity since the previous Disbursement Request, and all such reports are
in form and substance satisfactory to MCC; (2) the Implementation Plan Documents and Fiscal
Accountability Plan are current and updated and are in form and substance satisfactory to MCC,
and there has been progress satisfactory to MCC on the components of the Implementation Plan
for any relevant Projects or Activities related to such Compact CDF Disbursement; (3) there has
been progress satisfactory to MCC on the M&E Plan and Social and Gender Integration Plan for
the Program or relevant Project or Activity and substantial compliance with the requirements of
the M&E Plan and Social and Gender Integration Plan (including the targets set forth therein and
any applicable reporting requirements set forth therein for the relevant Disbursement Period); (4)
Annex IV-3
there has been no material negative finding in any financial audit report delivered in accordance
with this Compact and the Audit Plan, for the prior two quarters (or such other period as the
Audit Plan may require); (5) MCC does not have grounds for concluding that any matter
certified to it in the related MCA Disbursement Certificate, the Fiscal Agent Disbursement
Certificate or the Procurement Agent Disbursement Certificate is not as certified; and (vi) if any
of the officers or key staff of MCA-Nepal have been removed or resigned and the position
remains vacant, MCA-Nepal is actively engaged in recruiting a replacement.
(g) MCC has not determined that an act, omission, condition, or event has occurred
that would be the basis for MCC to suspend or terminate, in whole or in part, this Compact or
MCC Funding in accordance with Section 5.1 of this Compact.
(h) Prior to the third Compact CDF Disbursement, the Government will have
designated the Electricity Transmission Project as a National Pride Project.
(i) The Government must be in compliance with the schedules and procedures
provided pursuant to Section 1(c) above.
ANNEX V
ADDITIONAL CONDITIONS PRECEDENT TO ENTRY INTO FORCE
The following additional conditions precedent must be met before this Compact enters into force.
(a) The Government must have submitted a plan, in form and substance acceptable to
MCC, and consented to by the governments of India, memorializing (i) key financial and
technical terms for the construction of the New Butwal-Gorakhpur cross-border transmission
line, and (ii) operational principles for the New Butwal-Gorakhpur cross-border transmission
line;
(b) The Government must have submitted evidence to MCC that the Electricity
Regulatory Commission bill has either been passed by the Federal Parliament, or that progress,
satisfactory to MCC, is being made on the passage of the bill;
(c) The Government must have completed those approvals, permits, and
determinations, identified by MCC as necessary to ensure that all necessary land acquisition, site
access and forest clearance is completed in a timely manner to ensure Projects may be completed
prior to the Compact End Date; and
(d) The Government will have designated the Electricity Transmission Project as a
National Pride Project.
ANNEX VI
DEFINITIONS
Activity has the meaning provided in Section B of Annex I.
Additional Representative has the meaning provided in Section 4.2.
Audit Guidelines has the meaning provided in Section 3.8(a).
Baseline has the meaning provided in paragraph 3 of Annex III.
BIKAS has the meaning provided in Section B.1(a)(i)(A) of Annex I.
Board of Directors has the meaning provided in Section C.1(a) of Annex I.
Compact has the meaning provided in the Preamble.
Compact CDF has the meaning provided in Section 2.2(a).
Compact CDF Disbursement has the meaning provided in the preamble to Annex IV.
Compact Goal has the meaning provided in Section 1.1.
Compact Records has the meaning provided in Section 3.7(a).
Compact Term has the meaning provided in Section 7.4.
COS has the meaning provided in Annex VII.
Covered Provider has the meaning provided in the Audit Guidelines.
DFID has the meaning provided in Section B.1(e) of Annex I.
Disbursement has the meaning provided in Section 2.4.
DOC has the meaning provided in Annex VII.
DOR has the meaning provided in Section A.2(a) of Annex I.
DQR has the meaning provided in paragraph 5 of Annex III.
Electricity Transmission Project has the meaning provided in Section B.1(a) of Annex I.
ERC has the meaning provided in Section B.1(a)(iii) of Annex I.
ERR has the meaning provided in paragraph E.1.a. of Annex III.
Evaluation Component has the meaning provided in paragraph A. of Annex III.
Annex VI-2
Excess Compact CDF Amount has the meaning provided in Section 2.2(d).
Exempt Entity has the meaning provided in Schedule A to Annex VII.
Exempt Employers has the meaning provided in Schedule E to Annex VII.
Exempt Individual has the meaning provided in Schedule A to Annex VII.
Exempt Personal Income has the meaning provided in Schedule E to Annex VII.
Fiscal Agent has the meaning provided in Section C.3 of Annex I.
Governance Guidelines means MCC’s Guidelines for Accountable Entities and Implementation
Structures.
Government has the meaning provided in the Preamble.
Government Contribution has the meaning provided in Section 2.6.
Grant has the meaning provided in Section 3.6(b).
GWh has the meaning provided in Annex III.
IFC Performance Standards has the meaning provided in Section B.1(c) of Annex I.
Implementation Letter has the meaning provided in Section 3.5.
Income Tax Exempt Entity has the meaning provided in Schedule D to Annex VII.
Income Tax Exempt Individual has the meaning provided in Schedule D to Annex VII.
Indicators has the meaning provided in paragraph 3.a. of Annex III.
Inspector General has the meaning provided in Section 3.7(c).
Intellectual Property means all registered and unregistered trademarks, service marks, logos,
names, trade names and all other trademark rights; all registered and unregistered copyrights;
all patents, inventions, shop rights, know how, trade secrets, designs, drawings, art work, plans,
prints, manuals, computer files, computer software, hard copy files, catalogues, specifications,
and other proprietary technology and similar information; and all registrations for, and
applications for registration of, any of the foregoing, that are financed, in whole or in part, using
MCC Funding.
Internal Regulations has the meaning provided in Section C.1(a) of Annex I.
IRD has the meaning provided in Annex VII.
IRI has the meaning provided in paragraph 1 of Annex III.
Annex VI-3
ITT has the meaning provided in paragraph 3 of Annex III.
kV has the meaning provided in paragraph 2 of Annex III.
Local Taxes has the meaning provided in Schedule K to Annex VII.
LRO has the meaning provided in Annex VII.
M&E Plan has the meaning provided in the first paragraph of Annex III.
Management Unit has the meaning provided in Section C.1(a) of Annex I.
MCA Act has the meaning provided in Section 2.2(a).
MCA-Nepal has the meaning provided in Section 3.2(b).
MCC has the meaning provided in the Preamble.
MCC Environmental Guidelines has the meaning provided in Section 2.7(c).
MCC Funding has the meaning provided in Section 2.3.
MCC Gender Policy means the MCC Gender Policy (including any guidance documents issued
in connection with such policy).
MCC M&E Policy has the meaning provided in the first paragraph of Annex III.
MCC Program Closure Guidelines means the MCC Program Closure Guidelines (including any
guidance documents issued in connection with such guidelines).
MCC Program Procurement Guidelines has the meaning provided in Section 3.6.
MCC Website means the MCC website at www.mcc.gov.
Monitoring Component has the meaning provided in paragraph 1 of Annex III.
Multi-Year Financial Plan Summary has the meaning provided in Section I of Annex II.
MW has the meaning provided in paragraph 2.1 of Annex III.
NEA has the meaning provided in Section B.1(a)(iii) of Annex I.
Nepal has the meaning provided in the Preamble.
Other National Taxes has the meaning provided in Schedule J to Annex VII.
Party and Parties have the meaning provided in the Preamble.
Pavement Recycling sub-Activity has the meaning provided in Section B.2(a)(ii) of Annex I.
Annex VI-4
Permitted Account has the meaning provided in Section 2.4.
Personal Income Taxes has the meaning provided in Schedule D to Annex VII.
Personal Tax Exempt Individual has the meaning provided in Schedule E to Annex VII.
Petroleum Taxes has the meaning provided in Schedule F to Annex VII.
Principal Representative has the meaning provided in Section 4.2.
Procurement Agent has the meaning provided in Section C.4 of Annex I.
Program has the meaning provided in the recitals to this Compact.
Program Assets means any assets, goods or property (real, tangible, or intangible) purchased or
financed in whole or in part (directly or indirectly) by MCC Funding.
Program Funding has the meaning provided in Section 2.1.
Program Guidelines means collectively the Audit Guidelines, the MCC Environmental
Guidelines, the Governance Guidelines, the MCC Program Procurement Guidelines, the
Reporting Guidelines, the MCC M&E Policy, the MCC Cost Principles for Government
Affiliates Involved in Compact Implementation, the MCC Program Closure Guidelines, the MCC
Gender Policy, the MCC Gender Integration Guidelines, the MCC Guidelines for Economic and
Beneficiary Analysis, the MCC Standards for Global Marking, and any other guidelines, policies
or guidance papers relating to the administration of MCC-funded compact programs, in each
case, as such may be posted from time to time on the MCC Website.
Program Implementation Agreement and PIA have the meaning provided in Section 3.1.
Project(s) has the meaning provided in Section 1.2.
Project Objective(s) has the meaning provided in Section 1.2.
Project Cooperation Agreement has the meaning provided in Section C.2 of Annex I.
Project Partner has the meaning provided in Section C.2 of Annex I.
Property Taxes has the meaning provided in Schedule H to Annex VII.
Provider means (i) any entity of the Government that receives or uses MCC Funding or any
other Program Asset in carrying out activities in furtherance of this Compact or (ii) any third
party that receives at least US$50,000 in the aggregate of MCC Funding (other than as salary or
compensation as an employee of an entity of the Government) during the Compact Term.
RBN has the meaning provided in Section A.2(a) of Annex I.
Reporting Guidelines means the MCC Guidance on Quarterly MCA Disbursement Request and
Reporting Package.
Annex VI-5
Road Maintenance Project has the meaning provided in Section B.2(a) of Annex I.
SDI has the meaning provided in Annex III.
SEP has the meaning provided in Section C.1(d) of Annex I.
Service Taxes has the meaning provided in Schedule I to Annex VII.
SRN has the meaning provided in Section B.2(a) of Annex I.
Stakeholders’ Committee has the meaning provided in Section C.1(d) of Annex I.
Supplemental Agreement means any agreement between (A) the Government (or any
Government affiliate, including MCA-Nepal) and MCC (including, but not limited to, the PIA),
or (B) MCC and/or the Government (or any Government affiliate, including MCA-Nepal), on the
one hand, and any third party, on the other hand, including any of the Providers, in each case,
setting forth the details of any funding, implementing or other arrangements in furtherance of,
and in compliance with, this Compact.
Target has the meaning provided in paragraph 3 of Annex III.
Tax Departments has the meaning provided in Annex VII.
Taxes has the meaning provided in Section 2.8(a).
Telecommunication Taxes has the meaning provided in Schedule G to Annex VII.
VAT has the meaning provided in Annex VII.
United States Dollars or US$ means the lawful currency of the United States of America.
USAID has the meaning provided in Section A.1(b) of Annex I.
ANNEX VII
TAX SCHEDULES
The Government will ensure that MCA-Nepal and all Providers, Covered Providers, Project
Partners, contractors (prime contractors and subcontractors), consultants, and other entities and
individuals that receive MCC funding directly or indirectly in furtherance of the Compact are
exempt from Taxes or will be refunded equal amount of Taxes paid in respect of the MCC
funding in accordance with Section 2.8.
The following Schedules identify specific Taxes and mechanisms to implement compliance with
the tax exemption under the Compact. The Government will provide an instruction letter and a
copy of the Compact, including these Schedules, to the Inland Revenue Department of Nepal
(“IRD”), Department of Customs (“DOC”), Land Revenue Offices (“LRO”), Custom Offices
(“COS”) and all other authorities, including local and state authorities, involved in tax collection
and administration (collectively “Tax Departments”) to ensure that the Tax Departments
implement the terms of the Compact and the mechanisms to implement the tax exemption as
agreed herein, or as otherwise adopted under the Compact.
MCA-Nepal will facilitate and assist all other beneficiaries of the tax exemption, including
Providers, Covered Providers, Project Partners, contractors (prime contractors and
subcontractors), consultants, and other entities and individuals that receive MCC funding directly
or indirectly in furtherance of the Compact, to ensure compliance with the exemption or refund
terms herein that apply to Taxes.
There is not a need to make multiple applications or recommendations if more than one tax is
required to be exempted or refunded in respect of the same transaction (e.g. value added tax
(“VAT”), excise duty, and custom duty applying to same goods or services).
Taxes to be exempt and refunded are set out below:
Schedule Tax Mechanism
A Value Added Tax Exemption and refund
B Custom Duties Exemption and refund
C Excise Duties Exemption and refund
D Corporate Income and
Withholding Tax
Exemption
E Individual Income Tax Exemption
F Taxation of Petroleum Products Exemption and refund
G Taxation of Telecommunication
Services
Exemption and refund
H Property Taxes Exemption and refund
I Service Taxes Exemption and refund
J Other National Taxes Exemption and refund
K Local Taxes Exemption and refund
Annex VII-2
SCHEDULE A
VALUE ADDED TAX
Legal Basis for Exemption
1. Section 2.8 of the Compact.
2. Value Added Tax Act of 1996, Section 25(1).
Beneficiaries of Exemption
1. MCA-Nepal.
2. Each Project Partner, and any Provider, Covered Provider, or any other entity, including
prime contractors and any subcontractors working directly with prime contractors and all
natural persons, importing or providing goods, works or services in furtherance of the
Compact (an “Exempt Entity” in the case of a legal entity or an “Exempt Individual” in
the case of a natural person).
Procedures
1. Summary - Goods and services procured by MCA-Nepal or procured and supplied by any
Exempt Entity or any Exempt Individual will be exempted from VAT or VAT will be
refunded if it has been paid. MCA-Nepal, any Exempt Entity, or any Exempt Individual
will be able to sell, purchase, or import goods and services in connection to the Compact
without paying or collecting VAT. In circumstances where VAT has been paid by a
beneficiary, IRD will refund VAT according to the procedures and timelines further
outlined in this Schedule.
2. Goods or services imported by MCA-Nepal, any Exempt Entity, or any Exempt Individual
or goods imported on their behalf by another supplier – VAT will not be charged for
goods and services imported by MCA-Nepal, any Exempt Entity, or any Exempt
Individual or by other suppliers on their behalf. MCA-Nepal, any Exempt Entity, or any
Exempt Individual will not have to pay VAT on import of services in furtherance to the
Compact. Upon the satisfaction of the following procedures, the relevant COS will not
charge VAT applicable on such imports. The beneficiary applies to the Ministry of
Finance (“MOF”) through MCA-Nepal to obtain a letter providing for tax exemption.
MCA-Nepal then forwards the application to the MOF for the tax exemption with the
following documents after which the MOF will, within five working days, issue an
exemption letter:
• application letter for exemption by beneficiary;
• a letter from MCA-Nepal, issued in official letterhead which confirms that the
goods are imported exclusively in furtherance of the Compact; and
• purchase order or contract (if available).
Annex VII-3
Following receipt of the letter from the MOF, the beneficiary applies to the COS. Upon
receipt of the following documents, the relevant COS shall not charge VAT applicable on
such imports:
• application for reimbursement by beneficiary;
• a letter from the MOF, issued on official letterhead which confirms the tax
exemption and requires the COS not to charge VAT;
• invoice for goods;
• purchase order or contract (if available);
• banking and payment documents; and
• transportation documents.
3. Refund process for VAT paid – In the event that procedures in paragraph 2 of this
Schedule A are not practicable or do not apply, VAT will be refunded. MCA-Nepal, the
Exempt Entity, or the Exempt Individual will obtain tax invoices from the supplier in
respect of the goods or services purchased locally or tax assessment receipts in case of
goods imported in respect of which VAT has been paid and apply for refund of the VAT
paid along with the following documents:
• application for refund by beneficiary;
• a letter from MCA-Nepal, issued on official letterhead confirming that the
goods and services are provided exclusively in furtherance of the Compact,
the name of the project, the name of the beneficiary of the exemption, and the
name of the supplier;
• copy of purchase order or contract (if available); and
• original tax invoice or tax receipt issued by the supplier.
IRD will refund the VAT within 30 working days upon receiving the request from the
beneficiary.
Annex VII-4
SCHEDULE B
CUSTOMS DUTIES
Legal Basis for Exemption
1. Section 2.8 of the Compact.
2. Customs Act of 2007, Section 9(4)
Beneficiaries of Exemption
1. MCA-Nepal.
2. Each Exempt Entity or Exempt Individual.
Procedures
1. Summary – MCA-Nepal, any Exempt Entity, or any Exempt Individual, or any other
person importing goods on their behalf in connection to the Compact (including goods
imported temporarily) will be exempt from paying custom duty on items imported in
connection to the Compact.
2. Goods imported by MCA-Nepal, Exempt Entity, or Exempt Individual or by a supplier on
their behalf – Custom duty will not be charged for goods imported by MCA-Nepal, any
Exempt Entity, or any Exempt Individual or by other suppliers on their behalf. The
beneficiary applies to the MOF through MCA-Nepal to obtain a letter providing tax
exemption. MCA-Nepal then forwards the application to the MOF for the tax exemption
with the following documents after which the MOF will, within five working days, issue
an exemption letter:
• application letter for exemption by beneficiary;
• a letter from MCA-Nepal, issued on official letterhead which confirms that the
goods are imported exclusively in the furtherance of the Compact; and
• purchase order or contract (if available).
Following receipt of the letter from the MOF, the beneficiary applies to the COS. Upon
receipt of the following documents, the relevant COS shall not charge custom duty
applicable on such imports:
• application for reimbursement by beneficiary;
• a letter from the MOF, issued in official letterhead which confirms the tax
exemption and requires the COS not to charge custom duty;
• invoice for the goods;
• purchase order or contract (if available);
• banking and payment documents; and
• transportation documents.
Annex VII-5
The COS will promptly clear the goods within five working days and grant exemption
from custom duties applicable on such imports.
3. Refund for goods purchased by MCA-Nepal, Exempt Entity or Exempt Individual on
which custom duty has been paid by the importer – MCA-Nepal, any Exempt Entity, or
any Exempt Individual will be entitled to refund of any custom duty applying to goods
which was imported by the supplier for which supplier has paid custom duty. The
beneficiary will apply to the IRD for refund of the custom duty paid along with the
following documents:
• application for refund by beneficiary;
• a letter from MCA-Nepal, issued on official letterhead which confirms that the
goods are provided exclusively in furtherance of the Compact, the name of the
project, the name of the beneficiary of the exemption, and the name of the
supplier;
• copy of purchase order or contract (if available);
• copies of documents showing custom duty paid in respect of such goods;
• original tax invoice or tax receipt issued by the supplier; and
• documents evidencing tax paid during import.
IRD will refund such duty within 30 working days of application by the beneficiary.
Annex VII-6
SCHEDULE C
EXCISE DUTIES
Legal Basis for Exemption
1. Section 2.8 of the Compact.
Beneficiaries of Exemption
1. MCA-Nepal.
2. Each Exempt Entity or Exempt Individual.
Procedures
1. Summary - Goods and services procured by MCA-Nepal, any Exempt Entity, or any
Exempt Individual will be exempted from excise duties or will be refunded. MCA-Nepal,
any Exempt Entity, or any Exempt Individual will be able to purchase or import goods
and services without paying excise duty during production or import.
2. Goods imported by MCA-Nepal, Exempt Entity, or Exempt Individual or by a supplier on
their behalf - Excise duty will not be charged for goods imported by MCA-Nepal, any
Exempt Entity, or any Exempt Individual or by other suppliers on their behalf. The
beneficiary applies to the MOF through MCA-Nepal to obtain a letter providing tax
exemption. MCA-Nepal then forwards the application to the MOF for the tax exemption
with the following documents after which the MOF will, within five working days, issue
an exemption letter:
• Application letter for exemption by beneficiary;
• a letter from MCA-Nepal, issued on official letterhead which confirms that the
goods are imported exclusively in furtherance of the Compact; and
• purchase order or contract (if available).
Following receipt of the letter from the MOF, the beneficiary applies to the COS. Upon
receipt of the following documents, the relevant COS shall not charge excise duty
applicable on such imports:
• application for reimbursement by beneficiary;
• a letter from the MOF, issued on official letterhead which confirms the tax
exemption and requires the COS not to charge excise duty;
• invoice for the goods;
• purchase order or contract (if available);
• banking and payment documents; and
• transportation documents.
Annex VII-7
The COS will promptly clear the goods within five working days and grant exemption
from excise duties applicable on such imports.
3. Duty exemption for local goods and services purchased by or for MCA-Nepal, Exempt
Entity, or Exempt Individual – For locally produced goods or services for which excise
duty is applicable, purchased by or supplied to MCA-Nepal, any Exempt Entity, or
Exempt Individual will be exempt from excise duty. The beneficiary will submit the
following documents to the IRD in respect of goods and services for which exemption
from excise duty should apply:
• application for exemption by beneficiary;
• a letter from MCA-Nepal, issued on official letterhead which confirms that the
goods and services are provided exclusively in furtherance of the Compact,
the name of the project, the name of the beneficiary of the exemption, and the
name of the supplier;
• two copies of the pro forma invoice issued by the supplier;
• copy of purchase order or contract (if available); and
• tax registration certificate of the supplier.
The IRD, within five working days of receipt the above documents, will stamp the pro
forma invoice submitted and issue an exemption certificate. On receipt of such stamped
pro forma invoice, the supplier will supply goods and services without charging excise
duty.
Annex VII-8
SCHEDULE D
CORPORATE INCOME AND WITHHOLDING TAX
Legal Basis for Exemption
1. Section 2.8 of the Compact.
2. Income Tax Act 2002 Section 10(a).
Beneficiaries of Exemption
1. MCA-Nepal.
2. Each Exempt Entity, other than legal persons that are legal entities registered under the
laws of Nepal (the “Income Tax Exempt Entity”). Any income that is derived from MCC
funding by legal entities or persons, but not individuals, that are considered taxable, per
the tax code, due to residence in Nepal solely with respect to their work performed in
furtherance of the Compact will not be considered taxable or subject to taxation in Nepal.
Procedures
1. MCA-Nepal and all Income Tax Exempt Entities will be entitled to an exemption from
Nepali income tax and related taxes on income earned from supplying goods, works, or
services in furtherance of the Compact.
2. MCA-Nepal will not be required to withhold tax deductible at source from payments
made from or with respect to MCC Funding to an Income Tax Exempt Entity.
3. Income Tax Exempt Entities will not be required to withhold tax deductible at source
from payments made from or with respect to MCC Funding when purchasing goods,
works, or service in furtherance of the Compact.
4. Income Tax Exempt Entities not registered under the laws of Nepal that may have
permanent establishment in Nepal will register as a taxable person in Nepal. MCA-Nepal
will arrange this registration with a tax office of the IRD so that the Income Tax Exempt
Entity (including its permanent establishment) and all income derived from MCC
Funding will be exempt from taxation.
5. All income derived from MCC Funding will be recorded as exempt income and an
Income Tax Exempt Entity will not be liable to pay tax with respect to any such income,
including any taxes in respect to transfer of such income.
6. Entities other than Income Tax Exempt Entities deriving their income from MCC funding
will themselves be responsible for filing their own tax returns and paying their taxes.
Annex VII-9
SCHEDULE E
INDIVIDUAL INCOME TAX
Legal Basis for Exemption
1. Section 2.8 of the Compact.
2. Income Tax Act 2002 Section 10(a).
Beneficiaries of Exemption
All natural persons, whether paid internally or externally, working in furtherance of the Compact
(each “Income Tax Exempt Individual”), other than citizens or residents of Nepal. Persons who
derive income hereunder who otherwise were not citizens or residents of Nepal prior to receiving
that income will also be deemed Income Tax Exempt Individuals.
Procedures
1. The Income Tax Exempt Individuals will be exempt from any income, social security,
medical insurance, provident funds, or other mandatory taxes and charges imposed by
Nepal on personal income (the “Personal Income Taxes”) received in connection with
income earned from works and services performed in furtherance of the Compact (the
“Exempt Personal Income”)
2. MCA-Nepal, the Exempt Entities, the Fiscal Agent and the Procurement Agent and any
other vendor (the “Exempt Employers”) who employs Income Tax Exempt Individuals
will not withhold or pay Personal Income Taxes for the Income Tax Exempt Individuals.
3. The Income Tax Exempt Individuals will have no obligation to file an income tax return
in Nepal in relation to the Exempt Personal Income.
4. The Exempt Employers will have no obligation under the laws of Nepal in connection
with the completion of any filings, registrations or reporting in relation to the Exempt
Personal Income of the Income Tax Exempt Individuals.
5. Persons other than Income Tax Exempt Individuals deriving their income from MCC
funding will themselves be responsible for filing their own tax returns and paying their
taxes.
Annex VII-10
SCHEDULE F
TAXATION OF PETROLEUM PRODUCTS
Legal Basis for Exemption
1. Section 2.8 of the Compact.
Beneficiaries of Exemption
1. MCA-Nepal.
2. Each Exempt Entity or Exempt Individual.
Procedures
1. Overview - MCA-Nepal, any Exempt Entity, or any Exempt Individual will be exempted
from customs duty, excise duty, pollution control fee, infrastructure tax, and all other
taxes and duties applicable on petroleum products (“Petroleum Taxes”) or any Petroleum
Tax paid by the beneficiaries will be refunded.
2. Petroleum purchased from Nepal Oil Corporation in bulk - MCA-Nepal will facilitate the
registration and purchasing of petroleum products wholesale or in bulk, including
providing any necessary certifications to permit beneficiaries under this Schedule to
make purchases. Following application by MCA-Nepal, the MOF will write to the Nepal
Oil Corporation (directly or through the Ministry of Suppliers, as appropriate) within five
working days to provide petroleum products on a duty free basis to the beneficiaries.
Nepal Oil Corporation will be exempted from paying any Petroleum Taxes on the
products supplied to the beneficiaries on a duty free basis. The beneficiary will submit
the following documents to the Nepal Oil Corporation in order to receive exemption from
Petroleum Taxes:
• application for exemption by beneficiary;
• a letter from MCA-Nepal, issued on official letterhead which confirms that the
goods and services are provided exclusively in furtherance of the Compact,
the name of the project, the name of the beneficiary of the exemption;
• a letter from the MOF, issued on official letterhead which confirms the tax
exemption and requires the relevant authorities not to charge taxes; and
• copy of purchase order or contract (if available).
3. Non-bulk purchase made from retail outlets – Petroleum Taxes paid in respect of
products purchased from retail outlets will be refunded. MCA-Nepal, any Exempt Entity,
or any Exempt Individual will obtain from the local supplier any invoices and/or receipts
relating to the Petroleum Tax in respect of the petroleum products in which Petroleum
Taxes have been paid. The beneficiary will apply to the IRD for refund of the Petroleum
Taxes paid along with the following documents:
Annex VII-11
• application for refund by beneficiary;
• a letter from MCA-Nepal, issued on official letterhead which confirm that the
petroleum products are provided exclusively in furtherance of the Compact,
the name of the project, the name of the beneficiary of the exemption, and the
name of the supplier;
• original tax invoice or tax receipt issued by the supplier; and
• breakdown of Petroleum Tax paid in respect of the retail purchase.
The IRD will refund to the beneficiary the Petroleum Taxes paid within 30 working days
of receipt of the application for refund.
Annex VII-12
SCHEDULE G
TAXATION OF TELECOMMUNICATION SERVICES
Legal Basis for Exemption
1. Section 2.8 of the Compact.
Beneficiaries of Exemption
1. MCA-Nepal.
2. Each Exempt Entity or Exempt Individual.
Procedures
1. Overview - MCA-Nepal, any Exempt Entity or any Exempt Individual will be exempted
from telecommunication ownership fee, telecommunication service fee, value added tax,
and all other taxes and duties applying to telecommunication services
(“Telecommunication Taxes”) or be refunded
2. Exemption from Telecommunication Taxes - MCA-Nepal, any Exempt Entity, or any
Exempt Individual will be exempt from all Telecommunication Taxes. Following
application by MCA-Nepal, the MOF shall write to the IRD confirming the exemption.
The beneficiary will submit the following documents to the IRD in respect of
telecommunication services for which exemption should apply:
• application for exemption by beneficiary;
• a letter from MCA-Nepal, issued on official letterhead which confirms that the
telecommunication services are provided exclusively in furtherance of the
Compact, the name of the project, the name of the beneficiary of the
exemption, and the name of the supplier;
• a letter from the MOF confirming the tax exemption;
• two copies of pro forma invoice issued by the service provider;
• copy of purchase order or contract (if available); and
• tax registration certificate of the service provider.
The IRD, within five working days of receipt the above documents, will stamp the pro
forma invoice submitted and issue an exemption certificate. On receipt of such stamped
pro forma invoice, the beneficiary will be exempt and the telecommunication service
provider will not charge any Telecommunication Taxes on the services it provides to the
beneficiary.
3 Refund of Telecommunication Taxes - In the event that procedures in paragraph 2 of this
Schedule G are not practicable or do not apply, Telecommunication Taxes paid in respect
of services purchased will be refunded. MCA-Nepal, any Exempt Entity, or any Exempt
Individual will obtain from the local supplier in respect of the telecommunication
services in which Telecommunication Taxes have been paid. Following application by
Annex VII-13
MCA-Nepal, the MOF shall write to the IRD confirming the exemption. The beneficiary
will apply to the IRD for refund of the Telecommunication Taxes paid along with the
following documents:
• application for refund by beneficiary;
• a letter from MCA-Nepal, issued on official letterhead which confirms that the
services are provided exclusively in furtherance of the Compact, the name of
the project, the name of the beneficiary of the exemption, and the name of the
service provider;
• a letter from the MOF confirming the tax exemption;
• original tax invoice or recharge cards issued by the service provider; and
• breakdown of Telecommunication Taxes applicable on such invoice.
The IRD will refund to the beneficiary the Telecommunication Taxes paid within 10
working days of receipt of the application for refund.
Annex VII-14
SCHEDULE H
PROPERTY TAXES
Legal Basis for Exemption
1. Section 2.8 of the Compact.
Beneficiaries of Exemption
1. MCA-Nepal.
2. Each Exempt Entity or Exempt Individual.
Procedures
1. Overview - MCA-Nepal, any Exempt Entity, or any Exempt Individual will be exempted
from registration fee, service fee, charge fees, and all forms of taxes applicable on
ownership, transfer of ownership, mortgage of land, houses, properties, and registration
of legal documents relating to property (“Property Taxes”).
2. Exemption from Property Taxes - MCA-Nepal will write to the relevant Government
department in charge of the collection of Property Taxes to exempt MCA-Nepal, any
Exempt Entities, and any Exempt Individuals from Property Taxes. Following application
by MCA-Nepal, the MOF shall issue a letter confirming the exemption. The beneficiary
will submit the following documents in respect of Property Taxes for which exemption
should apply to the LRO or Tax Departments:
• application for exemption by beneficiary; and
• a letter from MCA-Nepal, issued on official letterhead which confirms that the
transaction is undertaken exclusively in furtherance of the Compact, the name
of the project, and the name of the beneficiary of the exemption;
• a letter from the MOF confirming the tax exemption; and
• other documents setting out the nature of the transaction for which Property
Taxes apply (if applicable).
The LRO or Tax Departments in charge of collecting such taxes will exempt the
beneficiaries from paying any Property Taxes after receiving the documents.
Annex VII-15
SCHEDULE I
SERVICE TAXES
Legal Basis for Exemption
1. Section 2.8 of the Compact.
Beneficiaries of Exemption
1. MCA-Nepal.
2. Each Exempt Entity or Exempt Individual.
Procedures
1. MCA-Nepal, any Exempt Entity, or any Exempt Individual will be exempted from taxes,
including health services tax, education services tax, and all other taxes or duties
applicable on the sale of products and services (“Service Taxes”).
2. Tax exemption for goods and services purchased by MCA-Nepal, Exempt Entity, or
Exempt Individual – MCA-Nepal, any Exempt Entity or any Exempt Individual will be
exempt from all Service Taxes. Following application by MCA-Nepal, the MOF shall
write to the IRD confirming the exemption. The beneficiary will submit the following
documents to the IRD in respect of goods or services for which exemption should apply:
• application for exemption by beneficiary;
• a letter from MCA-Nepal, issued on official letterhead which confirms that the
goods or services are provided exclusively in furtherance of the Compact, the
name of the project, the name of the beneficiary of the exemption, and the
name of the supplier;
• a letter from the MOF confirming the tax exemption;
• two copies of the pro forma invoice issued by the supplier;
• copy of purchase order or contract (if available); and
• tax registration certificate of the supplier.
The IRD, within five working days of receipt the above documents, will stamp the pro
forma invoice submitted and issue an exemption certificate. On receipt of such stamped
pro forma invoice, the beneficiary will be exempt and the service provider will not charge
any Service Taxes on the goods or services it provides to the beneficiary.
3. Goods and services locally purchased by MCA-Nepal, Exempt Entity or Exempt
Individual– In the event that procedures in paragraph 2 of this Schedule I are not
practicable or do not apply, MCA-Nepal, any Exempt Entity, or any Exempt Individual
will obtain from the local supplier invoices relating to payment of Service Taxes in
respect of the goods purchased in which Service Taxes has been paid. Following
application by MCA-Nepal, the MOF shall write to the IRD confirming the exemption.
Annex VII-16
The beneficiary will apply to the IRD for refund of the Service Taxes paid along with the
following documents:
• application for refund by beneficiary;
• a letter from MCA-Nepal, issued on official letterhead which confirms that the
services are provided exclusively in furtherance of the Compact, the name of
the project, the name of the beneficiary of the exemption, and the name of the
service provider;
• a letter from the MOF confirming the tax exemption; and
• original tax invoice issued by the supplier.
The IRD will refund to the beneficiary the Service Taxes paid within 10 working days of
receipt of the application for refund.
Annex VII-17
SCHEDULE J
OTHER NATIONAL TAXES
Legal Basis for Exemption
1. Section 2.8 of the Compact.
Beneficiaries of Exemption
1. MCA-Nepal.
2. Each Exempt Entity or Exempt Individual.
Procedures
1. Overview - MCA-Nepal, any Exempt Entity, or any Exempt Individual will be exempted
from all other national taxes imposed by the Federal Government of Nepal not covered in
Schedules A to I of Annex VII (“Other National Taxes”).
2. Exemption of Other National Taxes - For matters for which Other National Taxes are
applicable, MCA-Nepal will write the relevant authority collecting the tax to exempt
MCC Funding or beneficiaries of such funding from the requirement. Such taxes will be
exempted by such authorities based on an official letter from the MOF obtained by the
beneficiary by applying through the MCA-Nepal. The official letter will be provided to
the relevant Tax Department assessing or collecting the tax in order to justify the
exemption.
3. Refund of Other National Taxes– In the event that procedures in paragraph 2 of this
Schedule J are not practicable or do not apply, MCA-Nepal, Exempt Entity or Exempt
Individual will obtain the invoice or receipt in respect of which Other National Taxes
have been paid. The beneficiary will write to IRD with a copy of the receipt or invoice
and supporting letter from MCA-Nepal and the MOF to obtain the refund of Other
National Taxes. IRD will refund such taxes within 10 working days of the request.
Annex VII-18
SCHEDULE K
LOCAL TAXES
Legal Basis for Exemption
1. Section 2.8 of the Compact.
Beneficiaries of Exemption
1. MCA-Nepal, Exempt Entities, and Exempt Individuals, performing an act or action in
furtherance of the Compact that triggers payment of any real property tax, business tax,
regional tax, municipal tax, village tax, community tax, or other local tax under Nepali
law, and any other tax other than those addressed in Schedules A through Schedule J of
this Annex VII (the “Local Taxes”).
Procedures
1. Overview - MCA-Nepal, any Exempt Entity, or any Exempt Individual will be exempted
from all Local Taxes.
2. Exemption of Local Taxes - For matters for which Local Taxes are applicable, MCANepal will write the relevant authority collecting the tax to exempt MCC Funding or
beneficiaries of such funding from the requirement. Such taxes will be exempted by such
authorities based on an official letter from the MOF obtained by the beneficiary by
applying through the MCA-Nepal. The official letter will be provided to the relevant Tax
Department assessing or collecting the tax in order to justify the exemption.
3. Refund of Local Taxes– In the event that procedures in paragraph 2 of this Schedule K are
not practicable or do not apply, MCA-Nepal, Exempt Entity or Exempt Individual will
obtain the invoice or receipt in respect of which Local Taxes have been paid. The
beneficiary will write to IRD with a copy of the receipt or invoice and supporting letter
from MCA-Nepal and the MOF to obtain the refund of Local Taxes. IRD will refund
such taxes within 10 working days of the request.