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The Millennium Challenge Corporation (MCC) Compact that was signed between the Ministry of Finance and the US Government around six years ago has reached the entry into force (EIF) phase.

According to the Millennium Challenge Account (MCA)-Nepal Development Committee, preparations are on to announce the date for EIF regarding the MCC soon. The Compact was endorsed by the federal parliament along with a 12-point descriptive note in February last year.

Initially, it was agreed that $500m shall be provided in grants to Nepal, while the government shall bear $130m, expecting the total cost of the MCC project to remain at $630m. But the ‘supplemental agreement’ over the MCC that was signed in last May-June, demands that the government bear additional $67m, seeking its total contribution of $197m.

Nepal was supposed to take up the 20.63 percent economic responsibility for the MCC project and now it has risen to 28.26 percent. The increased responsibility amount is equivalent to Rs 900m. The preparations for the announcement of EIF date without meeting all the preconditions is another concern regarding the implementation of projects.

The acquisition of land for the implementation of MCC Nepal Compact projects, as well as the guarantee of the land use rights within forest areas is still incomplete. The Compact mandates the project implementing body, MCA-Nepal, to complete the projects within five years of the declaration of EIF. But there are doubts the projects will complete on time. 

This article primarily highlights the factors contributing to the increase in the cost of Compact implementation and sheds light on the reasons behind the decision to proceed with the EIF without fulfilling all the prerequisites. 

On May 23, the government decided to endorse the Finance Ministry’s proposal to revise the agreement between Nepal and the MCC and increase the government’s contribution to the projects. On the basis of the decision, Nepal Electricity Authority (NEA) and the MCA-Nepal on May 30 signed the ‘supplemental agreement’. 

The MCA-Neal has issued a public statement stating that the government has decided to include additional endeavors included in the electricity transmission projects under the MCC Compact at the request of the NEA. The statement further mentions that the additional budget of $67m required to implement these additional endeavors will be managed from the major budget of the Compact. In the event of the full utilization of the allocated budget, the insufficient funds will be borne by the NEA.

The additional budget required for the implementation of the Compact is to be considered as the government's contribution, and it will be adjusted in the relevant schedule of the Compact. Road and electricity projects are the areas of priorities for Nepal as identified by the MCC Compact signed on 14 Sept 2017. As per the statement, the cost amount of $67m which has been recently added will be spent for the construction of the section of the 400kV New Butwal-Gorakhpur Nepal-India Inter-country transmission line toward the Nepal side and for increasing the capacity of three substations.

This transmission line project is in the construction phase. However, it is not clear why the additional budget for the construction of the transmission line from New Butwal Substation to the India border is already mentioned before in the MCC Compact. The Schedule-1 (B) (1) of the MCC Compact states that the transmission line project will be constructed under MCA-Nepal.

It is mentioned in the Compact that around 300 kilometers of double circuit 400 kV transmission line would be constructed within Nepal. The Compact states that the transmission line would be constructed on five different routes—from Lapsiphedi of Kathmandu up to Ratamaate, from Ratamate to Hetauda, from Ratamate to Damauli, from Damauli to Butwal and from Butwal to the India border. This means that the plan of constructing the transmission line from Butwal to the India border for which the added cost has been managed is included in the existing cost of $630m.

When the RSS approached the MCA-Nepal for its comment regarding allocation of additional budget for the construction of the transmission line on this route, officials stated that the amount added in the MCC Nepal Compact programme would be merged with the Electricity Transmission Project budget, and it would be used for increasing the capacity of three substations by installing extra 'bays' as per the requirement and request of the NEA.

Asked whether the amount merged in this way can be termed as an increment in the project's cost, MCA-Nepal’s information officer Rajib Dahal said the cost automatically goes up when extra work has to be carried out. “Additional work of expanding the capacity of the under-construction three substations by installing extra bays is being carried out from the amount added on behalf of the Government of Nepal to the MCC Nepal Compact, as per the NEA's need and request,” he said.

The countdown for the five-year project will begin from the day of EIF. According to the preliminary agreement, EIF was supposed to start on 30 June 2020. However, many factors like a dispute in getting the compact endorsed from the parliament caused the delay. 

Despite the delay of nearly two years, MCA-Nepal has not yet completed the preparation works to ensure smooth execution of the projects. Land acquisition as a prerequisite for EIF has yet to take place. According to Section 8.1 of Article 8 of the MCC Compact, 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. 

Asked about the implementation of the Compact, the MCC Nepal said the date for its implementation would be announced within the Nepali month of Bhadra. 

The MCA-Nepal requires a total 1,471 hectares of land for the electricity transmission project, and around 20 hectares for the construction of a substation at Ratmate in Nuwakot. It requires another 104 hectares of land for constructing around 856 electrical towers.

There is still a dispute regarding the acquisition of land required for constructing a substation. Likewise, the distribution of compensation for the land acquired for the transmission line has yet to begin. The MCA-Nepal has said except for a family-disputed plot, the distribution of compensation for the land acquired for a substation at Ratamate has been completed. A preliminary legal process has also been initiated to acquire the land required to build the electrical towers.

The legal process to determine compensation amounts for the land acquired for the project has started under the leadership of relevant chief district officers. The affected areas have 122 community and government forests. The government has allocated over Rs 10.8bn for the MCC projects in this fiscal year 2023/24. Out of the allocated budget, Rs 8.7bn will go for the electricity transmission project, Rs 1.5bn for road repair, Rs 2m for monitoring and evaluation, and Rs 555m for administrative work. 

RSS

The price of gold has dropped by Rs 300 per tola in the domestic market on Tuesday.

According to the Federation of Nepal Gold and Silver Dealers’ Association, the yellow bullion is being traded at Rs 112, 100 per tola today. It was traded at Rs 112, 400 per tola on Monday.

Meanwhile, tejabi gold is being traded at Rs 111, 550 per tola. It was traded at Rs 111, 850 per tola.

Similarly, the price of silver has dropped by Rs 25 and is being traded at Rs 1,400 per tola today.

Despite a sharp surge in non-performing assets (NPA), commercial banks have managed to post healthy growth in their profits in the last fiscal year. The fourth quarter report of the 20 commercial banks shows their profit grew by 25.03 percent FY 2022/23.

Of the 20 banks that have published their financial reports, 18 reported an increase in their profits in FY 2022/23 compared to FY 2021/22. Two banks—Kumari Bank and Prime Commercial Bank have logged a decline in profits.

While banks’ net profit surged by 25.03 percent, their distributable profit declined by 26 percent as they have to set aside a significant amount for regulatory adjustment. Although the profit of the banks reached Rs 70.17bn, their distributable profit which they can distribute to the shareholders is only Rs 31.9bn.

The banks managed to improve profits after they focused aggressively in loan recovery in the last quarter of the last fiscal year. However, their NPA has surged as they failed to recover the loans as expected.  The banks’ NPA stood at 2.8 percent in FY 2022/23 compared to 1.26 percent in FY 2021/22.

With the country grappling with economic downturn, banks experienced difficulties in the recovery of loans and debt servicing in the last fiscal. While the banks' bad loans have been gradually increasing from the start of the current fiscal year, the NPA declined in the last quarter of FY 2022/23. The NPA which rose to 3.03 percent in the third quarter of the last fiscal came down to 2.8 percent in the fourth quarter. 

Bankers attribute the rise in NPA to the slowing economic activities coupled with higher interest rates, and the declining ability of borrowers to repay debts. Sanima Bank CEO Nischal Raj Pandey said that there has been some improvement in the banking sector with economic activities taking pace in the last quarter. “The borrowers generally pay back their loans in the last quarter as banks also prod them. The Nepal Rastra Bank also allowed banks to restructure and reschedule the loans of the certain sectors that have been hard hit by the economic downturn,” said Pandey.

The banks’ fourth quarter report shows two banks’ profit has crossed the Rs 7bn mark while three other banks earned above Rs 4bn in profit in the last fiscal. There are seven other banks whose profit has crossed the Rs 3bn mark in FY 2022/23. 

Nabil Bank has topped the chart as the bank’s profit grew by a whopping 76.94 percent in the last fiscal to Rs 7.52bn. The Global IME Bank is second on the list with a profit of Rs 7.25bn, an increment of 46.17 percent followed by Rastriya Banijya Bank (RBB) which has reported a profit of Rs 4.91bn. However, RBB’s profit grew by 14.45 percent in the last fiscal.

Kumari Bank reported a 24.12 percent decline in its net profit as the bank managed to earn Rs 1.95bn in FY 2022/23 compared to profit of Rs 2.57bn in FY 2021/22. Prime Commercial Bank’s net profit plunged by 18.6 percent to Rs 2.26bn in the last fiscal. 

Banks’ profit

The Nepal Stock Exchange (NEPSE) plunged by 3. 21 points to close at 2,048.26 points on Monday.

Similarly, the sensitive index dropped by 1. 59 points to close at 390. 43 points.

A total of 6,647,143-unit shares of 267 companies were traded for Rs 2. 33 billion.

Meanwhile, Nepal Republic Media Limited was the top gainer today with its price surging by 9. 99 percent.

Likewise, Chhyangdi Hydropower Ltd was the top loser with its price dropping by 6. 45 percent.

At the end of the day, the total market capitalization stood at Rs 3. 03 trillion.