Over 60 obligations & responsibilities GoSL has to comply to obtain $480m MCC Funding



The MCC agreements binds Sri Lanka to make legislative changes before, during & after signing of its Compact. For a paltry $480m given to a private company that reports to US, is it worth it, is a question policy makers are evading answering. In so doing, this country is likely to land in a precarious situation, one that politicians have a record of placing the country in, resulting in Sri Lanka never reaching the heights of development it could. Warnings and likely outcomes given to decision makers have a habit of being ignored.


Below quotes exact clauses from the MCC Compact agreement


Section 2.6      Government Resources; Budget.


(a)       The Government shall provide all funds and other resources, and shall take all other actions that are necessary to carry out the Government’s responsibilities under this Compact.


(b)       The Government shalluse its best efforts to ensure that all MCC Fundingit receives or is projected to receive in each of its fiscal years is fully accounted forin its annual budgets for the duration of the Program.


(c)        The Government shall not reduce the normal and expected resourcesthat it would otherwise receive or budget from sources other than MCC for the activities contemplated under this Compact and the Program.


Section 2.7      Limitations on the Use of MCC Funding.

The Government shall 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 tothe following purposes:


(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 jobsor a substantial displacement of United States production;


(c)        to undertake, fund, or otherwise support any activitythat is likely to cause asignificant 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 “iv/CC Environmental Guidelines”); or


(d)       to pay for the performance of abortions as a method of family planning, to motivate or coerce any person to practice abortions, to pay for the performance of involuntary sterilizations as a method of family planning, to coerce or provide any financial incentive to any person to undergo sterilizations, 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

(b)       The mechanisms that the Government shall useto implement the tax exemptionrequired by Section 2.8(a) for certain principal taxes are set forth in the Program Implementation Agreement.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-Sri Lanka, or to the taxpayer, or payment by the Government to MCA-Sri Lanka 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).


© If a Tax has been paid contrary to the requirements of Section 2.8(a) or Annex V, the Government shall 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 Sri Lanka within sixty (60) 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-Sri Lanka) that such Tax has been paid. Failure to refund such amount within the specified time shall result in interest accruing on the unpaid amount in accordance with Section 5.4.


IMPLEMENTATION: Section 3.1         Program Implementation Agreement.

The Parties shall 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 shall implement the Program in accordance with this Compact, the PIA, any other Supplemental Agreement, and any Implementation Letter.


(b)       With the prior consent of MCC, the Government shall designate an entity, to be established as a company limited by guarantee under Sri Lanka’s Companies Act No. 7 of 2007, 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 the Projects and their Activities, allocating resources, and managing procurements.Such entity shall be referred to herein as “MCA-Sri Lanka”and shall have the authority to act on behalf of the Government with regard to all Program activities. Any provision of this Compact obligating MCA-Sri Lanka to take any action or refrain from taking any action, as the case may be, means that the Government shall cause MCA-Sri Lanka to take such action or refrain from taking such action, as the case may be. The Government hereby also designates MCA-Sri Lanka to exercise and perform the Government’s right and obligation to oversee, manage, and implement the activities described in the Amended and Restated Grant and Implementation Agreement, dated June 18, 2018, as amended, between the Government and MCC (the “CDF Agreement”). MCC hereby acknowledges and consents to the designation in this Section 3.2(b).


(c)        The Government shall 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 shall take all necessary or appropriate steps to achieve the Project Objectives during the Compact Term (including, without limiting Section 2.6 (a), funding all 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 shall ensure that the Program is implemented with, 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, any other Supplemental Agreement, any Implementation Letter, and the Program Guidelines.


Section 3.3      Policy Performance.

In addition to undertaking the specific policy, legal, and regulatory reform commitments identified in Annex I, the Government shall 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 3.6      Procurement and Grants.

(a)       The Government shall ensure that the procurement of all goods, works, and services by the Government or any Provider to implement the Program shall be in accordance with MCC’s Program Procurement Guidelines(the “1l1CC Program Procurement Guidelines”). Accordingly, neither the Government Procurement Guidelines (2006), nor any other laws or regulations of Sri Lanka regarding procurements shall apply to procurements to implement the Program.


The MCC Program Procurement Guidelines include the following requirements, among others:


(b)       Unless MCC otherwise consents in writing, the Government shall 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 shall 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 shall be posted on the MCA-Sri Lanka website.


Section 3.7      Records; Accounting; Covered Providers: Access.


(a)       Government Books and Records.

The Government shall maintain, and shall 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 shall furnish or cause to be furnished to MCC, upon its request, originals or copies of such Compact Records.


(b)       Accounting.

The Government shall maintain, and shall 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 Sri Lanka. 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.


Section 3.8      Audits; Reviews.


(a)       Government Audits.

Except as the Parties may agree otherwise in writing, the Government shall, 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 March 31 or September 30 and covering each six-month period thereafter ending March 31 or September 30, through the end of the Compact Term, as well as the one hundred twenty (120) day period following the expiration of the Compact Term. In addition, the Government shall ensure that such audits are conducted by an independent auditor approved by MCC and selected in accordance with MCC’s Guidelines for Financial Audits Contracted by the Millennium Challenge Corporation’s Accountable Entities(the “Audit Guidelines”). Audits shall be performed in accordance with such Audit Guidelines, and/or other processes and procedures directed from time to time by MCC. Each audit must be completed and the audit report delivered to MCC no later than ninety (90) days after the applicable audit period, or such other period as the Parties may otherwise agree in writing. Any changes to the period to be audited shall be included in an audit plan developed and implemented by MCA-Sri Lanka in accordance with Audit Guidelines and Program Implementation Agreement and as approved by MCC (the “Audit Plan”). 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 (whether a for-profit or nonprofit organization), 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 shall 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.


Section 4.2      Representatives. 

For all purposes relevant  to implementation  of this Compact, the Government shall be represented  by the individual holding the position  of, or acting as, the Minister of Finance, and MCC shall 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 of the Government or MCC, as appropriate (each, an “Additional Representative”) for all purposes relevant to implementation  of this Compact except for amending this Compact pursuant  to Section 6.2(a).

MCC hereby designates the Deputy Vice President for Europe, Asia, Pacific, and Latin America and the Resident  Country Director  for Sri Lanka as Additional  Representatives  for MCC. 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 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 thereon in accordance with Section 5.4 within thirty (30) days after the Government’s receipt of MCC’s request for repayment. The Government shall not use MCC Funding, proceeds thereof, or Program Assets to make such payment.


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)), the Government shall pay interest on such past due amount.Interest shall accrue on such amount at a rate equal to the then current U.S. 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 shall first be credited against interest due, and once the interest due amount is extinguished, then payments shall be credited against outstanding principal.


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 shall 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 shall be immune from the jurisdiction of all courts and tribunals of Sri Lanka for any claim or loss arising out of activities or omissions under this Compact.


Section 7.1      Domestic Procedures.

The Government shall proceed in a timely manner to complete all of its domestic requirements for this Compact and PIA to enter into force. The Parties understand that, consistent with Sri Lankan law, prior to the Government sending the letter described in Section 7.3, this Compact is to be submitted to and enacted by the Parliament of Sri Lanka.






Section 8.1      Permitted Account.

The Government shall ensure that MCA-Sri Lanka shall maintain the Permitted Account in a private commercial bank.


Section 8.2      Foreign Exchange Accounts.

The Government shall ensure that MCA-Sri Lanka, any foreign personnel (individual consultants or personnel of firms), and any foreign company providing goods, works, or services under the Compact have the legal right to maintain a foreign currency bank account.


Section 8.3      Employment Requirements.

The Government shall arrange for any foreign personnel (individual consultants or personnel of firms) providing goods, works, or services under the Compact to be provided promptly with any necessary entry or work visas.




Set forth below is a description of the Project and the specific activities (each, an “Activity “) thatthe Government shall implement, or cause to be implemented, using MCC Funding to advance the Project Objective.


The Transport Projectfocuses on leveraging and creating synergies with other development partners. The WB is planning an urban transport program incorporating a bus modernization component that shall likely extend beyond the term of the Compact. The Government shall coordinate closely with the WB to integrate the Transport Project interventions with the WB’s investments in this sector.The Japan International Cooperation Agency is slated to begin construction of the country’s first light rail transit line, connecting central Colombo with one of its suburbs to which many Government ministries and departments have relocated. The BTSM Activity is expected to include feeder service to and from these stations as part of its route rationalization efforts. The Asian Development Bank is launching a program to improve rural roads (Class C, D, and E) throughout the country, some of which connect with the Class A and B roads improved under the CRRN Activity.


  • The Government shall include a distinct budget category in the national budget for the ATMS Activity and allocate sufficient funds to cover the cost of staffing and O&M requirements at each stage of the ATMS implementation.
  • To facilitate the development and implementation of the ATMS, including the TMC functions, the Government shall establish a steering committee composed of relevant stakeholders to develop, manage, maintain, and update the concept of operations for the traffic management system, as well as to facilitate maintenance and protection of traffic during construction.
  • TheGovernment shall ensure and facilitate all necessary coordination with all stakeholders and inter-governmental ministries and agencies to allow the ATMS to function effectively.
  • TheGovernment shall provide MCA-Sri Lanka with access to data that is relevant to monitor Project progress and evaluate the outcomes of the Transport Project.
  • During the implementation of the BTSM Activity, the Government shall establish a revenue support fund to cover any possible revenue losses for bus operators during the transitional period.
  • As part of the BTSM Activity, the Government shall work with provincial authorities to enforce performance standards and optimize bus route networks and schedules according to passenger demand forecasts.
  • As part of the BTSM Activity, the Government shall facilitate the deployment and adoption of an automated fare card system and performance-based bus operations.
  • For the CRRN Activity, the Government shall adopt a multi-year maintenance plan for Class A and B road’s developed through the project technical assistance, and commit to regular updates of the plan through a data-driven process.
  • The Government shall fund any intervention s that require direct support to the Sri Lanka police during the implementation of the Transport Project.


(a)       Registration of Absolute Land Grants Sub-Activity.


MCC Funding shall support Government efforts to convert permits and grants in State Land to “absolute land grants” that are expected to be registered as freehold rights in land.The sub­ activity would support the conversion of State Lands to the private domain, creating a marketable and bankable title to this land in the name of the land holder.

The Government shall register the absolute land grants in the title registration system, allowing the use of land as collateral for loans and the free transfer of this land without excessive government restrictions.

The Land Special Provisions Act (“LSPA”) is expected to define the process the Government shall use for this conversion of land rights.

The availability of MCC Funding for this Activity is dependent on the enactment of the LSPA that states that registration of absolute land grants is completed in the title registration system and creates a presumption of registration of rights to absolutelandgrantsjointlyin thenameof husbandandwifewithatime boundopt-outprocessthatisfree,fair,andwithoutcoercion


Land Research

MCC and the Government shall agree on the most appropriate location in government for the LPRG.

MCC Funding shall be made available for this Activity once the Government and MCC agree on the location for the LPRG and the body is established by a formal Government decision.


(c)        Gender and Social Inclusion.


To maximize the positive social impacts of the Land Project, the activities shall address cross­ cutting gender and social inclusion issues such as women’s equal access to and control over land rights. To ensure compliance with the MCC Gender Policy and Gender Integration Guidelines, the Government shall conduct relevant social and gender assessments, and shall: (i) develop a comprehensive Social and Gender Integration Plan, which, at a minimum, identifies approaches for regular, meaningful and inclusive consultations with women, the poor and other vulnerable groups, and sets forth strategies for incorporating findings of the consultations and social and gender analyses into final Project design; and (ii) ensure, through monitoring and coordination during implementation, that final Activity designs, consultancy and construction tender documents, and implementation plans are consistent with and incorporate the findings of the social and gender analyses and the Social and Gender Integration Plan. The Social and Gender Integration Plan shall include a Land Project-specific Social and Gender Integration Plan that includes a work plan for ensuring equal land tenure security for women and men.


(d)       Donor Coordination.


The WB prepared studies on the land sector in Sri Lanka that were used to inform the Land Project design. The Government shall ensure coordination with other donors active in this sector during the implementation of the Project.

MCC Funding may be used to develop a roadmap for work in the land sector.


(g)       Policy, Legal and Regulatory Reforms.


The Government shall address legislative gaps centering on decentralizing authority for the approval of absolute land grants, simplifying procedures, and ensuring gender equality in the issuance of absolute land grants, among other issues.


Gender issues– Permits and grants to State Lands are usually given to men as head of the household, and the eldest son inherits in accordance with the land law. As a result, women face barriers to have control over the State Lands for productive purposes, thus reducing their economic potential, which does not comply with MCC Gender Policy. This also places women and their children at risk when there is divorce, abandonment, death, or discord within the family.

To remedy this situation, the Government shall enact the LSPA that includes a presumption that registration of rights to absolute land grants shall be made jointly in the name of husband and wife with a time bound opt-out process that is free, fair, and without coercion.


Government shall implement amendments to the RTA that are necessary to allow for (i) joint ownership of land when a property owner conveys the rights to another party via grant, sale, or other transfer; (ii) titling of land using a general boundary survey that can later be upgraded to a cadastral survey; (iii) streamlining and decentralization of the approval for issuance of title certificate and registration of rights; and (iv) alternative dispute resolution mechanisms to resolve disputes and other problems that may prevent the titling and registration of rights in land.


In view of the above, implementation of the following reforms, in form and substance satisfactory to MCC, are necessary to ensure that the Land Project meets its Project Objective.


  • The Government shall maintain the land info1mation technology (“IT’) systems and to provide budget funding for the maintenance and updating of software and hardware in each year during the Compact Term;
  • The Government shall maintain in place all legislation required to implement the Land Project in a timely and efficient manner;
  • The Government shall make sufficient resources available to ensure that registration of land parcels occurs in a timely manner; and
  • The Government shall provide data necessary to MCC for monitoring and evaluation of the outcomes of the Land Project.




  1. MCA-Sri Lanka.


(a)       Independence and Autonomy.


The Government shall establish an accountable entity, MCA-Sri Lanka, as a company limited by guarantee that shall be created under the Companies Act No. 7 of 2007.

MCA-Sri Lanka shall be the Government’s primary agent responsible for exercising the Government’s right and obligations to oversee, manage, and implement the Program and Projects.


  1. Implementing Entities.


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 implementing any Project or Activity (or a component thereof) (each, an “Implementing Entity”).

The appointment of any Implementing Entity shall be subject to review and approval by MCC. The Government shall ensure that the roles and responsibilities of each Implementing Entity and other appropriate terms are set forth in an agreement, in form and substance satisfactory to MCC (each an “Implementing Entity   Agreement”).


  1. Fiscal Agent.


Unless MCC agrees otherwise in writing, the Government shall engage an individual or firm with expertise in fiscal management to serve as fiscal agent (the “Fiscal Agent”), which shall be responsible for assisting the Government with its fiscal management and assuring appropriate fiscal accountability of MCC Funding.The duties of the Fiscal Agent shall include those set forth in the Program Implementation Agreement and an agreement, in form and substance satisfactory to MCC, between the Government and the Fiscal Agent.


  1. Procurement Agent.


Unless MCC agrees otherwise in writing, the Government shall engage one or more procurement agents (the “Procurement Agent”) to carry out and certify specified procurement activities in furtherance of this Compact. The roles and responsibilities of the Procurement Agent shall be set fo1ih in the Program Implementation Agreement or such agreement as the Government enters into with the Procurement Agent, which agreement shall be in form and substance satisfactory to MCC. The Procurement Agent shall adhere to the procurement standards set forth in the MCC Program Procurement Guidelines and ensure procurements are consistent with the Procurement Plan by the Government pursuant to the Program Implementation Agreement, unless MCC agrees otherwise in writing.





This Annex II sets forth a multi-year financial plan summary (“Multi-Year Financial Plan Summary”) for the Program as Exhibit A hereto. By such time as specified in the Program Implementation Agreement, the Government shall adopt, subject to MCC approval, a multi-year financial plan that includes, in addition to the multi-year summary of estimated MCC Funding and any Government contribution of funds and resources, the annual and quarterly funding requirements for the Program (including administrative costs), which for each Project, shall be projected both on a commitment and cash requirement basis.


ATMS Activity:


(a)  The Government shall provide funds for operations and maintenance of the ATMS.


BTSM Activity:

(a)  Political Economy:

The Government shall commit to implement and enforce new reforms.



3.1       Goal, Outcome, Output, and Process Indicators


(a)       The M&E Plan shall 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 shall collect Baselines on the selected Indicators or verify already collected Baselines where applicable.


Potential evaluation questions include the following. MCC and the Government shall agree on the final evaluation questions based on the final Project design.


  • Is the cost of transportation (time savings and volatile organic compound savings) reduced compared to a “no build” scenario? This question links to the following outcome Indicator: [Time of travel and delays; Vehicle operating cost savings]
  • Has the flow rate of people and goods increased as a result of the Project? This question links to the following outcome Indicator: [Kilometers of travel per passenger; Hours of travel per passenger; Average speed/travel time within the network; Kilometers of travel per vehicle, disaggregated by type of vehicle].
  • Has bus ridership increased as a result of the Project? This question links to the following outcome Indicator: [Number of riders; Number of passenger kilometers; Number of boarding’s].


Potential evaluation questions include the following. MCC and the Government shall agree on the final evaluation questions based on the final Project design.


  • Have land transactions increased? This question links to the following outcome Indicator: [Number of transactions].
  • Has access to land for both government and private sector improved? This question links to the following outcome Indicator: [TBD].
  • Is more investment taking place on land as a result of MCC’s intervention? This question links to the following outcome Indicator: [Increased investment on land].



Shenali D Waduge

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