The Communist Party of Nepal (Maoist Centre) warned it would quit the government on Wednesday, hours before Prime Minister Sher Bahadur Deuba was supposed to table the Millennium Challenge Corporation-Nepal Compact in parliament.
"If the government tries to force it, now it is time for the government to break the alliance", Dev Prasad Gurung, the party's chief whip, warned as Deuba intended to table the $500 million US grant agreement on Wednesday.
The $500 million grant is aimed at maintaining "road quality, increase the availability and reliability of electricity, and facilitating cross-border electricity trade between Nepal and India".
Pushpa Kamal Dahal Prachanda, former prime minister and chairman of the CPN (Maoist Centre), has asked Deuba to form a consensus among coalition partners on the compact.
Prime Minister Deuba is likely to meet with the coalition partners -- the Communist Party of Nepal (Maoist Centre), CPN (Unified Socialist), Janata Samajbadi Party, and Rastriya Janamorcha -- on Thursday afternoon to discuss the MCC.
Local media widely reported that the US had given a deadline of 28 February to ratify the pact; otherwise, it would reconsider ties with the Himalayan state.
Last Thursday, US Assistant Secretary of State Donald Lu had phone conversations with Prime Minister Deuba and other coalition leaders. Lu reportedly warned that "the US would consider China's interest behind Nepal's failure to ratify the compact".
Deuba, who came to power only in July last year, has assured the US that the pact will be ratified in parliament during the ongoing winter session.
Coalition partners and the opposition believe the compact will undermine the country's constitution and that the US may use Nepal's soil against China under its Indo-Pacific Strategy.
The compact's Article 7.1 states: "The Parties understand that this Compact, upon entry into force, will prevail over the domestic laws of Nepal".
Last year, Sri Lanka also rejected an MCC agreement, as people believed it would compromise the nation's sovereignty and national security, forcing the US to discontinue a proposed $480 million development assistance programme in the island nation.
The MCC has been dubbed a "development project aimed at poverty alleviation" by the US. Still, people in Asia consider it to be a tool to expand military outreach in the Indian Ocean.
The MCC has partnered with nearly 30 countries worldwide on 38 grant agreements, totalling $13.5 billion.