[Analytics] Nepal-China railway plans hit a dead end

Nepal’s Foreign Minister Pradeep Gyawali (L), upon his arrival in Beijing on July 3, shakes hands with China’s Foreign Minister Wang Yi. China’s Belt and Road Inititiative is behind the multi-billion-dollar project of the Nepal-China cross border railway, which could break Nepal’s sole trade-and-transport dependence on India – but might break the bank in the process. Photo: AFP / Mark Schiefelbein. Sketched by the Pan Pacific Agency.

The ambitious Nepal-China rail link, which is expected to break the tiny Himalayan nation’s sole dependence on India for trade and transit, is looking financially unfeasible as disagreements crop up between principal stakeholders. Kosh Raj Koirala specially for the Asia Times.

There is no consensus among political actors about how this project, which is part of the Chinese Belt and Road Initiative, should be funded.

Moreover, the railway would be challenging to build. The mountainous terrain poses a major challenge. The Chinese side has been saying that the project needs further study and depends on new technological advances, as the proposed route runs through the earthquake-prone Himalayan range.

All in all, there has been more “diplomatic propaganda” than actual progress on the ground, in terms of expediting work for the railway, said foreign affairs and geopolitical expert Geja Sharma Wagle. “There is high symbolism, but less substance.”

A difficult project

During the fourth Nepal-China Railway Cooperation Committee meeting held in Beijing in the third week of June, Chinese officials had conveyed to the Nepali side that they would have to work out a few things before they start to prepare a detailed project report.

The Chinese Railway Administration had conducted a pre-feasibility study of the project last year. That report submitted to the Ministry of Physical Infrastructures and Transport Management indicated it would be a challenging engineering undertaking owing to various concerns – seismic activity, topography, altitude, geology and engineering.

In a press conference held in May this year, the Chinese Ambassador to Nepal, Hou Yanqi, said the construction of a railway through the most inhospitable terrain at the highest altitude requires further scientific and feasibility studies and innovation.

Hou issued a statement in which he said that although the construction of a Nepal-China cross-country railway was a long-term project, the participants had the determination to continue the work. He also emphasized the need to display a scientific attitude and patience.

Amid these uncertainties, as the fourth Nepal-China Railway Cooperation Committee meeting held in Beijing could not decide on expediting the detailed project report, it will be discussed in the fifth meeting, scheduled for December in Kathmandu.

By itself, a proper feasibility study of the 72-kilometer railway line from the Chinese border is estimated to cost around 35 billion Nepalese rupees (approximately US$319 million), according to Nepali Railway officials.

No consensus on funding modality

In 2008, China announced that the Qinghai-Tibet railway would be extended to Keyrung on the Nepal-China border, which is the only operating trade point between the countries. Surrounded by India on three sides, by the Chinese Himalayas on the fourth, Nepal had depended solely on India for third-country trade and transit.

When Nepali leaders in 2016 saw the opportunity of breaking that sole dependence, they negotiated with China to bring the proposed railway up to Kathmandu, something China agreed to in principle as a part of its overarching Belt and Road framework.

The country’s two major political parties – the ruling Nepal Communist Party (NCP) and the main opposition party, Nepali Congress (NC) – lack consensus on how to finance the railroad.

While the main opposition party, NC, has maintained that the railroad should be developed only if China builds it under a grant, NCP appears in favor of expediting the project even if that requires taking a loan.

Officials said China has not said anything about building the railroad under a grant and even communicated to the Nepal government its unwillingness to do so.

The Nepal-China Trans-Himalayan Multi-Dimensional Connectivity Network and Nepal China Cross Border Railway Projects were subjects of a joint communique issued after the conclusion of the second Belt and Road Forum for International Cooperation held in Beijing in April. But it does not say anything about the funding modality.

While addressing the parliament recently, Nepali Congress leader Sher Bahadur Deuba said that his party believes Nepal – a country with an economy worth around US$12 billion – cannot afford to fund the multi-billion dollar project through loans. “Our position is that both the projects should be funded only through grants,” said Deuba, Nepal’s five-time prime minister.

As 98.5% of the railway is likely to comprise high bridges and tunnels, according to the pre-feasibility study conducted last year, it is estimated that the railway project would cost a minimum of 257 billion Nepali rupees (approximately US$2.3 billion).

Wagle also believes that such a project shouldn’t be constructed with the help of loans. “If we choose to build it under loans, this will be another Hambantota Port of Sri Lanka,” said Wagle. Sri Lanka’s Hambantota is widely cited as an example of a debt trap caused by China’s investment under Belt and Road. Unable to pay back the loan, Sri Lanka has handed over the port to China on lease for 100 years.

Nepal signed up for Belt and Road in May 2017 amid discomfort of India and major Western powers. Foreign Minister Pradeep Kumar Gyawali has maintained that the China-led initiative and the United States’ Indo-Pacific Strategy operate in the interest of Nepal’s economic and infrastructure development.

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