Nepal looks to kick start stalled China-funded projects

Nepalese Prime Minister KP Sharma Oli headed to Beijing on Monday as Nepal seeks a new framework for China-funded infrastructure projects under the Belt and Road Initiative (BRI).

In 2017, China and Nepal signed a BRI framework agreement. However, not a single project has commenced work. 

Progress has been hampered by ideological differences among Nepal's major political forces, coupled with broader geopolitical and debt-sustainability concerns. 

The BRI is China's global infrastructure funding scheme aimed at helping developing countries build better transport and digital connectivity. It has been criticized as saddling cash-strapped countries with Chinese-owned debt.

After Nepal and China announced a revamped strategic partnership in 2019, the countries again agreed on a framework for cooperation under the BRI called the "Trans-Himalayan Multi-Dimensional Connectivity Network" that would pave the way for projects like ports, roads, railways, tunnels and digital connectivity under the BRI. 

Nepal proposed nine different projects to be pursued, including a feasibility study of a trans-Himalayan railway.

Nepal is also waiting on $740 million (€703 million) worth of China-pledged developmental grants, the Kathmandu Post reported, including those announced during President Xi's visit to Nepal in 2019.

During Oli's Beijing visit this week, his first trip abroad since becoming prime minister in July, stakes are high on showing progress towards execution of the BRI projects and release of the pledged Chinese development grants. 

Nepal proposes a new BRI cooperation framework

Prime Minister Oli is set to meet Chinese President Xi and Premier Li Qiang in Beijing on December 3, and is expected to urge the Chinese leadership to endorse a new BRI cooperation framework pushed by Kathmandu. 

The framework highlights Nepal's preferences for Chinese grants over loans to finance BRI projects, a senior Foreign Ministry official told DW, requesting anonymity.

However, other funding options like soft loans and joint ventures are also open, the official added. 

Nepal also wants to focus more on physical connectivity and energy infrastructure and is open to China potentially diverting its pledged development grants to BRI project funding. 

Nepalese debt concerns   

BRI projects come with concerns about the potential risks of high-interest Chinese commercial loans, typically higher than 4%, compared to multilateral funding from institutions like the World Bank and the Asian Development Bank, which offer loans with rates around 1%. 

Nepalese Foreign Minister Arzu Rana Deuba on Friday handed over the new implementation plan to her Chinese counterpart, Wang Yi, in the Chinese city of Chengdu. 

"I have apprised the Chinese side about our circumstances of not being able to pursue the BRI projects through loans, as we are already facing pressures due to high public debts," she told journalists upon her return from Chengdu. "We are hopeful for China's grants." 

According to Nepal's Public Debt Management Office, the country's total national debt is about 44% of its GDP, currently estimated at $42 billion, making Nepal one of the poorest countries in South Asia.

Nepal owes about $10 billion in foreign debt, most of which is to the multilateral donors like the World Bank. China's share of this is about 4%. 

Seeking political consensus in Nepal

Nepal's efforts to balance its relations with India and the United States — both intent on containing China's growing influence — have complicated its approach to the BRI.

These pressures have undermined Kathmandu's ability to focus solely on its development priorities when negotiating with China. 

For years, Nepal's two largest political parties — Nepali Congress and CPN-UML — were ideologically poles apart as to how to pursue Chinese investments.

Nepali Congress advocates for BRI projects, including the proposed trans-Himalayan railway, to be financed through Chinese grants.

It has also frequently raised concerns like debt-sustainability, local ownership and employment opportunities. 

In contrast, Nepal's leftwing parties, including CPN-UML led by PM Oli, are open to loans for BRI financing, arguing that Chinese investment is vital to address infrastructure deficits, revive economic opportunities and divest Nepal's overreliance on India for trade and transit. 

"The main reason behind such delays in the BRI is our geopolitics, which has impacted domestic political consensus," former Foreign Secretary of Nepal, Madhu Raman Acharya, told DW.

Lila Nyaichyai, a China researcher and assistant professor at Tribhuvan University in Kathmandu, said that the lack of political consensus in the early stages hampered progress on BRI projects.

"We should have resolved debates on loans or grants well before signing the BRI framework agreement in 2017," she told DW. "I doubt whether our leadership takes decisions just for immediate political gain or to execute them."   

The new cooperation framework proposed by Nepal on the BRI was finalized through a joint taskforce of Nepali Congress and CPN-UML— who are the main coalition partners in Nepal's Oli-led two-third majority government.

This has given a sense that the new document was prepared on consensus, at least among Nepal's largest political forces. 

"This is also an opportune moment for China to seal a deal on the BRI as such political understanding rarely happens in Nepal," said the senior Foreign Ministry official who spoke with DW.

Edited by: Wesley Rahn