Is Nepal giving up on the Belt and Road Initiative?

Four years after signing on to the BRI agreement, what's the progress on the ground? How did the erstwhile government of KP Oli project BRI? What did Nepal achieve?

Nepal China train BRI

Mahabir Paudyal

  • Read Time 10 min.

Kathmandu: Nepal formally joined the Belt and Road Initiative after signing a Memorandum of Understanding (MoU) on bilateral cooperation under the Belt and Road Initiative framework in May, 2017. Back then it was hailed as “an important milestone in the Nepal-China relationship, bringing bilateral ties to a new height.” The budget presented by Finance Minister Krishna Bahadur Mahara on May 29 that year explicitly mentioned BRI. “Programs will be prepared in a way to gain maximum benefit from the participation of Nepal in the Belt and Road Initiative started by Chinese government,” he said in the budget speech.

Since then, Nepal has participated in BRI conferences held in 2018, 2019, 2020 and 2021—the latter two events held virtually due to the pandemic.

During K P Sharma Oli’s visit to China in June, 2018, Nepal agreed to intensify implementation of the Memorandum of Understanding on Cooperation under the Belt and Road Initiative to enhance connectivity through ports, roads, railways, aviation and communications within the overarching framework of trans-Himalayan Multi-Dimensional Connectivity Network. The MoU was described as the most significant initiative in the history of bilateral cooperation that was expected to herald a new era of cross-border connectivity between the two countries.

When Nepal-China Trans-Himalayan Multi-Dimensional Connectivity Network, including Nepal-China cross-border railway, was included in BRI in the joint communiqué of the second conference of the Belt and Road Initiative, during Nepali President Bidya Devi Bhandari’s visit to China in April, 2019, it raised a new wave of optimism about the potential benefits of BRI projects in Nepal.

President Bidya Devi Bhandari meets Chinese President Xi Jinping in Beijing in 2019. Photo: Xinhua

During President Xi Jinping’s visit to Nepal in October, 2019 both sides agreed to implement the MoU on BRI. The two sides agreed to intensify implementation of MoU on cooperation under the BRI within the overarching framework of trans-Himalayan Multi-Dimensional Connectivity Network with a view to significantly contributing to Nepal’s development agenda,” said the joint communique. Back then, the two sides had also agreed to “conduct the feasibility” for “the construction of the Cross-Border Railway” reiterating the commitment to “extend cooperation on Kathmandu-Pokhara-Lumbini Railway Project.”

Progress report

Though the word “BRI” is conspicuously absent in the budgets of 2018, 2019, 2020 and 2021 railway finds a lot of mention in them.

“Construction work will be started by preparing Detailed Project Report of Rasuwagadhi-Kathmandu-Pokhara-Lumbini railway in the coming fiscal year,” states the budget of 2018. Nepal promised to conduct the “detailed feasibility reports of Birgunj-Kathmandu and Rasuwagadhi-Kathmandu railways that connect Kathmandu from both India and China” and said that “construction will be initiated within two years” in the budget of 2019.

The budget of 2020 goes a little further and says “detailed feasibility reports of Birgunj-Kathmandu and Rasuwagadhi-Kathmandu railways that connect Kathmandu from both India and China will be prepared, and construction will be initiated within two years.”

The rail and road connectivity with China and Nepal’s participation in BRI itself has its bittersweet context. Nepal came to realize the need for diversifying its trade and transport connectivity with China during the 2015/16 Indian blockade.

Similar mention has been made in the budget unveiled this year. In the upcoming fiscal year, the detailed project report of Raksaul-Kathmandu and Kerung-Kathmandu-Pokhara railway shall be prepared. Rs 10 billion 30 million has been allocated for railway, says the budget of 2021.

In 2018, a Chinese technical team conducted a pre-feasibility study of the proposed railway. Then in June, 2019, Nepal proposed China to conduct DPR of Nepal-China cross-border railway. As for the real BRI projects, there has not been much progress since January, 2019, when Nepal proposed nine projects, trimming down from earlier 35, to be built under the BRI framework. “Nepali side sent nine projects to Chinese side. The Chinese side is yet to respond,” said Dhani Ram Sharma, Joint Secretary at International Economic Cooperation Coordination Division at the Ministry of Finance.

Hope and despair

The rail and road connectivity with China and Nepal’s participation in BRI itself has its bittersweet context. Nepal came to realize the need for diversifying its trade and transport connectivity with China during the 2015/16 Indian blockade. When vital supplies were obstructed at the southern border points and people in Kathmandu and the rest of the country began to feel the heat, Nepali population and policy makers began to talk about opening more trade and transit routes toward the north. Back then, only one transit point with China was open—the Kerung point—and that too was not fully functional. As the Kodari route was blocked after the 2015 earthquakes, we began to wonder how things would be different if we had more road and railway connectivity with China.

Which is why when Nepal and China in March, 2016, “agreed to synergize each other’s development planning, formulate appropriate bilateral cooperation programs and to carry out major projects under the framework of the Belt and Road Initiative” and the ‘Agreement on Transit Transport’ was concluded, it was described in Nepal, by political parties and the public alike, as the new era in Nepal’s opening up with China.

KP Sharma Oli and China’s Premier Li Keqiang during Oli’s China visit in 2016. Photo: Reuters

Ram Karki, who was the Minister of Information and Communications in the first government led by K P Sharma Oli, was a member of the delegation to China.

“The Chinese gave us the best hospitality that could be imagined,” he said. “They treated Nepal as a friend and said they are ready to assist Nepal in its endeavor to expand trade and connectivity with and via China,” he said, recalling the visit. “When we proposed openings of more road links and a rail link to China, their response was extremely positive.”

 “But we had done no homework and they sensed it immediately. Even so, they looked excited and eager to assist Nepal in every possible way,” he explained further.

K P Oli sold the BRI dream during the election and even after the election. The first thing he did after winning the 2017 federal elections was to go to Rasuwagadhi and point to the potential location where the rail from China would enter Nepal.

The railway to China was romanticized in the latter days. When Pradeep Gyawali was in Beijing in April, 2018, perhaps to reiterate how much committed Nepal was to BRI, he shared his dream of travelling to China from Nepal by a modern train. “Personally I have a dream, to travel to China from Nepal across the Himalayas in a modern train, enjoying the scenic beauty of the Himalayas,” Reuters reported him as saying.

Five years since Nepal agreed to become a part of the BRI framework, there is no focal office to follow up on the progress and pursue the projects. Ministries point to each other as more authentic authority to speak on the subject. Ask the Ministry of Finance about the real status of BRI and then it will point to the Ministry of Foreign Affairs and vice versa. In a way, BRI projects fall under the jurisdiction of the Foreign Ministry, Finance Ministry, Ministry of Infrastructure and Transport and Ministry of Energy. “All seem to own up the projects but none actually do,” said Rupak Sapkota, who is the Deputy Executive Director at Institute of Foreign Affairs, Nepal, a policy research think-tank of the government. “If we had created a focal office or a specific government mechanism for the BRI it would enable Nepal to better pursue the projects and we would know what actually is happening about them,” he said.

Five years since Nepal agreed to become a part of the BRI framework, there is no focal office to follow up on the progress and pursue the projects.

The government created Nepal Shipping Office, which is draining the taxpayers’ money, but no dedicated authority was created or assigned to follow up on the BRI.

There was a time when the government ministers including then PM Oli, Pradeep Gyawali, Yubaraj Khatiwada and others would publicly defend the BRI when anyone raised the question related to possible debt burden.

That changed after the visit of Xi Jinping and as the conflict within the ruling Nepal Communist Party of the time started to simmer. BRI then began to be talked less in Nepali political sphere. “This manifests the tendency of rulers to use foreign policy as a tool to stay relevant in power and appease the people on the domestic front,” said Ram Karki.”Repeating rhetoric of BRI to stay in power and then to forget it altogether is dishonesty.”

What went wrong?

Nearly all the experts and observers Nepal Live Today approached for this commentary pointed out weaknesses on Nepal’s part. “It never appeared like Nepal taking proactive measures to realize the BRI goals.  Though the projects were conceived by Nepal’s felt need, there was a palpable apathy in its follow up from Nepal side. It was as if Nepal was responding reluctantly to Chinese requests for its consideration.  Nepal never proactively pursued the BRI projects,” said Dr Mahesh K Maskey, who was the ambassador of Nepal to China when the much talked about ‘Agreement on Transit Transport’ was signed with China in March, 2016. Maskey argues that Nepal did not do any serious homework afterwards. “We just sent them the shopping list in the name of BRI projects.   And because our proposal seemed nothing less than a shopping list, the Chinese side asked us to trim it down to a single digit,” he added.

Top: From left, Dr Mahesh K Maskey, Leela Mani Paudyal and Rupak Sapkota.
Down: From left, Ram Karki and Upendra Gautam.

Maskey argues that the real status of progress on BRI from Chinese as well as Nepali side needs to be made public. “Why is the Nepali side not showing much interest? Why is the Chinese side not showing much interest at present?  Is it because the Chinese side put conditions after conditions? Did they propose to impose a big interest rate on the loans to be provided to Nepal for BRI projects?” he asked. “If that is the case, it should come out. If that is not the case, it also should come out.”

One of the nagging questions on BRI has been on modality of financing: Should Nepal build BRI projects only on grant, soft loans or loans on low interest rate?

On this, says Maskey, Nepal should have sent a clear proposal specifying the percentage of expenses it would bear, the amount of money it expects from China in grant or soft loans. “I don’t know whether they did that. If they have done so, they should make it public,” he further said. “What’s happening on BRI should come out from both China and Nepal.”

According to Maskey there is a lurking fear among the politicians and bureaucrats about what India will think if Nepal pushes the BRI projects. “Nepali side seemed to be guided by this fear of offending India,” he explained. “While the political leaders lack will, bureaucrats worry that they will face the consequences, including the prospects of losing the privileges, if they push the projects.”

Leela Mani Paudyal, another former Nepali ambassador to China, argues that it is too early to say Nepal has given up on BRI. “At least nine projects have been proposed,” he said. For Paudyal, the realization of BRI is a time taking process. “It’s a time taking process. The feasibility study, making of DPR, finalizing the financing modality, all these take time,” he said. “We are at the idea level. We have not reached the level of negotiation.” Paudyal argues that Nepal has not been able to take benefits from Asian Infrastructure Investment Bank (AIIB)—the bank that finances infrastructure projects including the BRI projects. “Nepal has taken billions of loans from ADB and World Bank. We can take loans from China on similar terms and conditions for BRI projects,” he said.

For Rupak Sapkota, the lack of progress on BRI is the result of a lack of political will on our side. “Actually, there is no political will on the BRI,” he said.

In the initial days of his premiership, Oli made the most out of possible BRI projects. Toward the end of his premiership, he had almost stopped talking about it. “With the geopolitical pressure, the political leadership remained reluctant to push the BRI forward.  Regardless of geopolitical obstacles, however, the BRI requires strong political will to move forward, which Oli failed to demonstrate” Sapkota added. 

Historically, Nepal’s engagement with China has flourished mostly in the wake of events like the blockade by the Indian side.

According to Sapkota, Nepal kept projecting the BRI as a game-changer for economic development but there was no significant action on the ground. “Nepal even did not enter into negotiation on financing modality. It showed no willingness to do so,” he said.

Upendra Gautam, General Secretary of China Study Center, argues Nepal does not seem to know how to negotiate with China. “It is not possible for a country to ask for a complete grant from any other country. Nor is it possible for a country to offer a complete grant,” said Gautam. “Thus, we should have said we can bear this amount of money from our side, rest of the money we will manage from loan or soft loans from China or the third party.”

Ram Karki ascribes Nepal’s failure to effectively pursue BRI to a larger weakness of the political class to understand the shifting balance of power. According to him, given the rivalry between China and the US, Nepal needs to formulate a long-term foreign policy strategy outlining possibilities and limitations of our engagements with major powers in terms of development assistance. He says that Nepal needs to clearly set priorities regarding in which sector we accept foreign loans, where we accept only foreign grants and where we accept soft loans or concessional loans.  “Maybe there are certain sectors in which we must reject all types of foreign funding,” he said.  “If we had set such a strategy in the past, we would not be caught between the BRI and MCC conundrum as we find ourselves in at the moment. We would have had our own Nepali perspective as to how to respond to BRI and MCC.”

What next?

A lot has changed in geopolitics and in domestic politics since 2017. Geopolitical rivalry between the US and China—two of the largest world economies—is intensifying. That’s among a possible reason for countries like Nepal to delay BRI and MCC (for more on how Nepal dithered on MCC, see my previous column “What will Nepali Congress do about the MCC Compact?”).

In 2017 and later two years, if there was any force overtly excited and appreciative of BRI, it was communist party of Nepal.

Four years later tables have turned. Oli and his party, which was perceived to be ‘pro-China’ and which was a big BRI enthusiast then, is out of power. Nepali Congress is at the helm.

In the post-Covid world, what priorities China will accord to the BRI itself and the BRI projects proposed by Nepal and whether China will pursue it as aggressively is yet to be seen. But that’s beside the point here.

Historically, Nepal’s engagement with China has flourished mostly in the wake of events like the blockade by the Indian side. During such times, Nepal turns to China, a big ‘benign’ neighbor to its north.  Then once the relations with India normalize, political actors here give less priority to cooperation agreements with China.

Will Nepal’s BRI dream end up meeting the same fate? Time will tell.