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Himalayan dilemma as Nepal seeks to implement OBOR projects

September 19, 2018

Himalayan dilemma as Nepal seeks to implement OBOR projects

Kathmandu: Nepal signed a framework agreement on China’s One Belt One Road (OBOR), popularly known as Belt and Road Initiative (BRI), in May last year hoping the collaboration would bring about an economic transformation, particularly through the investment in mega infrastructure projects. But as a section of politicians and policy makers remain sceptical of the desirability of BRI, there has not been any tangible progress in the implementation of major projects under this China-led initiative yet.

At the heart of this scepticism is the likely geopolitical, strategic and economic cost Nepal may have to incur in view of the fact that India — its immediate neighbor in the South — has chosen not to be part of the initiative until China addresses its legitimate concerns over BRI projects. 

While China’s debt trap diplomacy is one of the prime concerns, BRI’s naysayers view that Nepal’s decision to expedite mega projects with BRI investment amid New Delhi’s displeasure could be a recipe of political instability, as debt-ridden Nepal may lose bargaining power with China and the strategic balance that this Himalayan nation maintains with the two giant neighbors could go into thin air.

In fact, Nepal became a party to the BRI after years of indecision amid India’s opposition. The signing of the framework agreement on BRI came just two days before the mega summit on Belt and Road Forum for International Cooperation hosted by China on May 14-15, 2017 in Beijing. Then deputy prime minister and foreign minister Krishna Bahadur Mahara led the Nepalese delegation to the Summit.

Although the government identified projects to be financed under BRI framework after repeated nudging from Chinese side and even submitted them for consideration ahead of the official visit of newly-elected Prime Minister K P Sharma Oli to China in June this year, they have not seen any progress on the implementation front, as the two countries are yet to start serious negotiations to settle number of issues including funding modality of the BRI projects.

“As President Xi has described, this is project of the century, a great geopolitical initiative. I do not think the implementation of BRI projects will go smoothly [in Nepal], especially with differing views about the initiative,” says Dr Dinesh Bhattarai, former diplomat who served as foreign affairs adviser to two former prime ministers — Sushil Koirala and Sher Bahadur Deuba.

Nepal’s Wish List

The government led by K P Sharma Oli, who signed 10 different landmark bilateral agreements in his previous stint as the head of the government in 2016, seeks to implement projects that have potential to improve Nepal’s land and air connectivity, raise country’s productivity, promote trade and help the country in economic transformation process under the BRI.

The projects identified for implementation under the BRI framework include a cross-border rail corridor project, cross-border energy transmission lines, regional airports and various road, drinking water and irrigation projects. Critical among them, however, is the trans-Himalayan multi-dimensional connectivity network, as a country locked by India on three sides desperately seeks alternative routes to import goods, especially after India’s ‘unofficial economic embargo’ against Nepal in 2015.

Ahead of the official visit of Prime Minister Oli to China in June, Nepal submitted its wish list to China. The countries concluded an MoU for building a cross-border transmission line and trans-Himalayan railway and finalized the text for Protocol to Agreement on Transit Transport, which would provide Nepal access to Chinese seaports.

The progress since then, as mentioned by PM Oli, has been limited to discussions. At a conference titled ‘BRI: Opportunities and Implications for Nepal and the Region in Kathmandu’ last week (September 12), Oli said connectivity remained the core area of his discussions with President Xi Jinping on both his visits in the capacity of the head of the state. “Our two countries have started discussions on various BRI related projects,” he announced.

Chinese Concerns

As Nepal begins negotiation on various projects under BRI, the Chinese side seem concerned over the slow pace of implementation of the projects. Media reports, quoting Chinese officials, suggest that China remains unsure of Nepal’s support to the BRI, even as the two signed a framework agreement.

Nepal chose to send a delegation headed by then deputy PM Krishna Bahadur Mahara to an international conference on BRI last year, even as the Summit was participated by head of the government and the state of 30 countries. 

Although China plans to invest massively in Nepal as it has been doing elsewhere, including in Pakistan, funding modalities in Nepal remain a bone of contention.

What has made Chinese additionally concerned is the withdrawal from Chinese firms of projects which were proposed to be constructed by China under BRI. A contract to build a 1200-MW Budhi Gandaki hydropower project was withdrawn from China’s Gezhouba Group by the erstwhile Sher Bahadur Deuba-led government, citing that the deal was not legal and transparent.

Although the ruling Nepal Communist Party (NCP) promised to revoke the decision during election campaign for parliamentary and provincial assembly polls, it has failed to do so keeping in view the potential backlash from people. The Chinese company had signed an MoU with Nepal government in June 2017 to build the hydropower project, which was estimated to cost over $2.5 billion 

Additionally, another Chinese company — China Three Georges International (CTGI) — ended up quitting 750-MW West Seti Project that Nepal proposed to build under BRI, citing low rate of return as a reason. Analysts believe one reason behind CTGI abandoning the project is frustration among the Chinese that Nepal is not serious towards implementing BRI projects. Investment Board Nepal and and the CTGI had signed an MoU to develop this hydroelectric project located in the far-western region of the country in February 2012.

Concerns at Home

As Oli-led government appears expediting negotiations on BRI projects to bring them into implementation, there are concerns already that Nepal could slip into “debt trap”, resulting into economic over dependence that would lead to the country losing its bargaining power. There are also apprehensions that the Chinese are known for putting forth strong demands that often force a country to compromise its sovereignty and its independence in foreign policy. 

As per the MoU on cooperation in the railway project signed between Nepal and China, a pre-feasibility study completed recently showed that extending a 72-kilometer railway line from Kyirong of Tibet to Kathmandu would cost around Rs 257 billion.

Since Nepal has been asked to finance the project through subsidized loan or other alternative methods, experts warn that this would put the country with a meager $24.47 billion GDP into huge debt trap. “There seems to be a feeling that the Chinese will pour in money and we will be well-off with that,” says Dr Bhattarai.

The former diplomat laments that Nepalese policy makers lacked clarity on how do they want to benefit from BRI. 

“Our policy makers do not seem to have clarity on this. We are running on their [China] terms and conditions when it comes to implementing BRI projects,” he says, adding, “We should be cautious that BRI should not in any case substitute our national development.”

Another major concern around Nepal’s participation in the BRI is how the country maintains balanced relations with India and China, while ensuring its strategic autonomy, after China puts in billions of dollars in investment under the umbrella of BRI. As both India and China are likely to jockey for their influence in Nepal given its strategic and geopolitical sensitivity, there are fears that Nepal could transform from backwater to strategic epicenter — something not good for its peace and stability.

Strategic affairs analyst in Kathmandu feel that Nepal had started giving importance to China over India after it signed the BRI MoU last year. 

“While Chinese influence is on the rise, India’s influence in Nepal seems spiraling down. If this diplomatic and strategic imbalance continues further, this could be nothing but a recipe for political instability in Nepal,” warned geopolitical analyst Geja Sharma Wagle.