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Nepal-China Railways uncertain; questions remain over technical feasibility and funding modality

July 11, 2019

Nepal-China Railways uncertain; questions remain over technical feasibility and funding modality

Kathmandu: The much-touted Nepal-China cross border railway, that is said to break Nepal’s sole dependence on India for trade and transit, is uncertain now owing to the challenges posed by the mountain terrain and huge investment required to execute this multi-billion dollar project. While there no consensus among political actors how should this project be funded, the Chinese side has been conveying that this project needs “further scientific study and innovation” as this runs through the earthquake-prone Himalayan range.

In a press conference held in May, Chinese Ambassador to Nepal Hou Yanqi said the construction of a railway through the highest altitude and the most inhospitable terrain requires further scientific and feasibility studies and innovation. She also debated that the project was not where “we have a political decision today and tomorrow we have that [implemented].”

In a statement, Hou had said although the construction of Nepal-China cross-country railway is a long-term project, they have the determination to continue the work. She also emphasised the need for scientific attitude and patience for the project.

Foreign affairs and geopolitical expert Geja Sharma Wagle believes that there has been more “diplomatic propaganda” than actual progress on the ground, in terms of expediting work for the Nepal-China cross-country railway. “There is high symbolism, but less substance,” he said while adding that it is yet to be determined if the project is technically feasible.

During the fourth Nepal-China Railway Cooperation Committee meeting held in Beijing in the third week of June, Chinese officials had conveyed to Nepali side that they would have to work out a few things even before starting to prepare a Detailed Project Report (DPR). The Chinese Railway Administration had conducted a pre-feasibility study of the project last year. The report submitted to the Ministry of Physical Infrastructures and Transport Management indicated it would be a challenging engineering undertaking owing to the various concerns—seismic, topography, altitude, geology and engineering.

Amid these uncertainties, Nepal and China are yet to facilitate work on the DPR of Nepal-China cross-country railway. As the Fourth Nepal-China Railway Cooperation Committee meeting held in Beijing could not decide on expediting the DPR, it will be discussed in the Fifth Nepal China Railway Cooperation Committee meeting scheduled for December in Kathmandu.

A proper feasibility study of the 72-kilometre railway line from Chinese border point alone is estimated to cost around  NRS 35 billion (approximately USD 319 million), according to Nepali Railway officials.

In 2008, China had announced that Qinghai-Tibet railway would be extended to Keyrung near Nepal-China border. Surrounded by India on all three sides, Nepal solely depends on India for any third-country trade and transit. Seeing the opportunity to break the sole dependence on India, Nepali leaders negotiated with China in 2016 to bring that railway up to Kathmandu, something China agreed in principle as a part of its overarching Belt and Road Initiative (BRI) framework.

No consensus on funding modality

The country’s two major political parties—ruling Nepal Communist Party (NCP) and the main opposition party, Nepali Congress (NC)—lack consensus on how to finance the railroad that requires a massive investment. 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 favour of expediting the project even if this requires taking a loan. Officials said China has not said anything to build the rail under a grant and even communicated this to Nepal government. Even Nepal doubts that China would commit to building it under a grant.

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

While addressing the parliament recently, NC leader Sher Bahadur Deuba said that his party believes Nepal — a country with an economy worth around $ 12 billion — cannot afford to fund the multi-billion dollar project through loans. “Given that railway connecting India and China are equally important to us, our position is that both the projects should be funded only through grants,” said five-time Prime Minister Deuba.

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

Even experts like Wagle also believe 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 BRI. Unable to pay back the loan, Sri Lanka has handed over the port to China on lease for 100 years.

Nepal signed the China’s Belt and Road Initiatives in May 2017 amid discomfort of India and major Western powers. Foreign Minister Pradeep Kumar Gyawali has maintained that China-led BRI and US’s Indo-Pacific Strategy was guided not by strategic calculation but by the sole interest of Nepal’s economic and infrastructure development.