Will Prime Minister KP Oli’s 2024 visit to China be a turning point for Nepal’s economic and diplomatic ambitions? With key discussions having taken place on infrastructure development and regional connectivity, the visit augurs both optimism and scrutiny. Beyond just the Belt and Road Initiative (BRI), the discussions hold the potential to unlock opportunities for investment, integration, and long-term growth.
A New Chapter for Nepal-China
During PM Oli’s visit to China, from December 2 to 5, 2024, Nepal and China signed the Belt and Road Initiative (BRI) Cooperation Framework. This agreement focused on building a series of infrastructure projects as part of the Trans-Himalayan Multi-Dimensional Connectivity Network (THMDCN), which aims to enhance cross-border connectivity. The goal of the initiative is to transition Nepal from a land-locked country into a “land-linked” one. While the Memorandum of Understanding (MOU) signed in 2017 laid the foundation for Nepal joining BRI, this 2024 agreement is a step toward turning those initial plans into actionable projects.
Under the renewed BRI, ten major projects have been planned for implementation, as shown in Table 1. This updated list reflects revisions to the previous BRI projects outlined in the 2017 MOU to align better with current regional and bilateral goals.
Table 1. Projects Under the Renewed BRI (2024)
Source: Ministry of Foreign Affairs, Nepal
The decided projects aim to enhance Nepal’s economic, infrastructural, financial, and energy sectors, while strengthening economic and strategic ties with China. However, reflecting on past projects with China, it is important to recognize that the grants or loans as part of the BRI are part of China’s broader investment strategy. Moreover, given Nepal’s history with ambitious commitments, key questions arise: Have previous projects delivered anticipated results? And will the current agreements under the BRI framework bring tangible benefits to Nepal?
Past Projects and Lessons Learned
The relationship between Nepal and China is rooted in historical trade, cultural exchange, and a shared Buddhist heritage that dates back centuries. However, formal bilateral relations between the two countries only began in the 1950s with the signing of the first ‘Agreement between Nepal and China on Economic Aid’, marking a new phase of structured economic and diplomatic engagement.
Nepal and China have cooperated on numerous infrastructure projects, many of which promised to reshape Nepal’s economic landscape. Chinese investments in projects such as the Upper Trishuli 3A hydropower project, Confucius Institute and Language Centers, Civil Hospital, Tatopani-Zhangmu border, and the Ring Road expansion have boosted infrastructure, trade and employment. These projects have shown potential for meaningful bilateral cooperation. The outcomes of other projects, however, have been mixed, offering important lessons for future undertakings, as shown below.
- Pokhara International Airport: Constructed with a Chinese loan of USD 216 million (NPR 29.26 billion), the project was envisioned as a gateway for boosting tourism and driving economic growth. However, since its inauguration in January 2023, the project has faced allegations of improper sourcing, reduced runway elevation, accountability concerns, and long-term operational challenges with geopolitical tensions. Thus, due to the financial burden placed on the Government of Nepal because of this project, Prime Minister KP Oli proposed a hybrid financing approach, blending elements of grants and loans, termed “aid financing,” during his recent visit to China. This request belies Nepal’s financial struggles and highlights the need for thorough project assessments.
- Araniko Highway (Kodari Highway): The 144 km-long highway from Kathmandu to Kodari, built by China in 1960, is an important trade route. Following the 2015 earthquake, the highway was significantly damaged, prompting the need for extensive repairs. As a result, a long-term maintenance project, funded by China, commenced in 2016. However, despite previous efforts to improve road resilience, a landslide in Panchkhal municipality-8 in October 2024 disrupted the road, adding to a series of frequent landslides and underscoring the need for consistent government-led maintenance.
- Kerung-Kathmandu Railway: A flagship project under the BRI, the Kerung-Kathmandu Railway has seen limited progress. In 2018, the National Railway Authority of China conducted a pre-feasibility study that cost an estimated NPR 35 billion (USD 266 million) and required two years to complete. The study projected the train line would cost NPR 257 billion (USD 1.95 billion), with 98.5% of the route requiring either bridges or tunnels and an estimated nine years to complete. Despite the completion of the pre-feasibility study in 2018, the project has been delayed due to unclear funding modalities, high costs, and complex infrastructure requirements. Thus, this project highlights the need for long-term planning and political collaboration to ensure sustainable development.
The above projects showcase the importance of sustainable financial planning, effective long-term maintenance and clear political collaboration. While ambitious projects offer significant potential, their success depends on careful assessments and strategic execution. A closer look at the case study of Budhi Gandaki Hydropower Project illustrates how these factors come into play and illuminates the challenges and solutions that can guide future initiatives.
Budhi Gandaki Hydropower Project: A Case Study
The 1,200 MW Budhi Gandaki Hydropower Project, located in the Dhading and Gorkha, is regarded as a symbol of national pride. With an estimated cost of USD 2.6 billion (NPR 338 billion), the project was initially agreed upon in May 2017, shortly after Nepal joined the BRI. In fact, it was included as one of the key projects under the 2017 BRI framework.
The contract for the project was first awarded in May 2017 to China Gezhouba Group Corporation (CCGC) through Engineering Procurement, Construction, and Financing (EPCF)—a globally recognized project delivery model. However, in September 2017, the succeeding government cancelled the contract, citing procedural flaws in its awarding. The project was then revived in 2018 when the KP Oli administration at the time decided to re-engage CCGC. Later, in 2022, the government yet again announced a shift in its approach, declaring that the project would be developed by mobilizing domestic resources through the Nepal Electricity Authority (NEA). Resulting from the confusion and back-and-forth on the project, as of November 2024, nearly 3,000 dissatisfied locals have filed complaints over compensation, despite 95% of land compensation officially recorded as completed.
The 49.8 km2 reservoir, stretching 45km is expected to affect 12 Village Development Committee (VDCs) in Gorkha and 11 VDCs in Dhading, while displacing 45,000 people and 1,672 houses. While the government has allocated one ropani (0.05 hectares) of land per household for relocation, locals, particularly 200 residents of the Bhimsen Thapa Rural Municipality-8 in Kotale, have expressed dissatisfaction, accusing the project of relocating them, without consultation, to an area lacking basic infrastructure.
Thus, the Budhi Gandaki Hydropower Project is a microcosm that highlights challenges typical of large infrastructure projects, such as shifting government policies, difficulties in land acquisition, and inadequate local consultation. Moving forward, for projects under the BRI or other collaborations with China, it is essential to address these issues proactively. We must ponder upon how lessons from past projects can guide us to improve future undertakings.
Opportunities for Success
Nepal has a significant opportunity to capitalize on China-backed projects. However, to mitigate future challenges, the government needs to integrate Environment, Social and Governance (ESG) considerations to drive the success and sustainability of projects with China, as highlighted below.
Environment: Hilsa-Simikot Road, now part of the 2024 BRI framework, has faced significant challenges due to its rocky terrain and the absence of alternative travel routes in the region, which led to the Hilsa-Simikot road closure in January 2024. The remaining stretch of road passes through sensitive ecological areas and requires terrain-specific engineering to prevent soil erosion and protect the habitat of many animals and plants. Thus, it is of vital important to consider ecological elements regarding this project. For this, Nepal can draw inspiration from China’s Qinghai-Tibet Railway, which successfully used advanced techniques to navigate fragile ecosystems, ensuring long-term stability and minimizing environmental impact.
Social: The government should prioritize community engagement and resettlement plans to minimize displacement for infrastructure projects like the Tokha-Chhahare Tunnel. This tunnel is expected to enhance tourism and economic activities by reducing the travel distance from 32 km to just 5 km. However, it is important to ensure local acceptance and address concerns to make the project more sustainable and beneficial for the community. Otherwise, problems such as locals blocking the Khandbari-Manebhanjyang section of the road in 2023, demanding periodic repairs, might emerge. Thus, the government must be mindful of carefully tackling issues of land acquisition and community disputes that often pose challenges to infrastructure development, requiring careful negotiation and inclusive planning.
Governance: Projects such as the Jhapa Sports Academy, China-Nepal Friendship Park, and Amargadhi City Hall, all located in ruling political leaders’ districts, have faced allegations of favoritism and a lack of financial transparency. The government must address these issues through regular audits, public access to project details, and strict penalties for misconduct.
The integration of ESG factors into China-backed projects can ensure long-term success and sustainability. If these aspects are sufficiently addressed, we can mitigate challenges to strengthen Nepal’s partnership with China, fostering economic and social well-being.
Repetition or Turning Point?
While there have been successful projects between Nepal and China, most projects reflect the possibility of progress intertwined with challenges. Completed projects like the Pokhara International Airport, despite their grand vision, faced issues of deviating from standards, geopolitical tensions, and contractor misconduct. The Kerung-Kathmandu Highway, considered feasible through initial studies, has seen no significant progress due to the high cost and complex terrain. Moreover, cancelled initiatives with China such as the Budhi Gandaki Hydropower Project faced issues of shifting leadership, poor coordination, and problems with land acquisition.
Thus, the current phase of Nepal’s infrastructure development presents a turning point for the country. By learning from both successes and setbacks, the government needs to adopt a more strategic approach to infrastructure development, ensuring transparency, sustainability, and accountability. Prioritizing comprehensive planning, engaging stakeholders, and maintaining financial clarity can make way for future projects to deliver meaningful and lasting impact. Therefore, the choice is clear: Will Nepal seize this opportunity to advance infrastructure, trade, and economic growth, or let the potential for progress slip away?
Pushpa Chaulagain holds a Bachelor’s degree in Economics (International Economics and Trade) from Wenzhou University, China. She has experience in economic research, trade policies, and cross-cultural events. Pushpa is passionate about global trade dynamics and aims to contribute to Nepal’s economic development.
