Over seven and a half years after Nepal and China signed the Memorandum of Understanding on the Belt and Road Initiative (BRI), the two countries signed the “Framework for Belt and Road Cooperation” on December 4 during the four-day visit of Nepali Prime Minister K.P. Sharma Oli to China.
Despite joining the BRI in 2017, no related project has materialized so far in Nepal. This has been an important irritant in Sino-Nepali relations. That could change if the two countries begin implementing the new BRI framework cooperation agreement, but difficult negotiations lie ahead.
Oli’s recently concluded visit to China is his first bilateral official visit abroad since taking office. The weeks preceding the visit were marked by much debate and discussion in Nepal over whether his visit to Beijing would materialize and, if it did, whether it would have any tangible outcome. Importantly, would Oli’s Communist Party of Nepal-United Marxist Leninist and Sher Bahadur Deuba’s Nepali Congress, which are partners in Nepal’s coalition government, overcome their differences on the BRI ahead of Oli’s visit to China?
Some doubts were laid to rest with Nepal’s Acting Foreign Secretary Amrit Bahadur Rai and Liu Sushe, deputy head of China’s National Development and Reform Commission, signing the Framework for Belt and Road Cooperation agreement.
Ten projects have been identified by Nepal for execution under the BRI: the Tokha-Chhahare tunnel road, Hilsa-Simikot road project, Kimathanka-Khandbari road and bridge, Jilong-Kerung-Kathmandu cross-border railway, Amargadhi City Hall in Dadeldhura, Jilong-Kerung-Rasuwagadhi-Chilime 220KV transmission line, Madan Bhandari University, Kathmandu Scientific Centre and Science Museum, China-Nepal Friendship Industrial Park in Damak, and Jhapa Sports and Athletic Complex.
Two of these projects, the Jhapa Sports and Athletics Complex and the China-Nepal Friendship Industrial Park will be located in Jhapa, Oli’s electoral constituency, while the Amargarhi City Hall at Dadeldhura is in Foreign Minister Arzu Deuba Rana’s constituency.
As of December 3, it seemed that Nepal and China had not reached agreement on any BRI projects. Neither the nine-deal MoU nor the 12-point joint statement that were announced that day mentioned any BRI-specific projects. All that the joint statement mentioned with regard to the BRI was that “The two sides expressed their readiness to sign the MoU on building the Trans-Himalayan Multi-Dimensional Connectivity Network and the Framework for Belt and Road Cooperation between the two Governments as soon as possible.”
This triggered debate in the Nepali media and social media over the future of China-Nepal BRI cooperation.
It appears that differences between Nepal and China on the question of project financing delayed the framework cooperation agreement. Nepal had insisted on grants as the project financing model. However, the Chinese were not agreeable and insisted on replacing the word “grants” in the document with “assistance financing.” Intense negotiations followed. The two sides eventually agreed on the term “aid assistance financing,” paving the way for the agreement’s signing on Wednesday.
Oli, who has strongly championed the BRI, had faced challenges from the Nepali Congress on the question of project financing. NC leaders have opposed loans. “We are already over-burdened by various multi-lateral and bilateral loans taken in the past, so we cannot opt for a new loan in the name of development assistance,” NC leader and former Foreign Minister Prakash Sharan Mahat said.
After weeks of negotiations, the CPN-UML and NC reached a compromise. It was only a day before Oli flew to Beijing that the two parties reached agreement on a “Framework on BRI Cooperation.” The NC leaders had urged Oli to accept only grants-financed BRI projects. Former Foreign Minister Pradeep Kumar Gyawali, an influential leader of the ruling CPN-UML, told The Diplomat that the framework agreement between the NC and CPN-UML, Nepal’s two largest parties, is a “historic collaboration on foreign policy.”
If the 2017 BRI agreement was signed during the NC-Maoist coalition government, the latest agreement has been signed between new coalition partners, the NC and CPN-UML. Finally, Nepal’s three major political parties — the NC, CPN-UML and CPN-Maoist Center — are on the same page about the BRI.
Besides grant schemes, Kathmandu has prioritized concessional loans similar to that of multilateral banking institutions like the World Bank, Asian Development Bank, Asian Infrastructure Investment Bank, among others to fund BRI projects in Nepal.
Nepal will have to sort out the knotty issue of regional geopolitics, which has been another reason for the slow progress in Nepal’s BRI implementation. India is not part of China’s BRI and some Indian media outlets are visibly not happy with the latest BRI agreement. Historically, India doesn’t feel comfortable with Nepal’s northern outreach.
It may be recalled that when Nepal and China agreed to open the first trans-Himalayan highway from Tibet to Kathmandu, India’s first Prime Minister Jawaharlal Nehru voiced his concern in the Rajya Sabha, India’s upper house of Parliament. On December 11, 1961, Nehru said, “We didn’t like it [the road]; it opened out possibilities which were not desirable, apart from everything else, from the point of view of smuggling goods from India via Nepal to Tibet.”
This sentiment reflects India’s security concerns and is visible in New Delhi’s current approach too. Although India pursues a “multi-alignment” foreign policy, marking a departure from its previous position of “non-alignment,” and India is part of groupings like the Shanghai Cooperation Organization, BRICS and AIIB that include China, New Delhi opposes Nepal working with China.
Given the important role that India plays in Nepal’s economy, it is imperative that Nepal is more transparent with India on the question of cooperation with China. It will require Nepali leaders to take the Indian leadership into confidence on issues and projects that have a bearing on India’s security. During the Cold War, for example, the U.S. and the Soviet Union agreed to build some sections of Nepal’s first countrywide highway, the Mahendra Highway.
While several of the projects Nepal has proposed are achievable, mega projects will require enormous investment that may be challenging for a small economy like Nepal’s. The fate of such projects hinges on future financial negotiations. Is Nepal up to the challenge?