Connection with a Cost

The key to Nepal’s long-term economic success and regional connection is balancing ambitious development goals and responsible fiscal management.

By Gulnaz Nawaz | November 2023

Despite its reputation for magnificent natural beauty and cultural diversity, Nepal has long struggled with the effects of being landlocked, with India on three sides and China to the north. The government of Nepal has made it a priority throughout the years to deepen ties with other countries, especially its northern neighbor, China. With this plan, Nepal will go from being a landlocked country to a land-linked one through an ambitious cross-border railway network. However, subsequent events have raised concerns about the persistence and success of this revolutionary plan.

In June 2018, Nepalese Prime Minister KP Sharma Oli visited China, sparking interest in building a railway over the border between Nepal and China. The overarching goal of the ambitious undertaking was to improve communication between the two countries and to make it easier for people, products, and ideas to go back and forth. The project’s primary goal was to build a road from Kerung (Gyirong) in southern Tibet to Kathmandu, the capital of Nepal, through the beautiful and strategically significant Rasuwa area. In addition to providing an essential transportation pathway, it would generate employment opportunities, support trade and tourism, and substantially advance the country’s economy and infrastructure development.

After that, the project progressed through several major checkpoints. As part of Chinese President Xi Jinping’s historic 2019 visit to Nepal, a crucial agreement was made to launch a feasibility study. This demonstrated the seriousness with which both countries viewed the completion of the project. The much-anticipated feasibility study took a significant step forward in March 2022 when a technical agreement was signed between the two countries during a visit to Nepal by Chinese Foreign Minister and State Councilor Wang Yi.

The arrival of a Chinese expert team in Kathmandu on December 27, 2022, marked a major turning point in the planning of the cross-border railway. The Chinese government is providing Rs. 3.4 billion in funding for this project. The beginning of this feasibility study is a significant step in realizing the agreement of leaders from both nations and is crucial in making Nepal a land-linked country.

The cornerstone of every large-scale infrastructure project is the feasibility study, which generally includes surveys, engineering assessments, environmental impact studies, and financial models. With this information in hand, decisions on the project’s feasibility and the costs and advantages involved may be made. While money has been set aside for the research, how the railway’s construction would be funded remains unclear. The anticipated cost of over $5.5 billion is a massive investment and a significant financial challenge for Nepal. In addition, around $2.75 billion is projected to be needed only for the preliminary feasibility assessment of the 72.5-kilometre length of the Nepali segment.

The massive cost of building a transnational railway has been largely ignored in discussions about the project. The cost is projected at over $5.5 billion, almost equal to Nepal’s government income in 2018. In addition, around $2.75 billion is projected to be needed only for the preliminary feasibility assessment of the 72.5-kilometre length of the Nepali segment.

The financing issue becomes even more critical in light of Nepal’s economic situation. The joint statement published during Prime Minister Dahal’s recent visit to China did not mention a settlement addressing the project’s funding mode. This causes concerns about the continuation of the project and calls into question Nepal’s financial stability and ability to take on such a massive financial commitment.

Concerns over debt trap diplomacy, a phenomenon connected with China’s Belt and Road Initiative (BRI), are at the heart of Nepal’s reluctance to proceed with the cross-border railway project. Concerns against taking on another sizable financial commitment, especially involving China, have arisen due to Nepal’s struggling economy and the need to repay a loan for the Pokhara International Airport.

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