Nepal-China Railway Project to Become a White Elephant

The Chinese embassy in Kathmandu reportedly conveyed to the Nepalese officials that Beijing was prepared to sign an instrument to facilitate Chinese aid for the feasibility study of the proposed China-Nepal Cross Border Railway(CNR) Project connecting Keyrong in Tibet to Kathmandu.

Earlier, the technical study/pre-feasibility study of the proposed 121km railway from Keyrong to Kathmandu was conducted by the China Railway First Survey and Design Institute (CRFSDI) in 2018. The CRFSDI study, which has not been made public, observed that the CNR project was one of the most difficult and risky railway construction projects in the world due to the complex geology such as high terrain, slope instability and the region being prone to high intensity earthquakes. The gradient from the Tibetan Plateau to the low valleys in Nepal is too steep and the railway inside Nepal would pass through protected areas in Langtang, Rolwaling and Mt Everest regions.

CRFSDI study estimated that it would take 9 years and Yuan 30.15 billion ($4.7 billion) [equal to Nepal’s total revenue in 2018] to develop the Keyrong-Kathmandu rail track. It also pointed out that the feasibility study to be carried out by studying inner structure of the land of CNR route may lead to different/higher estimates. About 98% of the railway on the
Nepalese side will be in tunnels and on bridges and the project will cost far more than present estimation.

Similarly, another study titled “Feasibility of China-Nepal Railway and Collaborative Construction of Belt and Road by Two Nations” conducted by Chongyang Institute for Financial studies, Renmin University pointed that a minimum of 40 years would be required to recover the investment in the CNR project. Further, the possible returns from the project are not very
attractive as Nepali exports basket is filled with only primary goods where as China exports secondary/manufacturing goods and it could use this railway to dump its products in Nepal as well as other markets of South Asian Countries.

Nepal suffers a huge deficit in its trade with China. Imports from China in fiscal 2020-21 rose 28.58 % to NRs233.92 billion while its exports werevalued at a meager NRs1 billion. This translates into a trade deficit of NRs232.90 billion favouring China, which is equal to 14% of Nepal’s global trade deficit in 2020-21. Experts believe that as imports from China constitute a much larger share in Nepal-China trade, there is a possibility of the trade imbalance getting further skewed once the CNR becomes operational. In such a situation repayments of loan taken by Nepal to develop the part of railway line may become unsustainable and may lead the country into a deeper debt trap.

While China had made rapid progress on rail connectivity within its borders, on the Nepalese side of the border, talk of a trans-Himalayan railway is only political tokenism. Successive governments in Kathmandu have not even been able to maintain existing highways and upgrade them to international standards. Even for maintaining its highways, Kathmandu is
dependent on multilateral donors and development partners.

Further, during the visit (March 25-27) of Chinese Foreign Minister Wang Yi to Nepal, Nepalese Prime Minister Sher Bahadur Deuba reportedly indicated that his country was not interested in Chinese loans and requested for more grant assistance. Nepalese Finance Ministry was believed to have underlined that for crucial projects “soft loans for the
projects under the BRI must not have an interest rate more than 2% and the repayment time should be as per the international standard or as per the interest rate imposed by multilateral lenders like the World Bank, the
Asian Development Bank and others.”

It appears that Kathmandu was aware that the Kathmandu-China connection would prove to be costly and difficult and Nepal in any case would be unable to bear the financial cost of building a difficult and expensive tunnel across the Himalayas. Meanwhile, the Chinese side seems to be deliberately pursuing the project to fulfill its strategic desires.