Pokhara Regional International Airport and China's "Belt & Road" initiative: a (costly) Sino-Nepalese "affair" to meditate (for the debtor first; but not only...)

By Olivier Guillard, a specialist in Asian issues, research associate at the Institut d'études de géopolitique appliquée, a researcher at CERIAS (Université du Québec à Montréal, Canada), Director of Information at CRISIS24 (Paris), and lecturer (geopolitics; political science) at EDHEC Business School (Lille). 

In a rare move, just over a month ago, The New York Times devoted an article in its November 12 edition - written by its generally well-informed authors - to Nepal, that ancient Himalayan Hindu monarchy; and what's more, it tackled a matter relatively unknown to the public: "Nepal Is Investigating New Airport Made by China". A month earlier, the New York daily was even more direct, in an article that the authorities in Beijing are unlikely to have appreciated: "China Got a Big Contract. Nepal Got Debt and a Pricey Airport''. [1] All of which justifiably arouses the interest of its readers. At the beginning of November, a prestigious magazine focusing on Asian issues (The Diplomat) also took a close interest in the Sino-Nepalese dynamic currently at work, asking in particular: ''What Does Nepal Want From China?'' [2]. This combination of relevant and rare Sino-Nepalese literature automatically led the author of this modest column to devote some time to studying the contemporary dynamics driving the Kathmandu-Beijing relationship, particularly in the light of China's ambitious Belt & Road Initiative, so fiercely championed over the past decade by President Xi Jinping. An inspiration that leads to the few paragraphs below, largely devoted to a Sino-Nepalese project that is controversial to say the least, and rich in lessons for both the reader and the party feeling somewhat aggrieved.

''On the afternoon of September 23, 2023, President Xi Jinping met at the West Lake State Guesthouse in Hangzhou with Prime Minister of Nepal Pushpa Kamal Dahal Prachanda who is in China to attend the opening ceremony of the 19th Asian Games and pay an official visit.

Xi Jinping pointed out that China and Nepal, linked by mountains and rivers, have enjoyed enduring friendship. Over the past 68 years since the establishment of diplomatic relations, the two countries have adhered to the Five Principles of Peaceful Coexistence and set a good example of treating each other as equals and win-win cooperation between countries of different sizes. China and Nepal have been each other's partner and provided each other with opportunities on the path to national development and prosperity. China attaches great importance to China-Nepal relations and stands ready to seek greater synergy in development strategies with Nepal, and work for constant new progress of China-Nepal relations (…). Belt and Road cooperation between China and Nepal has continuously yielded positive outcomes, and the trans-Himalayan Multi-Dimensional Connectivity Network has taken shape. The two sides should give priority to promoting infrastructure connectivity, and expanding cooperation in transit transportation, so as to help Nepal transform itself from a land-locked country to a land-linked country at an early date. China encourages Chinese enterprises to invest and do business in Nepal to boost exports from Nepal to China, and stands ready to strengthen exchanges on governance experience with Nepal, and provide as much help as possible for Nepal in its economic and social development. China and Nepal share a wide range of common interests in international and regional affairs. China is ready to strengthen multilateral cooperation with Nepal, safeguard the common interests of the two countries and fellow developing countries, and promote the building of a community with a shared future for mankind'' [3].

This is how China's head of state summed up last September's meeting with his Nepalese visitor, the controversial Prime Minister Pushpa Kamal Dahal Prachanda (PIVIPKDP), the former leader of Nepal's Maoist insurgency movement (1996-2006) who overthrew the monarchy and replaced it with a federal republican model... without substantially improving governance, some would argue (probably rightly so...).

This enlightening communiqué from China's Foreign Affairs Ministry reveals a certain aroma of (self-interested) Sino-Nepalese closeness, brought up to date in the service of the BRI so dear to President Xi Jinping. The communiqué is infinitely more discreet - the reader will quickly understand why - on the accounting, financial and political consequences of a transport infrastructure project in Nepal's emblematic Annapurna region, financed by Beijing... and, to say the least, open to question.

China CAMC Engineering won the construction contract for the Pokhara Regional International Airport (PRIA) project in May 2014 under the engineering procurement and construction (EPC) mode. Nepal government had signed (March 2016) a $215.96 million soft loan agreement with Exim Bank of China to finance the PRIA project [4].

PRIA was handed over by the Chinese contractor on Dec 29, 2022 and formally inaugurated on Jan 1, 2023. However, this brand-new airport has failed to attract international flight traffic till date, except 2-3 chartered flights. In July, Chinese Ambassador in Nepal tried to portray PRIA as part of the Belt & Road lnitiative (BRl) [5]. Nepali government officials, however, have been rejecting the Chinese claim linking the airport to the BRI as 'unilateral'.

The Civil Aviation Authority of Nepal and the Chinese EXIM Bank, the financier of the PRIA project, have signed an agreement to pay back the loans solely through the income of airport. After six months of operation, PRIA had its first international flight, when China's Sichuan Airlines chartered flight landed in June.

In July, a Chinese delegation visited Nepal and held meetings with several senior Nepali officials including those from Civil Aviation Authority of Nepal and Ministry of Culture, Tourism and Civil Aviation. During these meetings, the Chinese side suggested that Nepal should form a Joint Venture (JV) company with China to "profitably operate" PRIA to repay installments of the Chinese loans taken for its construction. lt also suggested that Nepal should consider handing over operations of Bhairawah-based Gautam Buddha lnternational Airport to lndia and get permission for a new air route to lndia for the same "as it could help in making PRIA profitable as well" and "balance out Nepal's handing over PRIA operations to China". Then a team of Exim Bank of China visited (Aug 28 - Sep 01) Nepal to inspect PRIA and discuss issues including those related to the payment schedules; performance of passenger and freight Pokhara Regional lnternational Airport (PRIA) transportation operations; and plans for future domestic and international flight routes, among others.

During the visit of Nepalese Prime Minister Pushpa Kamal Dahal Prachanda to China (Sept 23-30), the Chinese side refused to give any positive or reassuring response' to the visitor's request for improving the financial management and profit generation capacities of PRIA by converting its Chinese loan component into a 'Grant', as a special gesture, also because Beijing had otherwise also been claiming the PRIA to be a flagship project of BRI in Nepal. Further, Chinese side was rather 'lukewarm' about Nepalese request for increasing commercial flights between China and regional international airports at Bhairahawa & Pokhara in Nepal, under some sort of a long-term commercial system subsidized by Chinese companies.

In the light of this information, it's easy to understand why the Chinese and Nepalese governments have so far been so discreet and silent on this thorny issue, which is certainly not the best advertisement for President Xi Jinping's BRI and Nepalese governance.

[1] The New York Times, October 16, 2023.

[2] The Diplomat, November 10, 2023.

[3] Chinese Ministry of Foreign Affairs, Sept. 23, 2023.

[4] 25 % of this loan is interest-free and the rest would incur 2 % of interest per annum. The loan repayment period has been fixed at 20 years, including a grace period of 7 years when no interest will be charged, with Nepal government bearing the risk of fluctuations in the foreign exchange rate.

[5] ''Nepal: Foreign Minister Rejects China's Claim Of Building Pokhara Airport Under Belt And Road Initiative'', Outlook (India), July 12, 2023.