Pokhara Airport

Nepal Engulfed In China’s Debt Trap Over Pokhara Airport Deal: NYT Report

In the shadow of the magnificent Himalayas, Pokhara, Nepal’s scenic paradise, welcomed a Sichuan Airlines flight from China in June, marking a momentous occasion for the city. The newly constructed international terminal at Pokhara’s airport, a project largely financed and executed by Chinese companies, had finally become operational. However, beneath the surface of this grand opening lay a complex and unsettling reality – one that highlighted China’s controversial infrastructure influence and its geopolitical rivalry with India, The New York Times reported.

For over four decades, Nepal had aspired to establish an international airport in Pokhara, envisioning it as a catalyst for transforming the city into a global tourist destination. Unfortunately, the project had languished due to political instability, bureaucratic challenges, and financial difficulties. That was until China stepped in to fill the void, furthering its quest to create an alternative sphere of influence, challenging American dominance on the global stage. Nepal, located south of China and with close ties to India, represented an enticing geopolitical prospect.

The airport’s construction was a part of China’s grand ambitions, aligning with President Xi Jinping’s signature infrastructure campaign, the Belt and Road Initiative (BRI), which promised substantial investments in infrastructure projects worldwide. However, Nepal discreetly rejected the notion that the Pokhara airport was a part of the initiative. This discrepancy propelled the airport into a diplomatic tug-of-war between China and India, according to The New York Times.

While dozens of countries, including Nepal, convened in Beijing for the 10th-anniversary celebration of the Belt and Road Initiative, China’s overseas development endeavors were under scrutiny for their exorbitant costs and poor-quality construction. The Pokhara airport exemplified the perils that came with importing China’s infrastructure-at-any-cost development model, disproportionately benefiting Chinese firms at the expense of the borrowing nation.

China CAMC Engineering, the construction division of state-owned conglomerate Sinomach, played a pivotal role in the Pokhara airport project. It imported building materials and machinery from China, and the airport itself was brimming with Chinese-made security and industrial technology. Despite China’s claims about the project’s quality, an investigation by The New York Times revealed an unsettling narrative.

Multiple individuals involved in the project and a thorough examination of thousands of documents indicated that China CAMC Engineering had consistently dictated terms to maximize profits and protect its interests. Simultaneously, it systematically dismantled Nepali oversight. As a consequence, Nepal found itself entangled in significant debt to Chinese creditors without the expected influx of passengers to repay the loans.

Before construction commenced, Nepal’s finance minister had signed a memorandum of understanding supporting CAMC’s proposal in 2011, even before an official bidding process had started. The Chinese loan agreement exclusively allowed Chinese firms to bid for the project. CAMC initially submitted a bid for USD 305 million, nearly double Nepal’s cost estimate for the airport. This drew criticism from Nepali politicians, who accused the process of being rigged and the price inflated. Following the outcry, CAMC lowered its bid to USD 216 million, reducing the cost by approximately 30 percent.

In 2016, China and Nepal formalised a 20-year agreement for the project, with a quarter of the funding provided as an interest-free loan. Nepal intended to borrow the remainder from China’s Export-Import Bank at a 2 per cent interest rate, with repayment scheduled to begin in 2026.

As construction progressed, glaring issues came to light. The Civil Aviation Authority of Nepal was responsible for overseeing the Chinese contractor, but the lack of experienced personnel, combined with the inadequate allocation of funds for consultants, hampered the project. Initially earmarked at USD 2.8 million, the budget for hiring consultants to ensure CAMC’s compliance with international construction standards was eventually reduced to a mere USD 10,000, diverting funds elsewhere.

This lack of oversight allowed CAMC to initiate work before consultants were in place and perform construction work that did not meet international standards. Key components, such as soil density tests for the runway’s foundation, were omitted, jeopardising the runway’s future stability. Other oversights included the airport’s drainage system design, ignoring historical rainfall data and sloping topography, increasing the risk of flooding. The quality of Chinese-made building materials and the identity of vendors were inadequately documented, contravening the terms of CAMC’s contract with Nepal, as reported by The New York Times.

While consulting efforts were expected to oversee CAMC’s work, the Chinese company managed to sidestep consultants and interact directly with Nepali officials who had limited construction experience. Any efforts to seek additional information or documentation were often fruitless.

China’s Export-Import Bank had commissioned China IPPR International Engineering, a consulting firm, to ensure the quality, safety, and schedule of the project and to confirm Nepal’s satisfaction with CAMC’s work. However, the situation grew murkier in 2019 when CAMC acquired IPPR, turning it from a sister company into a direct subsidiary. IPPR’s fees came from Nepal as part of its loan from the Chinese bank.

Chinese engineers working on the project claimed that they were instructed not to scrutinise CAMC’s work closely, with a focus on delivering an airport rather than a “chicken farm.” Furthermore, allegations surfaced that documents related to the qualifications of IPPR’s workers in Pokhara had been falsified. In some cases, even employee credentials were manipulated. Such practices revealed a disconcerting disregard for transparency and accountability.

CAMC and IPPR remained unresponsive to inquiries and requests for comments about their involvement in the Pokhara airport project.

In a troubling incident, Zhu Zhanfeng, the project site manager for the contractor, boasted about the airport’s adherence to the “Chinese standard,” the New York Times reported.

Yet, what went unmentioned was a tragic incident involving Zhu from three years earlier. In 2019, Zhu struck and killed a pedestrian in Pokhara following a night of drinking. Police suspected he was intoxicated when he hit Deu Kumar Tamang, who was walking in a crosswalk. Tamang’s tragic death led to a contentious compensation offer from CAMC, starting at 1 million Nepali rupees (approximately USD 7,500). When the family declined, CAMC offered to double the payment and provide space for a coffee shop within the new airport. Eventually, the family accepted the offer, with the condition that payment would only be made after Zhu’s release from prison.

However, allegations arose that CAMC sought to downplay the incident by arguing that Tamang had been drinking and had contributed to the accident. The case went to trial, with Zhu being found guilty of a “traffic death” and sentenced to four months in prison. This sentence, considered lenient by many, was further reduced to time already served, causing outrage among the victim’s family. Nabin Tamang, Deu Kumar Tamang’s brother, expressed disappointment in the justice system, perceiving it as prioritizing the project’s progress over seeking justice.

The opening of the Pokhara airport in January 2023 was marred by geopolitical tensions. The Chinese Embassy in Nepal declared the airport as “the flagship project” of China and Nepal’s Belt and Road Initiative cooperation, despite its pre-existing status. This declaration ignited a diplomatic dispute, with India’s skepticism regarding the Chinese initiative further complicating the situation, according to The New York Times.

As Pokhara airport struggled to attract international flights, especially from Indian airlines, Nepal’s aspirations for the airport were put in jeopardy. Buddha Air, Nepal’s largest airline, had requested permits for flights to India but awaited approval from the Indian government. A feasibility study commissioned by CAMC had projected passenger numbers that would enable the airport to repay its loans from profits, but as of now, no international flights have commenced.

Nepali officials have reportedly requested that China convert the loan into a grant due to the airport’s financial challenges, a matter discussed during Prime Minister Pushpa Kamal Dahal’s visit to Beijing in late September. The joint statement issued by China and Nepal during the visit acknowledged the completion and operation of the Pokhara airport but made no mention of plans to waive the loan.

The construction of Nepal’s Pokhara airport, primarily funded and executed by Chinese companies, has raised concerns about the quality of work, the manipulation of oversight, and the burden of debt on Nepal. Additionally, the airport’s association with China’s Belt and Road Initiative has ignited diplomatic tensions with India, making it challenging for the airport to attract international flights.

The Pokhara airport serves as a stark example of the pitfalls associated with importing China’s infrastructure development model, highlighting concerns about financial sustainability and transparency, all while fueling geopolitical rivalries in the region, The New York Times reported. (ANI)

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Nepal's Pokhara Airport

Nepal’s Pokhara Airport Under China’s Belt-Road Radar

Ahead of the inauguration of Nepal’s new Pokhara airport, in a surprise announcement, the Chinese Embassy in Kathmandu has tweeted, “This (Pokhara airport) is the flagship project of the China-Nepal Belt and Road Initiative (BRI) cooperation,” writes Anil Giri, in The Kathmandu Post.

Notably, Nepal Prime Minister Pushpa Kamal Dahal on Sunday inaugurated the country’s third international airport.
“The Pokhara International Airport has been inaugurated today. With this, the city now is in connection with the international market,” Dahal announced.

The Chinese Embassy tweet comes at a time when Kathmandu reiterated that no project under Beijing’s Belt and Road Initiative has been signed and Nepal and China are working to finalize the text of project implementation under the BRI, reported The Kathmandu Post.

After Nepal and China signed the framework agreement on BRI in 2017, Nepal initially selected 35 projects to be undertaken under Chinese President Xi Jinping’s flagship connectivity project.

Later, upon Beijing’s request, the total number of projects was whittled down to nine with Pokhara airport off the list. The government signed a USD 215.96 million soft loan agreement with China in March 2016 for the construction of the new airport in the lake city, said Giri.

The loan agreement between the Civil Aviation Authority of Nepal and China EXIM Bank does not mention the BRI.

At least three officials from the Ministry of Foreign Affairs, Ministry of Finance, and Ministry of Tourism told the Post that loan negotiations for the project had begun before the BRI was conceptualized in China.

The Chinese Embassy’s claim, therefore, is their own interpretation, which the Nepali side does not own up to, they said, reported Giri.

Even when the project completion ceremony of the Pokhara airport was held in Kathmandu during Chinese Foreign Minister Wang Yi’s visit in March last year, there was no mention from either side of BRI in connection with the airport.

If the Chinese Embassy says that this airport is built under BRI, this is their definition, a foreign ministry official said. “What we have agreed as of now is that China will fund two other projects under the BRI.”

“Pokhara airport was conceived of long ago and as per our rather in-depth conversations with the Chinese side, it does not fall under the BRI framework,” the official added.

“But the thing is, now, all kinds of Chinese assistance either in the form of loan or grant, or any project undertaken or completed by the Chinese, are being defined as falling under the BRI. As per our definition, this particular project does not fall under the BRI framework.”

The previous Sher Bahadur Deuba government communicated to the Chinese side that Nepal does not want loans and preference would be given to grants considering the size and nature of Nepal’s economy said, Giri.

If unavoidable, a loan should come with the interest on par with a multilateral lender or not exceed one percent per annum. In most cases, the interest rate of projects under the BRI is two to four percent. The Deuba government also made clear that Nepal is not in a position to take commercial loans to fund the project, reported The Kathmandu Post.

The Nepali side is also looking for a similar arrangement for the repayment of loans under the BRI, extending the period to 40 years and beyond. Nepali officials have also called for fair and open competition among the bidders for BRI projects.

Speaking with journalists on April 22, 2022, outgoing Chinese ambassador Hou Yanqi said the BRI consists of both grants and commercial loans.

“It is based on a cooperative modality that includes grants and commercial cooperation,” she said.

Hou said that many of the projects that China is currently building in Nepal fall under the BRI framework.

“This (BRI) is a long project. The projects that are being constructed in Nepal under BRI have three modalities. First, it is like Gautam Buddha Airport in Lumbini where ADB has invested and Chinese contractors have worked. Second, the modality of Pokhara Airport where China’s commercial loans and grants are there and the construction company is also Chinese,” Hou said.

“And the third modality is like the Tribhuvan International Airport in Kathmandu. The responsibility of improving this airport has been given to a Chinese company and the cost will be borne by the Nepal government.”

In bilateral documentation, none of these projects has gotten grants or loans earmarked BRI, finance ministry officials said, reported The Kathmandu Post.

“Publicity is one thing but in documentation or while signing the loan negotiation or negotiating the projects, the Chinese side never said Pokhara Airport falls under the BRI,” the finance ministry official added.

The Chinese Embassy in its press note has further said, “The new airport is designed and built in accordance with the standards of China and the International Civil Aviation Organization, which reflects the quality of Chinese projects, symbolizes the national pride of Nepal, and becomes a remarkable sign for China and Nepal to jointly build the Belt and Road Initiative.”

“In March this year, State Councillor and Foreign Minister Wang Yi visited Nepal and attended the completion ceremony of the construction … of the airport. Several prime ministers of Nepal also visited and promoted the project construction,” the embassy said.

A joint secretary at the Ministry of Culture, Tourism and Civil Aviation said that loan negotiations for the project had begun in 2008, ruling out the BRI component in the airport.

Former Nepali ambassador to China Leela Mani Paudyal said it is difficult to determine which project falls under the BRI, reported The Kathmandu Post.

“I don’t know whether this particular project falls under the framework of BRI or is funded under the BRI scheme. Of late, all Chinese investment–grant or loan–is tagged as BRI cooperation.”

By this definition, this particular project may fall under the BRI but, again, there is no clear demarcation between a BRI and a non-BRI project, said Paudyal. (ANI)

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