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Lawmakers are divided over China CAMC Engineering Co Ltd (CAMC) dismissing the parliamentary sub-committee’s report on the construction of Pokhara Regional International Airport. While some parliamentarians have called the statement an attack on Nepal’s sovereignty, others have defended the company and questioned the integrity of the report itself.

CAMC, the Chinese state-owned company responsible for building the airport, issued a statement on Tuesday dismissing the Public Accounts Committee (PAC) sub-committee’s report, which alleges serious financial and procedural irregularities worth approximately Rs 10bn. The company claimed the report was “riddled with factual inaccuracies” and lacked professional and objective analysis. It further asserted that CAMC had fully complied with all legal and regulatory requirements throughout the project.

Speaking at the PAC meeting on Wednesday, Rajendra Lingden, chairman of the sub-committee and leader of the Rastriya Prajatantra Party, said CAMC’s statement was misleading and amounted to an attempt to undermine Nepal’s sovereign Parliament.

“It is unacceptable for a company involved in a state project to publicly question the findings of a parliamentary body,” Lingden said. “The statement has drawn my serious attention, and I urge fellow lawmakers to treat it with due gravity. This is an attempt to tarnish the image of Parliament.”

However, not all lawmakers shared Lingden’s view. CPN-UML leader and former Minister for Culture, Tourism and Civil Aviation, Yogesh Bhattarai, criticized the sub-committee’s report as incomplete and misleading.

“Our report claims there are technical flaws in the airport, which would warrant its closure. But determining technical viability is not within the sub-committee’s jurisdiction,” said Bhattarai. “The International Civil Aviation Organization (ICAO) has already certified Pokhara Airport for ‘4-D’ category flights. If aircraft are landing and taking off, how can we say it's not fit for operation?”

Bhattarai also cautioned against mishandling foreign investment. “Like with the MCC, we must consider diplomatic sensitivities. China will not quietly accept this report that questions the integrity of its investment.”

UML lawmaker and sub-committee member Gokul Baskota described the report as “incomplete” and said his input was not a dissent but a supplementary opinion.

“Some crucial data was not uncovered, and written queries to concerned agencies were never conducted. The Ministry of Finance did not respond either. That’s why I say the report has everything and yet nothing—it still needs more work,” said Baskota. He noted that he is willing to provide further evidence if requested but has no objection to the current version being endorsed. “My only point is that further study is necessary.”

PAC directs CIAA to investigate the case

Following Wednesday’s deliberation on the report presented by its sub-committee on alleged irregularities in the Pokhara airport project, the PAC has instructed the Commission for Investigation of Abuse of Authority (CIAA) to investigate the case. 

Following a four-hour-long discussion, PAC Chairman Rishikesh Pokharel announced that the committee had accepted the report presented by the sub-committee led by Lingden, as well as supplementary opinions by its members. He also informed about the committee’s decision to forward the report to the CIAA.

“The sub-committee’s report raises 15 crucial questions, and we have incorporated these questions as part of our formal decision and have resolved to send the report to the commission for further investigation,” said Pokharel.  

China CAMC Engineering, the contractor for the Pokhara Regional International Airport, has strongly rejected a report by a subcommittee of Nepal’s Public Accounts Committee (PAC), which alleges significant irregularities in the airport’s construction. The Chinese state-owned enterprise criticized the report for being riddled with factual inaccuracies and lacking professional, objective analysis of the project’s implementation.

Calling the report profoundly shocking and gravely concerning, the company stated: “As a professional and responsible international engineering contractor, we strictly complied with all legal and regulatory requirements of the Nepal government throughout the bidding, contracting, and implementation phases.”

The PAC subcommittee, chaired by Rastriya Prajatantra Party (RPP) Chairman Rajendra Lingden, concluded that irregularities and corruption worth approximately Rs 10bn occurred during the airport's construction. The draft report outlines discrepancies across 11 categories. Several subcommittee members have signed the draft, which is now being circulated among lawmakers for review.

The alleged irregularities in the airport construction could be among the largest corruption scandals in Nepal’s history. According to the subcommittee, the cost of the airport—originally estimated at
Rs 14bn—was suspiciously inflated to Rs 22bn. The report alleges widespread malpractice affecting nearly all aspects of the project, raising serious concerns about quality control and regulatory compliance. It also highlights violations of the original contract terms, particularly regarding tax exemptions. The report states that a new implementation agreement enabled repeated tax waivers totaling Rs 2.22bn, which it describes as “deliberate financial misconduct,” resulting in significant revenue loss for the state.

Reacting to CAMC’s rebuttal, a member of the subcommittee expressed concern over the company’s statement and said the committee would respond formally after internal deliberations.

Despite the controversy,  CAMC said the airport is Nepal’s most modern international airport. The company added that the airport has operated stably for 28 consecutive months, with passenger traffic reaching 904,771 in 2023 and 989,852 in 2024—both exceeding its designed annual capacity of 800,000 passengers. It has also urged the Nepali authorities to investigate the unauthorized disclosure of the report, correct its alleged inaccuracies, and restore the truth.

Pokhara International Airport was inaugurated on 1 Jan 2023, amid considerable fanfare. Though the project predates Nepal’s entry into China’s Belt and Road Initiative (BRI), China later included it within the BRI framework, erupting a diplomatic brouhaha between Nepal and China. The airport was constructed under a soft loan from China, but it is currently failing to generate enough revenue to repay the loan.

The airport faces an annual interest payment of $3.2m. Officials say it would need to generate at least Rs 1.5bn annually just to sustain operations. Even if operated at full capacity, the income would likely be insufficient to cover both operating costs and loan repayments. Some economists argue no proper homework was done to assess the operational side of the airport.

In 2014, Luo Yan, chairman of the China CAMC Engineering Co Ltd, and Ratish Chandra Lal Suman,  director-general of CAAN, had signed a contract worth $215.96m for the construction of the airport.  On 21 March 2016, China Exim Bank and the Government of Nepal signed a government concessional loan (GCL) agreement worth RMB 1.37bn for the project development.

According to AidData, a Washington DC-based research lab, 25 percent of this loan (RMB 355.9m) was interest-free, with a 20-year maturity and a seven-year grace period. The remaining 75 percent (RMB 1.02bn) carried a two percent interest rate, with the same maturity and grace terms. The AidData report also notes that Nepal on-lent the loan proceeds to CAAN through a Subsidiary Loan Agreement finalized on 5 June 2016 at a five percent interest rate, with identical repayment terms.

The Phukot Karnali Hydropower Project (480 MW), which is proposed to be built in Kalikot district of Karnali Province, is projected to impact 747 households, according to the Environmental Impact Assessment (EIA) report of the project.

According to the report, the project will affect the land of 539 households, houses along with the land of 150 households, and the houses of 103 households. Additionally, two suspension bridges, four cremation sites, a martyr's park, a temple, and a piped water system with one tap will also be impacted by the project.

Nepal and India signed a Memorandum of Understanding (MoU) for the development of the Phukot Karnali project on July 1, during Prime Minister Pushpa Kamal Dahal's visit to India. As per the MoU, NHPC Ltd of India and Vidyut Utpadan Company Ltd (VUCL) of Nepal will form a joint venture company to develop the project, both of which are government-owned entities.

India’s cabinet recently approved a proposal to purchase 10,000 MW of hydropower from Nepal over the next decade. The southern neighbor is currently importing 632 MW from India.  The EIA report states that the project will affect four wards of Sanni Tribeni Rural Municipality, one ward of Khandachakra Municipality, four wards of Raskot Municipality, and seven wards of Pachal Jharan Rural Municipality.

The estimated cost of the semi-reservoir project, which will be built on the Karnali River, is Rs 92.30bn. The project’s total capacity is 480 MW, including 6 MW generated from the plant at the base of the dam through environmental release. The headworks site is located 1.5 km downstream from the confluence of the Karnali and Sanigad rivers.

The main civil structures of the project consist of two diversion tunnels, one sediment bypass tunnel, roller compacted concrete (RCC) dam, intake, upstream and downstream coffer dams, two headrace tunnels, two surge tunnels, two pressure shafts/tunnels, underground powerhouse cavern, underground transformer cavern and two tailrace tunnels. The project's reservoir will extend 11 km along the river from the dam to Lapha Bagar. Moreover, its underground powerhouse will feature six units of Francis turbines-generator-transformer sets, each with a generating capacity of 79 MW. The power generated by the project will be connected to the national grid through a substation at Regil by building a 2.3 km 400 kV double circuit transmission line.

According to the EIA, the project has allocated 0.47 percent of its total cost for the implementation of environmental management programs. Similarly, 0.27 percent of the project’s budget will be dedicated to compensation planting and the maintenance of these plants for a period of five years. Additionally, the project plans to invest Rs 510m in the execution of social infrastructure development programs and initiatives aimed at socio-economic upliftment.

The project is expected to produce 1,703.8 GWh of energy annually during the wet season, 481.05 GWh during peak hours of the dry season, and 263.75 GWh during off-peak hours of the dry season. NHPC Ltd is also involved in the construction of the West Seti (750 MW) and SR-6 (450 MW) projects in far-western Nepal.

A government survey shows that the stock of Foreign Direct Investment in Nepal increased by 16 percent to Rs 264.3bn at the end of the fiscal year 2021/22. Paid-up capital is the major component in FDI stock as it accounts for 53.7 percent of total FDI stock, whereas the reserves and loans in total FDI stock accounts for 31.7 percent and 14.6 percent respectively, the report says. 

The Survey Report on Foreign Direct Investment in Nepal published by Nepal Rastra Bank states that Nepal has received foreign investment from 57 different countries as of mid-July 2022.  In terms of total FDI stock, India takes top position with Rs.88.6bn followed by China (Rs 33.4bn), Ireland (Rs 20.9bn), Singapore (Rs 16.1bn), and Saint Kitts and Nevis (Rs 15.1bn).

Industrial sector accounts for 62.6 percent of total FDI stock. Of which, the electricity, gas, steam and air conditioning sector constitutes 32.8 percent and manufacturing sector 29.5 percent of total FDI stock. About 37.3 percent of total FDI stock is in the service sector. Of which, the financial and insurance services sector constitute 25.6 percent, accommodation and food services sector 5.3 percent, and information and communication sector 4.8 percent of the total FDI stock.

The electricity, gas, steam and air conditioning sector, particularly hydropower, in Nepal has been a preferred sector for FDI in recent years, the report says. A latest survey shows that 32.8 percent of FDI stock and 41.8 percent of total paid-up capital is in this sector. Moreover, the hydropower sector has also attracted other sources of external financing such as foreign loans in addition to FDI; the electricity, gas, steam and air conditioning sector accounts for 41.4 percent outstanding foreign loan at the end of the FY 2021/22, the report says.

Nepal has initiated institutional and legal reforms in recent decades with the aim of promoting FDI to complement the resource gap in capital formation. Gradual liberalization of FDI inflows in various sectors has been encouraged by creating an investment-friendly environment and prioritizing foreign investment-related reforms. There are several legal frameworks for guiding and encouraging FDI in Nepal:

• Foreign Investment Policy, 2015
• Foreign Investment and Technology Transfer Act, 2019 (FITTA)
• Public-Private Partnership and Investment Act, 2019
• Industrial Enterprises Act, 2020, e) Institutional reforms such as the establishment of One Stop Service Center to facilitate foreign investment
• Nepal Rastra Bank Foreign Investment and Foreign Loan Management Bylaw, 2021 (Second Amendment)

The World Investment Report 2023 published by UNCTAD shows that global FDI inflow decreased 12.4 percent to $1,294.7bn in 2022 from $1,478.1 in 2021. The Russia-Ukraine war, high food and energy prices, fears of a recession, and debt pressures resulted in the decline of FDI inflows around the world.

FDI inflows to Asia decreased 0.05 percent from $662.1bn in 2021 to $661.8bn in 2022. The region remains the largest recipient of FDI, accounting for 51.1 percent of global FDI (UNCTAD, 2023). However, the inflows are highly concentrated among its largest recipients: China ($189.1bn), Singapore ($141.2bn), and Hong Kong-China ($117.7bn).

In contrast to the global trend, FDI inflows to South Asia increased nine percent to $55.9bn in 2022. FDI in India, the largest FDI recipient of the sub-region, increased by 10.3 percent with inflows of $49.4bn in 2022. In 2021/22, Rs 15.7bn was approved for dividend repatriation by companies with foreign investment. The highest dividend repatriation approval was for the manufacturing sector followed by the information and communication sector.

According to the report, as of mid-July 2022, the outstanding foreign loans (excluding direct loans from foreign direct investors) of FDI companies stood at Rs.68.7bn. Such loans were Rs 40.7bn a year ago. The companies in the hydropower sector have utilized more foreign loans as the outstanding loan of this sector stood at Rs 28.4bn in mid-July 2022.