Challenges of implementing BRI framework

The Ministry of Foreign Affairs has unveiled the much-anticipated Belt and Road Initiative (BRI) Cooperation Framework between Nepal and China, which has identified 10 projects but leaves the investment modality ambiguous. A closer study of the document indicates that implementation remains an uphill task.

The investment modality for the BRI projects continues to be one of the most disputed and ambiguous issues. The Nepali Congress (NC) has consistently held its position that it will accept only projects built through grants, while the CPN-UML is open to taking loans. Regarding the investment modality, the document mentions that “the two sides will work to ensure technical support and aid financing modalities that suit the needs of the two sides and the requirements for sovereign-initiated projects.”

The document further states that the two sides will conduct an objective analysis of the technical, financial, commercial, and economic feasibility of the projects and ensure value for money for the prioritized initiatives. It also allows for seeking international financial support to finance BRI projects, stating, “The two sides will continue to call upon international multilateral financial development institutions or mechanisms to provide more financial support for promoting connectivity and development.”

As per the agreement, Nepal will welcome and facilitate the establishment of branches of Chinese banks and financial institutions. The two sides will work to expand the use of national currencies in bilateral trade and investment according to practical situations. The framework also highlights elevating bilateral relations to a strategic partnership of cooperation, a vision articulated during Chinese President Xi Jinping’s visit to Nepal in 2019.

For implementation, China has designated the National Development and Reform Commission, together with the ministries of foreign affairs and commerce, to take the lead. Nepal, in turn, has designated its ministries of foreign affairs and finance. These entities will coordinate bilateral cooperation under the framework.

The document makes it clear that the framework does not constitute an international treaty and thus does not create rights or obligations under international law. It is subject to each country’s national laws, regulations, and policies governing specific projects. This provision means that, like the United States’ Millennium Challenge Corporation (MCC), the BRI framework does not require parliamentary approval.

The document also clarifies that project cooperation implemented under this framework does not prevent either side from engaging in similar cooperation with other countries or mechanisms. Disputes regarding the framework will be resolved through consultations and negotiations between the two sides.

The framework came into effect on the date of its signing and will remain valid for three years, with automatic extensions for subsequent three years, unless either party provides a written notice of termination three months in advance. Importantly, the termination of the framework will not affect any ongoing cooperation projects. Recently, China has sought to bring all bilateral cooperation under this framework, but even if it is terminated, ongoing projects will not be affected.

Under the BRI, the document lists 10 infrastructure and urban development projects. These include the Tokha-Chhahare Tunnel, which is of strategic importance for Nepal-China trade and aims to reduce travel time, improve road safety, and support economic growth. A letter of exchange for the project feasibility study has already been agreed upon by both sides. Another significant project is the Hilsa-Simikot Corridor, one of eight North-South corridors aimed at enhancing connectivity between Nepal and China. A letter of exchange for the feasibility study of upgrading the Hilsa-Simikot section has also been signed.

The much-discussed Nepal-China cross-border railway project is expected to traverse Nepal’s Rasuwa district, offering a direct link between the two countries and enhancing bilateral connectivity. The agreement states that after the completion of the feasibility study, the two sides will work to build the China-Nepal cross-border railway.

Other projects include Amargadhi City Hall in Dadeldhura, the home constituency of NC President Sher Bahadur Deuba. The 220 kV cross-border power transmission line is another prioritized project, although discussions on its implementation are ongoing. Additional initiatives include Madan Bhandari University of Science and Technology, Kathmandu Scientific Center and Science Museum, China-Nepal Friendship Industrial Park in Jhapa, and Jhapa Sports and Athletic Complex, located in Prime Minister KP Sharma Oli’s constituency.

The BRI framework has become a tool for political parties, particularly the communists, to advance their agendas, but implementation may face roadblocks due to internal and external factors. Although top politicians from the ruling coalition are attempting to downplay differences between the NC and UML, the two ruling parties are not aligned. UML leaders, including Prime Minister Oli, have stated that BRI involves both grants and loans, while NC leaders remain firmly committed to a grants-only approach.

A major challenge for the framework’s implementation lies in the NC’s stance, as the party is likely to remain a dominant force in Nepal’s politics, whether in power or opposition. While NC President Deuba and his ministers have supported the BRI framework to maintain coalition unity, the party’s position is expected to harden if it leads the government in the future. This makes forging a national consensus on BRI project execution extremely difficult.

Even among communist parties, which tend to speak positively about BRI to please China and their voter base, substantive action on the initiative has been limited. For example, Pushpa Kamal Dahal, chairman of the CPN (Maoist Center), has often praised BRI, but made little effort to advance it during his tenure as prime minister. Bureaucratic resistance further complicates matters. The Finance Ministry, in particular, has historically opposed taking loans for BRI projects due to concerns over economic viability and repayment capacity. Recent corruption scandals have also made bureaucrats wary of projects perceived as serving political interests rather than national priorities.

Nepal’s geopolitical realities and economic constraints pose additional challenges. India, for instance, has expressed reservations about Nepal’s participation in BRI, citing sovereignty concerns, and has advised Nepal to prioritize transparency and safeguard its independence. These geopolitical factors, combined with Nepal’s already significant debt burden, have slowed BRI progress over the past decade and will likely continue to do so.

The selection of projects itself raises questions about their alignment with BRI’s objectives of fostering transformative infrastructure and economic integration. For example, the proposed cross-border railway is a highly ambitious project that Nepal is not financially equipped to undertake, even on a grant basis. Its economic viability is questionable, as is the feasibility of other projects, such as tunnels and industrial parks, that do not align with BRI’s stated goal of improving people’s livelihoods. Securing funding for such initiatives remains a significant challenge.

The NC had decided to accept grants while rejecting loans before the BRI framework was signed during Prime Minister Oli’s visit to China. The party presented this position during internal discussions, and the Oli-led government aligned its proposal accordingly. However, concerns have arisen about “aid financing” being prioritized over grant financing in the framework.

The NC’s position remains that only projects funded through grants should proceed. The party argues that conditional loans, whether from China or other countries, are not in Nepal’s interest, given the country’s poor track record of generating returns from such projects. The experience of the Pokhara International Airport, which has become a financial burden due to its inability to deliver returns, underscores this point.

The government has conveyed Nepal’s preference for grants to Chinese leaders, and officials are optimistic that China will honor this stance in upcoming agreements. The Nepali side hopes that grant commitments will be implemented and that negotiations for the listed projects will proceed smoothly. Technical cooperation and industrial investments are also encouraged, as they have the potential to boost employment and create mutual benefits.

Prime Minister Oli, upon returning from China, reiterated that Nepal will prioritize grants over loans under BRI. The Foreign Ministry has also conveyed a similar message. While discussions around the BRI framework continue, its successful implementation will depend on navigating political divisions, ensuring transparency, and securing economically viable projects.