Nepal trapped in China’s debt trap over Pokhara airport deal: Report – Gudstory

For more than four decades, Nepal aspired to establish an international airport in Pokhara, seeing it as a catalyst to transform the city into a global tourist destination. Unfortunately, the project was shelved 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 while challenging US dominance on the global stage. Nepal, located south of China and having close ties with India, represents an attractive geopolitical prospect.

The construction of the airport was a part of China’s grand ambitions, in line with President Xi Jinping’s signature infrastructure campaign, the Belt and Road Initiative (BRI), which promised substantial investment in infrastructure projects around the world. However, Nepal discreetly rejected the notion that Pokhara airport was a part of this initiative. According to The New York Times, this discrepancy over the airport led to a diplomatic tug-of-war between China and India.

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While dozens of countries, including Nepal, gathered in Beijing to celebrate the 10th anniversary of the Belt and Road Initiative, China’s overseas development efforts were under scrutiny due to their exorbitant costs and poor quality construction. Pokhara Airport exemplified the dangers that came with China’s import at any cost infrastructure development model, which disproportionately benefited Chinese companies at the expense of the borrowing nation.

China CAMC Engineering, the construction division of state-owned conglomerate Sinomach, played a key role in the Pokhara Airport project. It imported construction materials and machinery from China, and the airport itself was replete with Chinese-made security and industrial technology. Despite China’s claims about the quality of the project, a New York Times investigation revealed a disturbing story.

A thorough investigation of the many individuals involved in the project and thousands of documents indicated that China CAMC Engineering had consistently set conditions to maximize profits and protect its interests. Additionally, it systematically dismantled Nepali surveillance. As a result, without the expected influx of travelers to repay the loan, Nepal found itself saddled with significant debt to Chinese creditors.

Before construction began, Nepal’s Finance Minister signed a Memorandum of Understanding supporting CAMC’s proposal in 2011, even before the official bidding process began. The Chinese loan agreement specifically allowed Chinese companies to bid for the project. CAMC initially submitted a bid of US$305 million, almost double Nepal’s cost estimate for the airport. This was criticized by Nepalese politicians, who accused the process of being rigged and price gouging. Following the outcry, CAMC reduced its bid to US$216 million, reducing the cost by about 30 percent.

In 2016, China and Nepal formalized a 20-year agreement for the project, with a quarter of the funds provided as an interest-free loan. Nepal intends to borrow the remaining amount from the Export-Import Bank of China at 2 percent interest rate, with repayments scheduled to begin in 2026.

As construction progressed, catastrophic issues emerged. The Civil Aviation Authority of Nepal was responsible for overseeing the Chinese contractor, but lack of experienced personnel as well as inadequate allocation of funds for consultants hindered the project. Initially set at USD 2.8 million, the budget to hire consultants to ensure CAMC’s compliance with international construction standards was eventually reduced to just USD 10,000, with funds shifted elsewhere.

This lack of oversight allowed CAMC to begin work before the consultants arrived and carry out construction work that did not meet international standards. Key components such as soil density testing for the runway’s foundation were skipped, jeopardizing the future stability of the runway. Other oversights included the design of the airport’s drainage system, ignoring historical rainfall data and the sloping topography, which increased the risk of flooding. According to The New York Times report, the quality of China-made construction materials and the identities of vendors were inadequately documented, a violation of the terms of CAMC’s contract with Nepal.

While CAMC was expected to oversee consulting efforts, the Chinese company managed to bypass the consultants and negotiate directly with Nepalese officials, who had limited construction experience. Any attempts to obtain additional information or documentation were often fruitless.

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

Chinese engineers working on the project claimed that they were instructed not to closely examine CAMC’s work, whose focus was on building an airport rather than a “chicken farm”. Additionally, allegations emerged that documents related to the qualifications of IPPR workers in Pokhara had been falsified. In some cases, the credentials of employees were also falsified. Such practices reveal a worrying disregard for transparency and accountability.

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

In a disturbing incident, the contractor’s project site manager Zhu Zhanfeng boasted about the airport’s adherence to “Chinese standards,” The New York Times reports.

Yet, what was not mentioned was a tragic incident involving Zhu three years earlier. In 2019, Zhu hit and killed a pedestrian in Pokhara after a night of drinking. Police suspect that he was drunk when he hit Deu Kumar Tamang, who was walking on the crosswalk. Tamang’s tragic death led to a controversial compensation offer from CAMC, starting at 1 million Nepalese rupees (about US$7,500). When the family refused, 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 be made only after Zhu’s release from prison.

However, there were allegations that CAMC tried to downplay the incident by arguing that Tamang was under the influence of alcohol and caused the accident. The case went to trial, at which Zhu was found guilty of “traffic death” and sentenced to four months in prison. The sentence, which many considered lenient, was further reduced to the earlier time limit, causing outrage among the victim’s family. Deu Kumar Tamang’s brother, Nabin Tamang, expressed disappointment in the justice system, believing that it was prioritizing the progress of the project rather than seeking justice.

The opening of Pokhara Airport in January 2023 was disrupted due to geopolitical tensions. The Chinese Embassy in Nepal declared the airport a “key project” of China and Nepal’s Belt and Road Initiative cooperation, despite its pre-existing status. According to The New York Times, the announcement sparked a diplomatic controversy, with India’s skepticism about the Chinese initiative further complicating the situation.

As Pokhara Airport struggled to attract international flights, especially Indian airlines, Nepal’s aspirations for the airport were jeopardized. Nepal’s largest airline, Buddha Air, had requested a permit for flights to India, but was awaiting approval from the Indian government. A feasibility study conducted by CAMC had projected passenger numbers that would enable the airport to repay its debts from profits, but so far, no international flights have started.

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

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

As The New York Times reports, Pokhara Airport is a clear example of the pitfalls associated with importing China’s infrastructure development model, highlighting concerns about financial stability and transparency, as well as geopolitical rivalries in the region. Also promotes.

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This story is published from a wire agency feed without any modifications to the text.

Updated: October 17, 2023, 09:44 PM IST