Series of off and on again mainland-backed energy projects spur growing concerns over sustained national power outages.

Can BRI-backed hydropower projects nip Nepalese energy problems in the bud?

On 19 September 2018, the newly-elected Nepalese government announced it was cancelling its agreement with the China Three Georges Corporation (CTGC) to build the US$1.5 billion West Seti Hydropower Project. Set in Western Nepal, this 750 MW project was one of the country's flagship Belt and Road Initiative (BRI) developments and the second most expensive hydropower installation ever to be given the green light by Kathmandu. Within the space of a week, it was then announced that the China Gezhouba Group Corporation (CGGC) had been reappointed to oversee the 1,200 MW Budhi Gandaki project – with its US$2.5 billion price tag making it the most expensive such project in the country's history.

In total, the West Seti Project has been thirty years in the making, even though the Nepalese government only signed a Memorandum of Understanding (MoU) with CTGC with regard to the initiative as late as 2012. In recent months, however, it is understood that the state-owned mainland power company had become increasingly disillusioned as to the overall viability of the project.

The issue came to a head during a two-day meeting between CTGC and the Investment Board Nepal (IBN), the government body charged with seeing the project through. Negotiations between the two eventually faltered, despite an offer from the Nepalese side to cut the project's agreed installed capacity from 750 MW to 600 MW and to ratify a future power purchase agreement in US dollars (rather than in Nepalese rupees) as a way protecting the deal from any untoward currency fluctuations.

Overall, it is thought that CTGC's concerns over the cost of resettling the villagers likely to be displaced by the project, together with the expense of ameliorating the high level of the anticipated environmental impact, caused it to pull out. At present, the two sides are said to be at an impasse, with the future of the project far from clear.

In the case of the Budhi Gandaki Project, the reappointment of CGGC came 10 months after the company had been dismissed as the lead contractor by the previous Nepalese administration, as headed by former Prime Minister Sher Bahadur Deuba, when a decision was taken to develop the project with solely local financing.

Addressing the apparent change of heart, Gokul Baskota, the country's current Minister for Communications and Information Technology, said: "The decision to scrap the agreement with CGGC, as taken by the previous administration, lacked any proper grounding. For our part, we have decided to correct that, largely as Nepal doesn't have the capacity to build such a large project on its own, while securing the necessary funding has also proven something of a challenge."

Once completed, the now back-on-track 1,200 MW Budhi-Gandaki plant will virtually double Nepal's current hydropower capacity. In order to help balance the books until the project begins turning a profit, CGGC has agreed to work under the engineering, procurement, construction and financing (EPCF) model, an arrangement that will defer many of the costs for the Nepalese side.

The decision to bring CGGC back on board, though, has not been without controversy. This has mainly been on the grounds that the project was handed back to the Chinese company without any competitive bidding process being undertaken, a requirement that could have resulted in lower overall costs.

Widespread concern has also been caused by the level of displacement likely to be necessitated by the project. In all, more than 8,000 households will be compromised by the development, with the reservoir for the storage project set to submerge 3,560 homes, while a further 4,557 will also be adversely affected.

Such concerns, however, are seen as being more than balanced by the fact that Nepal is currently suffering a massive energy-production shortfall, one that obliges it to buy power from neighbouring India at a premium cost. It is a problem that is only being exacerbated by the fact that many of the country's planned power projects continue to run behind schedule and over budget.

As a result, hastening the completion of the Budhi Gandaki project is seen as the best way of heading off major power outages across the country. Indeed, it is a problem that was further compounded back in 2015, when an earthquake damaged 31 of the country's hydropower installations, cutting its power generation capacity by 20% overnight.

Geoff de Freitas, Special Correspondent, Kathmandu

Having signed 14 BRI-related MoUs with China, Nepal must work harder than ever to keep India genuinely neighbourly…

Peak time: The importance of cross-Himalayan trade has transformed Nepal into a key BRI player.

Last month's five-day visit to Beijing on the part of Khadga Prasad Sharma Oli, the recently-elected Prime Minister of Nepal, seems to have opened the Belt and Road Initiative (BRI) floodgates, with 14 related projects having now been given the go-ahead by the Himalayan kingdom, while several existing hydro-electric developments have been galvanised back into life. Backed by a series of Memorandums of Understanding (MoUs), the new projects are largely geared towards boosting cross-border connectivity between the two neighbouring nations.

In a statement released in the immediate aftermath of the visit, both countries agreed "to prioritise the implementation of the connectivity-related BRI MoU as it relates to ports, roads, rail and air links and overall communications activity within the Trans-Himalayan Multi-Dimensional Connectivity Network." In a telling aside, Chinese Premier Li Keqiang, who hosted the visit, said: "I now have every hope that a Free Trade Agreement can be concluded in the very near future."

Overall, though, the most significant development to emerge as a result of the visit was the green light given to extending China's Tibetan rail network from its current terminus, close to the Nepal border, to Kathmandu. This will connect the Nepalese capital to Lhasa and plug into the wider mainland rail resource. Although some aspects of the project have yet to be finalised, China has already agreed to fund an in-depth feasibility study of the proposed extension.

With this initial study set to be completed next month – which will then be followed by a more in-depth two-year review – it is now expected that this line will become operational in 2025. In total, the project will require the laying of some 540km of additional track.

At present, estimates as to the final cost of the project vary from US$2.5 billion to $8 billion, a figure that Nepal – given that its total annual GDP is just above $20 billion – would struggle to find on its own. At present, there seems to be a tacit assumption on the part of Nepal that China and India, its other giant neighbour, will somehow cover the costs of both this extensive infrastructure upgrade and several of the energy projects already underway. If the bill was left for Nepal alone to carry, it is believed this overhead would prove a crippling burden for the country for generations to come, with no real ROI likely until well into the 22nd century.

All of which highlights another problem for the mountain kingdom – while looking to ensure its own economic development stays on course, it has to maintain a tricky balancing act, neither overtly-favouring nor inadvertently alienating China or India, its two suitors who, somewhat awkwardly, remain more competitive than co-operative. To complicate matters still further, while India has long had a quasi-monopoly on Nepal's external and internal trade, government figures in Kathmandu have made no secret of their desire to be a little more promiscuous, a development that their New Delhi counterparts have already intimated disapproval of.

This, however, has not deterred China from openly wooing its 30-million-strong neighbour at a time when India appears to have tightened its own purse strings. In 2017, for instance, Beijing pledged $8.3 billion in support of Nepal's infrastructure and energy development projects, more than 26 times the $317 million forthcoming from India over the same period.

Despite the clear challenges that remain, the potential size of the rewards on offer may yet prevail. From China's point of view – given that one of the key BRI aims is to open new markets for its more underdeveloped western regions, including Tibet and Xinjiang – establishing an effective trade route into India via Nepal remains a clear priority.

In order to deliver on this, mainland officials have already mooted the idea of a tripartite China-Nepal-India trade corridor, a similar arrangement to the existing China-Pakistan-India initiative. To date, India has refused to play ball. This is despite the fact that, as Nepal borders Uttar Pradesh, one of India's key food production and manufacturing hubs, a direct route through to China would clearly be in its own interest. Given the clear win-win-win on offer to all three prospective participants, there is still a strong belief that agreement on tripartite trade connectivity may yet be reached.

Geoff de Freitas, Special Correspondent, Kathmandu

New data connection between China and Nepal forms backbone of BRI's information-centred high-speed network.

Untangling the web: Chinese technology is set to bring streamlined internet access to Nepal.

Faster, more reliable and cheaper internet access is seen as the first tangible sign of the enhanced co-operation between China and Nepal, envisaged as part of the Belt and Road Initiative (BRI) framework. The upgrade took place last month when China Telecom Global, a subsidiary of China Telecom, the Beijing-headquartered, state-owned telecoms giant, partnered with Telecom Nepal to offer an alternative to the country's existing India-channelled internet connection.

This new terrestrial internet gateway forms part of a major BRI infrastructure project that will see Nepal connected to Europe and the Americas via China. For its part, China Telecom has branded the development as a core component of the "BRI's information-centred high-speed link".

The new fibre-optic link is connected to the landlocked Himalayan country via the Kerung-Rasuwa border crossing and has been channelled through the Hong Kong Data Centre, one of the largest international data centres in Asia. Located in the Sai Kung district of the New Territories, this HK$5 billion (US$640 million), 71,000 sq m facility came online in the December of last year. Jointly operated by China Telecom Global, Daily-Tech, a Beijing-based internet infrastructure specialist, and Global Switch, a Hong Kong-based data-centre developer, this new facility is said to be both a large-scale data carrier and a regional technology hub.

The provision of China-Nepal cross-border internet connectivity was first mooted in 2013, but was significantly delayed by the 2015 earthquake that struck Nepal, leaving 9,000 people dead and rendering much of the proposed data access route inaccessible. Despite this, a formal agreement on the project was struck in Hong Kong in 2016, with the installation and testing phase completed in December 2017.

Overall, enhancing the speed, reliability and cost-effectiveness of Nepal's internet access has been seen as a priority, given the surge in demand from both individual users and the business sector. Of the country's 26.5 million people, 62.94% had internet access as of October 2017, up from 35.7% in October 2014, according to figures provided by the Nepal Telecommunications Authority (NTA).

Impressively, Nepal's online population has more than doubled since 2010, when less than 30% of Nepalis enjoyed internet access. As a sign of the country's appetite for digital communication, in the 12 months to October 2017, some 2.25 million new Nepali users were connected to the internet – approximately 250 every hour.

As has been the case elsewhere in developing Asia, the majority of Nepal's internet users go online via their mobile phones, with such usage given a further boost by the roll-out of 4G services that began last year. Summarising the country's changing digital profile, the NTA's 2017 annual report concluded: "The growth in internet penetration has been facilitated by increasing mobile connectivity across the country and, in particular, by the availability of browsers and data connections on even relatively inexpensive phones."

Although landlocked, Nepal is proving to be a coveted strategic location, with both China and India seeing it as playing a pivotal role in realising their wider commercial aspirations across South Asia. In a clear sign of its intentions to secure greater collaboration with the country, China accounted for about 58% of all of Nepal's foreign direct investment pledges in the first half of the country's current fiscal year. Clearly keen to capitalise on this interest from two of Asia's superpowers, Nepal has introduced a number of new legislative measures designed to facilitate such investment, including the Industrial Enterprises Act, the Special Economic Zone Act and the Foreign Investment Policy.

As of December last year, Nepal's Ministry of Finance was said to be considering 12 further BRI-related development proposals. These include a number of major road, rail, hydropower, transmission line and communication projects, as well as plans for a spectacular railway link connecting Kathmandu, the Nepali capital, with Tibet.

Geoff de Freitas, Special Correspondent, Kathmandu