KATHMANDU: The 750-megawatt West Seti Hydropower Project, a critical Nepali hydroelectric asset, has become the focal point of a protracted, undeclared geopolitical struggle between China, the world’s second-largest economy, and neighboring India. Despite both major powers repeatedly expressing keen interest in its construction, the project’s development has been consistently thwarted by the rivalry.

The story of West Seti began in the 1990s. Initially, Australia’s Snowy Mountain Engineering Corporation (SMEC) was given the responsibility of building this project.

After SMEC failed to construct it, Nepal canceled the agreement with the company. Subsequently, in 2011, this project was handed over to the Chinese company, China Three Gorges Corporation. Unfortunately, Three Gorges was also unable to move it forward. Like SMEC, Three Gorges held West Seti in vain for a long time.

After the agreement with Three Gorges was canceled, the project was again handed over three years ago during the tenure of the then Prime Minister Sher Bahadur Deuba to India’s National Hydro Power Corporation (NHPC).

It has become a cycle of handing over attractive but unbuildable power projects to foreigners. West Seti is one such example. An agreement was signed between the Investment Board and India’s NHPC in Kathmandu on August 18, 2022, in the presence of then Prime Minister Deuba. At that time, NHPC was also given the survey permission for the Seti-6 Hydropower Project along with West Seti. However, the construction of West Seti, which has passed from Australia’s SMEC to China’s Three Gorges and recently to India’s NHPC, is still not certain.

Fierce competition in hydropower

Perhaps because the market is towards India, large hydropower projects are in the hands of Indian companies. For example, the 900-megawatt Upper Karnali Hydropower Project was given to the Indian company GMR Group some 11 years ago. More than a decade has passed since the Project Development Agreement (PDA) to construct Upper Karnali was signed between the Government of Nepal and GMR. But there is no progress in the construction of Upper Karnali.

This is repeated: More than a decade has passed since the Project Development Agreement (PDA) to construct Upper Karnali was signed between the Government of Nepal and GMR. But there is no progress in the construction of Upper Karnali.

Due to geopolitics, the decision regarding the Budhigandaki Hydropower Project seems to swing between being given to a Chinese company and being taken back.

GMR is still struggling hard to secure investment for this project, which is estimated to cost approximately Rs 150 billion. Upper Karnali is the largest and potentially most profitable hydropower project in Karnali Province. It is projected to take about seven years to build once investment is secured and construction begins immediately. However, even after about 20 years, neither GMR has withdrawn from the project nor has Nepal canceled the agreement.

Another hydropower project that has been stalled for a long time due to geopolitical entanglement is the Arun III Hydropower Project. The 900-megawatt Arun III was a victim of futile debate for a long time. Eventually, India’s Satluj Jal Vidyut Nigam was given the responsibility to construct this project.

The Arun Third Hydropower Project, currently under construction in Sankhuwasabha, is called the ‘flagship’ project between Nepal and India. Its foundation stone was laid on May 11, 2018, during the visit of Indian Prime Minister Narendra Modi to Nepal. At that time, Modi and the then Prime Minister KP Sharma Oli jointly pressed a switch at the Dwarka Hotel in Kathmandu to lay the foundation stone for Arun III. Following the laying of the foundation stone, a picture of Oli and Modi embracing was even made public. The construction cost of Arun III, being built with Indian investment, is Rs 104 billion.

Initially, China also showed interest in investing in Arun III. In 2014, Chinese companies sent a proposal to the Government of Nepal expressing their desire to invest in Arun III. However, Arun III was not given to the Chinese companies. According to water resources expert Ratna Sansar Shrestha, it was initially planned to build this project with investment from the World Bank.

At that time, China was said to build this project at USD 5,300 per megawatt. Claiming this cost was extremely high, the World Bank withdrew from the project. After that, Nepal proposed giving the project to a Chinese company. But instead of China, it was again handed over to India. Shrestha says, “The reason India got this project instead of China is geopolitical. Because India has its petty interests vested in it.”

The fact is that even though China has shown interest in Nepal’s energy development, the Chinese presence in Nepal’s water and hydropower sectors is still not significant. So far, the only power project built with Chinese investment is the 50-megawatt Upper Marsyangdi. According to the Department of Electricity Development, besides this, the power projects for which Chinese companies have received licenses have either been withdrawn or construction has not even started.

Due to geopolitics, the decision regarding the Budhigandaki Hydropower Project seems to swing between being given to a Chinese company and being taken back. The technical projection for Budhigandaki is to produce 1,200 megawatts of electricity.

During the time of the then Prime Minister Pushpa Kamal Dahal and Energy Minister Janardan Sharma, the Budhigandaki Reservoir Project was given to China’s China Gezhouba Group Corporation (CGGC) on June 4, 2017.

The prime minister who succeeded Dahal, Sher Bahadur Deuba, canceled the agreement with CGGC, and the subsequent prime minister, KP Sharma Oli, again gave Budhigandaki to CGGC. Most recently, the Council of Ministers led by Deuba revoked the previous government’s decision to allow CGGC to build Budhigandaki on April 7, 2022.

The conceptualizer of the Budhigandaki Reservoir Project was the then Prime Minister Baburam Bhattarai. He had announced that Budhigandaki would be built with Nepal’s internal resources. However, neither was Budhigandaki built with the country’s internal resources as per his announcement, nor was it possible to attract foreign companies to the project.

Another hydropower project that Nepal gave to a Chinese company is the Tamor Reservoir Hydropower Project. An agreement was made for the 756-megawatt project to be built by the Chinese company Power China. However, land management for starting the project has not been arranged. Arun Subedi, a water resource expert and geopolitical analyst, says, “Nepal’s geography has become a weakness for India and a bonus for China. Against this backdrop, China and India have been positioning themselves in Nepali infrastructure.”

Indeed, agreements on energy and electricity trade have been signed between Nepal and India in a way that is more favorable to India than China. The agreement signed between the then Energy Secretary Gopal Prasad Sigdel and India’s Energy Secretary Pankaj Agrawal at Singha Durbar on January 4, 2024, determined that India would purchase 10,000 megawatts of electricity produced in Nepal over the next 10 years.

This not only facilitates India geographically in taking electricity from Nepal but also helps maintain its monopoly over Nepal’s electricity. Electricity trade between Nepal and India is easier compared to China. According to Nepal Electricity Authority data, Nepal exported electricity worth Rs 17.19 billion to India in the last fiscal year. India’s stance of not purchasing electricity generated from Nepali hydropower projects if a third country invests in them has alarmed China.

Although Nepal has an estimated 83,000 megawatts of electricity generation capacity, the feasible capacity is only 43,000 megawatts. Meanwhile, only 3,600 megawatts of electricity are currently produced. While the potential is good, the first fault for the failure to produce energy accordingly lies in the country’s policies, concentration, and lack of hard work; the competition between China and India has become a serious challenge.

Every government is plagued by the fear that pleasing one neighbor will provoke the other. Deepak Bahadur Singh, Chairman of the dissolved House of Representatives Infrastructure Development Committee, says, “Due to the vested political interests of our leaders, an unhealthy struggle and competition between China and India have ensued in Nepali infrastructure development.

The pulling and maneuvering of neighbors in national infrastructure have increased the risk of our development falling behind, and this must be stopped.”

Tug-of-war in railways

Apart from hydropower, a fierce struggle between China and India is also seen in railways. However, the geopolitical rivalry shown by the two neighbors in expanding railways in Nepal has yielded no results so far. Whether Nepal needs a railway and whether the country can sustain the railways that India and China seek to bring have not been independently studied. Moreover, the country’s old railway service (Jayanagar-Janakpur) is also running at a loss. In such a situation, both neighbors are in a race to run trains from the north and the south.

Six years ago, during the visit of Chinese President Xi Jinping to Nepal, an agreement was first reached to conduct a pre-feasibility study for the Kerung-Kathmandu railway.

According to that agreement signed between China and Nepal on June 21, 2018, the pre-feasibility study for the Kerung-Kathmandu railway has been completed with Chinese assistance, and the feasibility study is said to be completed within the next year.

In this year’s budget, the former Finance Minister Bishnu Prasad Paudel announced the preparation of the Detailed Project Report for that railway. Since the government led by CPN (UML) Chairman KP Sharma Oli, in which Paudel was a participant, has been dissolved, the implementation of that announcement is not certain.

Running a train from Shigatse via Kerung to Kathmandu is an old proposal of China. This ambitious project is estimated to cost more than Rs 450 billion. The source and constructor of this railway have not been finalized. Nevertheless, there is no shortage of people who are enchanted by the dream of the Chinese railway, whose pre-feasibility study has been completed.

Even before the Chinese train to Kathmandu is finalized, the southern neighbor, India, is also eager to extend the Raxaul Indian railway line to Kathmandu. Eight years have passed since India announced the expansion of the Raxaul-Kathmandu railway line. But there is no concrete progress in this either. So far, only the final location survey for the Birgunj-Kathmandu railway line has been conducted with Indian assistance. This railway is estimated to cost Rs 383 billion. But the source has not been finalized yet. The then Prime Minister KP Sharma Oli claimed on January 6, 2019, that the two neighbors (India and China) were actively expanding railways in Nepal.

After the Kodari Highway opened, King Mahendra welcomed China’s assistance, saying, “Communism will not arrive on a taxi.”

Oli informed the Parliament that an agreement had been reached with China to conduct a pre-feasibility study for the railway line from Kerung-Kathmandu and Kathmandu-Pokhara to Lumbini and stated that India had agreed to prepare the DPR for the Raxaul-Kathmandu railway line. Oli went as far as asserting that the Kerung-Kathmandu and Raxaul-Kathmandu railways would connect Nepal with China and India and that the train would be extended to Pokhara. However, there has been little progress in the construction of railway lines from both sides, contrary to Oli’s statements.

India appears to be slightly ahead of China in terms of railways. For example, India has already extended the Jayanagar-Janakpur railway line to Bhangaha in Mahottari. It should be remembered that the Jayanagar-Bardibas railway line is being constructed with India’s financial and technical assistance.

Rivalry in roads, the old story

China and India were competitors in the construction of Nepal’s roads and highways, and that competition is still ongoing. What is interesting is that there is a rush between them to build Nepali roads near their respective borders.

China has invested in the construction of the Galchhi-Trishuli road. Similarly, Chinese interest is also seen in the construction of roads in the Kaligandaki and Karnali Corridors. China has announced that it will construct the section of the Koshi Corridor that connects to China.

The Kodari Highway, which connects the Tatopani border with China, was built with Chinese assistance. The Kodari Highway is considered the first road built with Chinese assistance. After the Kodari Highway opened, King Mahendra welcomed China’s assistance, saying, “Communism does not arrive by taxi.”

Construction of the Kodari Highway, which began in 1963, was completed in 1967. However, the condition of that road is dilapidated due to a lack of expansion and maintenance during this period.

India, on the other hand, has provided financial and technical assistance for the construction of Nepal’s east-west connecting Mahendra Highway, the Postal Highway near the Indian border, and the Madan Bhandari Highway in the mid-hill region. Recently, India has been involved in the construction of the Jogbani-Dharan section of the Koshi Corridor road.

The Jogbani-Dharan section is being built with India’s financial and technical assistance, and the Nawalparasi and Palpa sections of the Kaligandaki Corridor road are also being built with Indian assistance. India is also active in the expansion of the Postal Highway and the East-West Highway in the Madhes region.

The competition between the two countries in road construction is old. During the Panchayat era, the government awarded the contract to China to build the 204-kilometer Kohalpur-Banbasa section of the East-West Highway. However, India expressed serious dissatisfaction, claiming that China’s access would increase in its border area.

Due to Indian pressure, the contract awarded to China through the open tender process was canceled. Following this, India itself constructed that road with its own investment. Harish Chandra Mahat, the then Transport Minister of the Panchayat, was forced to resign over the Kohalpur-Banbasa road section construction incident, which was affected by geopolitical pressure.

Adani at the airports!

The rivalry between China and India in Nepali infrastructure is also evident in the country’s airports. The Gautam Buddha International Airport in Bhairahawa and the Pokhara International Airport have become shadows of the neighbors’ unhealthy competition.

India is not satisfied with China’s investment and involvement in the construction of these two airports. Therefore, a ‘silent war’ has been going on between India and China regarding the two airports.

Pokhara International Airport was built with a loan of about USD 215 million, taken by Nepal from China’s Exim Bank. Bhairahawa Airport, however, was built by a Chinese contractor with a loan from the Asian Development Bank.

Four years have passed since the completion of the Gautam Buddha International Airport in Bhairahawa. However, regular international flights have not been possible yet.

The Civil Aviation Authority of Nepal has written to India requesting the availability of an air route for aircraft to land in Bhairahawa even with low visibility. However, India has not provided an air route to Bhairahawa, citing security reasons. Gyanendra Bhul, Deputy Manager and Information Officer of the Authority, says, “If India granted permission, aircraft could land in Bhairahawa with visibility of about 550 meters.

But despite many attempts, permission was not obtained. Therefore, aircraft landing is possible in Bhairahawa only with 900 meters of visibility.”

Regular international flights have not been able to start from Pokhara either. To what extent is this true? The income of Pokhara Airport cannot even pay the interest on the Chinese loan taken to build the airport. The weakness of the policymakers is not the only factor here; the competition between the two countries is also responsible.

Pokhara International Airport was completed in 2023. It was built by the Chinese construction company CAMCE with a concessional loan from China. Immediately after the completion of construction, China claimed Pokhara Airport as a BRI project, which further agitated India. Indian media was flooded with negative comments about Pokhara Airport. This is the first time that China has been directly involved in building an international airport in Nepal.

Due to the geopolitical squeeze, the government, during the tenure of the then Prime Minister Pushpa Kamal Dahal, was preparing to hand over the management of Pokhara, Bhairahawa, and Tribhuvan International Airport to an Indian company.

There were preparations to entrust the management of all three of Nepal’s international airports to the Indian industrial house, Adani Group. Discussions regarding this were held between the then Finance Minister Prakash Sharan Mahat and Gautam Adani, Chairman of the Adani Group, who attended the ‘Vibrant Gujarat Global Summit’ held in Gujarat, India, on January 10-11, 2024.

The discussion between Mahat and Adani was about giving the Adani Group the management of all three of Nepal’s international airports and the construction of an international airport in Nijgadh.

Mahat himself revealed this fact to the Indian media. The Adani Group showed interest in investing in Nepal’s airports and energy sector with Mahat. However, that attempt to bring Adani to Nepal has not yielded results.

Gyanendra Bhul, the Information Officer of the Civil Aviation Authority of Nepal, says that informal discussions were held in many stages regarding the proposal to give the Adani Group of India the responsibility of managing all three international airports, but a conclusion could not be reached.

He says, “Many informal discussions were held with the Adani Group. But no policy decision has been made yet, and a conclusion has not been reached.”

Nepal continues to bear the weight of geopolitical maneuvering as India and China vie for influence through major infrastructure projects. Their strategic rivalry across energy, railways, highways, and airports shows little sign of easing.

Former House Infrastructure Committee Chair Singh warns that Nepal’s development agenda is being compromised by political actors who align themselves with one neighbor or the other for personal gain. “When leaders prioritize foreign interests over national priorities, our infrastructure becomes a battleground rather than a backbone for progress,” he said.