China has officially proposed that Nepal sign a letter of exchange in order to carry out a feasibility study of the Nepal-China cross-border railway.

The Chinese Embassy in Kathmandu sent a letter to the Ministry of Foreign Affairs in the third week of November—a letter also addressed to the Ministry of Finance—and sought the government’s approval for the accord’s signing.

But officials said that as Nepal needs to clarify several points with the Chinese side and as a new government is expected to be formed soon in Kathmandu, chances of such an agreement being signed immediately are slim. Despite strong reservations from the bureaucracy that Nepal needs to carefully study the proposal’s text, Finance Minister Janardan Sharma has been pressuring a senior finance ministry official to sign it before the formation of the new government.

“We intend to discuss it after the new government’s formation,” a senior official familiar with the developments said. “The file is closed until then.”

In accordance with the consensus reached between the two foreign ministers, the Chinese government said it would like to sign the letter of exchange on the feasibility study of the China-Nepal cross-border railway in Nepal, according to the letter sent by the Chinese Embassy to the government.

The Chinese side expected Nepal to sign the letter of exchange by November 25, 2022 but due to several points that Nepal needed to clarify with the Chinese side, it is unlikely to sign the deal that will pave the way for feasibility study, said multiple sources familiar with the matter. Nepali leaders and officials have been asking China to provide grants for the feasibility study of the much-touted project.

According to the letter, the total expenses for the feasibility study of the 72-km railway would be around Rs3.4 billion (180.47 million RMB).

Officials said that Beijing has agreed to provide grant assistance to carry out the project’s feasibility study but funding modalities for construction of the cross-border railway are yet to be agreed upon.

The project’s estimated cost as per the pre-feasibility study exceeds $3 billion and as per the Chinese model, it is going to be built on a loan, officials at the two ministries said, while adding that taking such a big loan before a cost-benefit analysis was highly risky.

“On the one hand, China has been keeping only the Kerung border point open for bilateral trade. Another trading point at Tatopani is in restricted use. Our bilateral trade with China via the two trading points is thus diminishing. In this context, we have to study the project’s long-term feasibility,” said the finance ministry official.

Bishnu Pukar Shrestha, Nepal’s ambassador to China, said that if Nepal and China signed the agreement through a letter of exchange, China will start deploying its technical manpower by December-end.

“During the August visit of Foreign Minister Narayan Khadka to China, it was agreed that the feasibility study of Nepal-China cross-border railway would be carried out with a Chinese grant. As per our request, now the Chinese side is ready to conduct the study. The Chinese side is waiting for our response,” said Shrestha.

Talking to the Post, senior officials at the ministries of foreign affairs, finance and physical infrastructure blamed each other for the delay in reaching the agreement.

The feasibility study mainly includes aerial survey and mapping, geological survey and mapping, special technical studies, on-site surveying and mapping, geological survey, construction condition studies, engineering studies, and feasibility study report preparation.

“The Chinese side shall be responsible for undertaking the feasibility study works after the exchange of letters of approval for launching this project by the Chinese government and the Nepali government,” the letter stated. The Chinese side will dispatch technical personnel to Nepal to carry out the feasibility study according to the agreed scope of work.

“Conducting six relevant technical studies includes evaluation on regional crustal stability, activity of active faults and seismic safety; evaluation on the influence of debris flow, landslide, and slope at tunnel portal among others,” said the letter.

On railway engineering, the Chinese side has proposed a study of main geological and engineering problems, application of “satellite-aerial- conventional” integrated railway and survey in extremely complex mountainous areas, and to study tunnel disaster, economy and traffic volume of the cross-border railway.

The earlier pre-feasibility study completed in 2016 by the Chinese companies stated that complicated geological terrain and laborious engineering workload would be the most significant obstacles to building a cross-border railway line linking the Chinese border town of Kerung with Kathmandu. The line, which has to pass through rugged high mountains, would involve orchestrating complex construction plans—raising questions about the viability of Nepal’s most hyped infrastructure project.

Following an agreement signed by Prime Minister KP Sharma Oli during his China visit in June 2018, the China Railway First Survey and Design Institute conducted a month-long technical study of the proposed 121-km railway from Kathmandu to Kerung via different alignments.

During the official visit of Chinese Foreign Minister Wang Yi to Kathmandu in March, the two sides signed an agreement related to the technical assistance scheme for China-Aid Feasibility Study of China-Nepal Cross-Border Railway Project.

Expenses for the feasibility study report and completion of the Chinese side of responsibility would be borne by the Chinese government, the agreement said.

Similarly, the Nepali side would be responsible for providing the Chinese side the project’s basic data, gathering information in line with the requirements and sharing it with the Chinese technical aid units.

The Nepali side would also be responsible for an environmental impact assessment and a resettlement plan required by the Nepali laws and regulations, and preparing the project pre-condition study report. Such reports would be reviewed and approved by the Nepal government in order to meet the needs of the feasibility study.

“The Nepalese side shall provide convenience for the Chinese technical aid unit to carry out the feasibility study works for the China-Nepal cross border railway project in Nepal, including but not limited to dispatching personnel to take charge of and ensure coordination of the project,” the letter added. “Providing safety guarantee for Chinese personnel working in Nepal, facilitating access roads, power and communication facilities for Chinese personnel to carry out works in Nepal.”

The Chinese companies and Chinese employees shall be exempted from income tax, stated the letter, allowing the Chinese side to use the ‘China Aid’ logo in appropriate locations and project documents. Kathmandu would bear the expenses incurred in undertaking Nepal’s responsibilities.

The total feasibility study expenses of 180.47 million RMB should be paid off under the grant assistance fund stipulated in the Agreement on Economic and Technical Cooperation between the governments of Nepal and China signed on August 15, 2017.

The Chinese side shall issue the debit advice in four parts via China Development Bank and Nepal Rastra Bank. The specific matters concerned shall be stipulated by a separate contract to be signed by the organisations designated respectively by the governments of Nepal and China, the letter added.