Nepal has sought India’s financial, technical and economic inputs and suggestions on the feasibility of the much-discussed Raxaul-Kathmandu cross-border railway. The railway aims to establish a direct link between the Indian border city with Kathmandu.

During the recent ninth Project Steering Committee (PSC) and seventh Joint Working Group (JWG) meetings last month in New Delhi that reviewed the implementation of ongoing cross-border railway links and overall bilateral cooperation in the railway sector, the Nepali side had sought Indian inputs on key elements for the construction of the 141-kilometer railway.

Indian company, Konkan Railway Corporation Limited, had completed the final location survey of the project and handed it over to Nepal in July, 2023.

As per the survey, the financial rate of return of the project is 4.81 percent while the economic rate of return is 14.3 percent. The low financial return has raised concerns, as it suggests a 25-year payback period, or it would take 25 years for the project to recover its costs.

“Nepal has now sought Indian perspective on the project’s viability,” Sushil Babu Dhakal, joint secretary at the Ministry of Physical Infrastructure and Transportation, told the Post. Dhakal had led Nepali side in the February meetings in New Delhi.

Of the total railway length, 42 km will be tunnels while 124 big bridges will have to be constructed, with 40 curves, according to the report. The railway will operate both passenger and cargo lines. Based on a 2019 survey report, 12 trains can run on the line.

“We are in a nascent phase in building the railway and we have little understanding of it,” said Dhakal. “On the other hand, we are also building an expressway to link Kathmandu with the southern plains, so in this context, we have asked the Indian side for technical insights.”

Nepal’s bank interest rates are higher than the project’s financial return, and this has raised concerns among officials. The estimated cost of the project is over Rs400 billion, which includes the cost of land acquisition, and this cost is expected to rise due to inflation, among other things.

The average rates in Nepal vary from bank to bank, but loans are issued at rates above 10 percent, while the borrowing rate (the rate at which banks borrow funds from the central bank or other financial institutions) is around five to six percent.

“As the project’s financial rate of return is less than the banking rate, we are a bit concerned about its viability,” a Nepali official said.

While submitting the report, the Indian company Konkan Railway had outlined that the project cost would exceed Rs400 billion including the cost of land acquisition. But construction cost will be higher still at the time of execution due to multiple factors.

Land acquisition is expected to be completed in two years. The final local survey has suggested four different route options with different alignments, lengths, costs, and geology. The report was also handed over during the official visit of former prime minister Pushpa Kamal Dahal to India in May-June 2023.

The government of Nepal is responsible for land acquisition and facilitating railroad construction. When the initial study was carried out, the project’s estimated investment was around $2 billion, but due to inflation and rising costs of construction materials, the estimate has gone up by $1 billion.

Konkan Railway has proposed that the line be based on a broad-gauge system, which impacts the speed of the train. In standard gauge systems, the speed can be up to 350 km per hour, while in broad gauge, the maximum speed is only 160 km an hour.

Citing the final location survey, Nepali officials said the railway has been designed to operate at a maximum speed of 120km an hour.

After receiving the survey report from Konkan Railway, Nepali officials went through it and made some recommendations. In line with the feedback from various government agencies, the Nepali side has sought clarity on certain aspects.

“The financial and economic rates of return are just numbers and they can be adjusted,” said Rohit Bisural, former director general of the Department of Railway.

“The government’s role is not to make profit but to evaluate the project’s broader socio-economic aspects. The key question is whether the project will generate secondary benefits. We know that running passenger trains alone would be a loss making business. So we have to add cargo services, which will make the project more viable,” said Bisural.

A major indirect benefit is that Nepal could get cheaper products from India and third-country imports via Indian ports, said Bisural.

“Geopolitics also plays a role. Operating a railway is not like running a bus, truck, or taxi. It has strategic implications.”

Nepali officials are also considering whether the railroad’s length and construction costs can be reduced.

The proposed line will start from Raxaul and pass through Jitpur, Nijgadh, Sikharpur, Sisneri and Sathikhel, before reaching Chobhar in southern Kathmandu.

The final location survey is like a detailed project report, but further revisions will be made to it by factoring in Nepali concerns.

Both sides have yet to thrash out key issues including the funding modality, and India’s role in construction. In October 2021, the two countries had signed another MoU to prepare the final location survey during the Fifth Joint Working Group and the 7th Project Steering Committee meetings in New Delhi.

“Both India and China are positive about supporting Nepal’s railway infrastructure. Therefore, for this particular project, the government should build consensus by taking opposition parties into confidence. It has been two years since we received the report, but we have done nothing,” said Bisural.

During the recent meetings in New Delhi, according to India’s Ministry of External Affairs, the two sides discussed the progress on Jayanagar-Bijalpura-Bardibas and Jogbani-Biratnagar broad gauge railway lines, which are being developed with Indian grant.

“The preparedness for the commencement of work on the remaining sections of the two railway lines i.e. from Bijalpura to Bardibas on Jayanagar-Bijalpura-Bardibas and Nepal Custom Yard to Biratnagar on Jogbani-Biratnagar was also reviewed. The Nepali side assured that necessary facilitation will be provided for early commencement and completion of the work on the remaining sections of the railway lines,” said India’s Ministry of External Affairs.

The final local survey report for the Raxaul-Kathmandu broad gauge link, standard operating procedures (SOPs) for the commencement of passenger train services on the Janakpur-Ayodhya section, and additional railway links were also discussed, said the Indian statement.

“The Indian side had insisted that we link the current cross-border railway between Janakpur with Ayodhya,” said Dhakal quoting Indian officials. “Just last year, over 100 million people visited Ayodhya, and even if a fraction of them go to Janakpur, it would be a huge number.”

Both sides agreed to enhance technical cooperation in the railway sector, including in the areas of capacity building, logistic support and training of Nepali railway personnel.

On the sidelines of the JWG and PSC meetings, the Nepali delegation also visited Indian Railways Institute of Transport Management (IRITM), Lucknow and Ayodhya to explore the training of railway personnel and officials from Nepal.