Train of thought

  • Political considerations have lent their weight to the railway propositions rather than thorough appraisal and hard facts
- Dr. Ram Sharan Mahat

Apr 17, 2018-In his recent address to the Federation of Nepalese Chambers of Commerce and Industry, the Prime Minister called upon the business community to prepare for the production of large volumes of export goods so that the recently announced Birgunj-Kathmandu railway containers do not return empty.

While the concern about the one-way traffic that characterises Nepal-India trade flow is understandable, it also shows the nature and quality of decision-making even with respect to a mega project that has the potential to become a flagship bilateral engagement. Driven politically, the dream project has apparently been declared with no questions asked: Is this a priority need? What is the cost-benefit scenario? Is the technology appropriate? Can it be executed and sustained financially and managerially?

Minimum necessity

This strategic railway link between Raxaul and Kathmandu was announced through a joint statement during PM Oli’s recent visit to New Delhi. The stated objective is to “enhance people-to-people linkages and promote economic growth and development.” Presumably, this will happen through increased flow of trade and tourism. The preparatory survey for the electrified rail link will be completed within one year, followed by the finalisation of funding modalities based on a detailed project report.

In normal circumstances, one would expect, as a minimum necessity, a preliminary appraisal about the socio-economic costs and benefits, as well as the strategic implications even before a formal technical study is initiated. Nepal’s first highway, popularly known as the Byroad, connected Kathmandu with Birgunj in 1956 and was built with Indian assistance. A railway project involving the same terrain and actors, over 60 years later, reflects romantic nostalgia that has attracted popular attention. However, very little is known so far about the existing and projected estimates of human and cargo movement on the existing and planned rail and roadway networks. 

Kathmandu’s potential

Kathmandu is the national capital whose strengths rest on its international contacts, natural beauty, cultural assets, and religious heritage. The myths and legends that encompass daily life and traditions in the Valley, its colourful festivals, and unique architecture have tempted millions of tourists from all over the world to visit over the past seven decades. However, rampant urbanisation is denuding Kathmandu’s charm with unmet infrastructure needs, congestion and pollution. The Valley’s economic potential always lies more in the light-touch services sectors that help preserve its culture and art, while building up skilled human capital. 

Kathmandu’s fertile lands have given way to urban sprawl and a massive import of food. As for industrial production, there exist a few enterprises and the likelihood of Kathmandu Valley becoming an industrial hub with mass production of tradable merchandise is remote. Nepal’s industrial belts and corridors lie largely in the Tarai where special economic zones are being planned. Indian railway connection with Nepal’s economic centres like Birgunj, Biratnagar, Bardibas, Bhairahawa, Nepalgunj and Mechi are already under execution with Indian assistance to facilitate a smoother flow of human and cargo traffic. Prospects of railway containers leaving the Chobhar gorge in Kathmandu, laden with manufactured and agricultural produce, are therefore dim. Even today, most in-bound cargo trucks to Kathmandu return empty. 

Multiple modes and load factor

The British connected Himalayan towns like Shimla and Darjeeling to the Indian rail network well over a hundred years ago. Kathmandu-Tarai linkage through quality transport corridors is, therefore, long overdue. Such corridors would reduce trading time and cost, provide a swifter access to sea, and mitigate handicaps imposed by Nepal’s situation as a landlocked country. It is for this reason that the country has accorded high priority to the Kathmandu-Nijgadh expressway (fast-track), a billion dollar project being publicly funded by Nepal’s own resources. Other projects aiming to better link Kathmandu with the central Tarai include the Kanti Rajpath to Hetauda, upgradation of existing highways including Narayangadh-Mugling, and the Japanese-assisted Nagdhunga Tunnel. The scenic BP Highway already halves travel time to Bardibas from the Valley. In addition, there is a private sector tunnel road plan to link the Capital with Hetauda. Questions can obviously be raised about the economic utilisation of the proposed railway together with these highways. Simultaneous development of multiple transportation modes for the same destination can be justified only when backed by a demand and load factor. 

Although a detailed technical study is yet to be prepared, a rule of thumb suggests that the proposed Raxaul-Kathmandu railway could cost between $2-3 billion. Questions will naturally arise about the economic justification of this mammoth investment in addition to ongoing large scale road investment connecting the capital city to the same region. This is ironic in a situation when the lack of a basic all-weather road is obstructing the development potential of a large part of the countryside.

Geopolitical imperative

Political and strategic considerations seem to have lent their weight to the railway (and waterway) propositions. This could be in response to the proposal of extending the Shigatse-Kerung railway in China all the way to Kathmandu, which has been one of PM Oli’s electoral planks, especially after the blockade on the Indo-Nepal border in 2015-2016. The Indian media is paranoid about the “growing Chinese influence” in Nepal. Historically, the British offer to connect the Indian rail network with interior parts of the country was spurned by the protectionist policy of Nepali rulers. In the new context, railway links from the Capital to both northern and the southern parts of the country reflects Nepal’s foreign policy of balance, neutrality and co-existence. But in the absence of a thorough techno-economic appraisal, there is room for caution. Both proposals are technically complex in view of the difficult geography, limited reverse cargo traffic, security, and other unforeseen implications that will add up costs and strain managerial competence. No serious study covering the techno-economic and other aspects including traffic volume in relation to existing and planned roadways has been undertaken with regard to a railway connection to the northern border either.

Debt trap risk

The most important concern relates to project financing. In view of other higher priority demands on the state budget, the high-cost railway projects connecting India and China will largely have to be funded by the respective neighbours. But will the funding be in the form of grants, or loans? If it is granted as a gift with no debt burden, it will be welcome. But recent trends in bilateral aid from emerging economies point more towards loan financing for capital investment from sources like the Exim banks, whose interest rate, terms and tenure of repayment, and procurement conditions are less favourable than those of traditional international financial institutions such as the World Bank and Asian Development Bank.

Already, indebtedness has become a prominent casualty of South-South aid, once seen as a benign alternative to the Organisation for Economic Co-operation and Development (OECD) paradigm of official development assistance. From Sub-Saharan Africa to Latin America, and Pakistan to Sri Lanka, debts incurred on politically-driven projects have begun to haunt and bite. For example, the 

$1.3 billion Sri Lankan maritime port of Hambantota, built with Chinese loans, has recently been handed over to a Chinese company for 99 years because of insolvency arising directly from under-utilisation.

Generally, sound fiscal management and careful selection of projects for multilateral and bilateral loans in the past has kept Nepal’s debt servicing obligations within the limits. The country still requires generous support from neighbours and other donors for economic development, particularly to upgrade our infrastructure throughout the country for regional balance and to utilise the nation’s resource endowment. A number of projects in hydro-power, irrigation and river control, international airports, expressways and other connectivity-related projects are either already under implementation or seeking funds. The need of the hour is timely execution of these projects and careful prioritisation of others in the face of competing demand. This must be based on socio-economic rationale and take into consideration equity and sustainability. When resorting to external debt, careful economic appraisal including payback potential is necessary.

No country advances without bold vision and ambitions. But these must be based on thorough appraisals and hard facts, not on emotions of populist whim and fancies.

Mahat is a former Minister of Finance

 

Published: 17-04-2018 07:02

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