Editor’s Note: We are creating the BRI Notebook section to offer more quick-takes on developments or bits and pieces we have picked up in the Chinese media and cyberspace that may be of interest to our readers.
On March 26 this year, China’s Foreign Minister Wang Yi handed over a symbolic giant key to the Pokhara Regional Airport to his Nepali counterpart, Narayan Khadka. The airport, built by China CMAC Engineering, took about 8 years from proposal to completion, and was funded through a USD 216 million soft loan by the Export-Import Bank of China.
Recently, Dr. Zhao Liang of the Exim Bank’s Sovereign Business Department (Concessional Loan Department), responsible for Nepal and Sri Lanka, wrote a blogpost for Tsinghua University’s International and Regional Studies program, providing a first-hand account of his experience of the airport project as its lender. The personal account provides interesting details that would enrich the international debates about Chinese financing for the BRI. His vivid description shows his Nepali counterparts as tough and astute negotiators (not in a derogatory way) and depicts Chinese BRI actors navigating through Nepal’s complicated political and technical environment.
Zhao’s descriptions of the loan negotiation process are insightful and valuable to external observers. As the Exim Bank account manager for Nepal, Zhao followed the Pokhara Airport project through multiple stages, from due diligence to loan approval to construction and post-construction evaluation.
The first step he took before the loan negotiation was to visit then Chinese Ambassador to Nepal, Wu Chuntai, and the embassy’s Commerce Counselor Peng Wei. While Zhao’s initial visit to Pokhara already convinced him of the local need for a modern airport (the cramped old airport struggled to handle continuous landing of commercial flights), Ambassador Wu reminded him of the strategic importance of Pokhara in China-Nepal connectivity. At that time, the mountain town, Nepal’s second largest city, was linked to Gyirong in Tibet by road and played a key role in China-Nepal-India trade. Counselor Peng, meanwhile, alerted Zhao to the “toughness” of Nepali counterparts as negotiators.
Zhao experienced that toughness as soon as negotiations began in earnest in early summer 2014. His team was facing a Nepali delegation comprised of more than 10 Joint Secretaries and Under Secretaries of multiple government departments, who were “not too familiar with Chinese concessional loan procedures” and yet very competent with soft loan negotiations, with plenty of experience negotiating assistance from International Development Association. He describes the Nepali side as being sometimes “picky” with financing terms, often benchmarking Chinese offers with those of multilateral institutions and other bilateral donors, leading to rounds of back and forth between the two sides.
In the blogpost, Zhao expresses some amusement at how active the Nepali media were during the negotiation process. The proceedings of the negotiation, supposedly behind closed doors, constantly found their way into the local media, with some of his negotiation counterparts actively taking interviews and providing information to the public. Zhao expresses admiration for the “sharpness” of local media, which made him realize the tremendous public interest in the project.
The structure of the Pokhara Airport loan agreed
The concessional loan finally agreed upon by both sides consists of the following components：
– 25% of the loan is interest-free
– The remaining 75% carries an interest rate of 2% per annum
– Repayment period is 20 years with a 7 year grace period when no interest is charged
Nepali media reported before the final loan approval that China had indicated the possibility of converting the interest-free component to a grant in the future.
The final deal for the Exim Bank loan was reached in 2016, during Prime Minister KP Sharma Oli’s visit to Beijing. From that point onward, Zhao entered the “post-issuance inspection” phase and paid multiple visits to the construction site as a representative of the lender.
Zhao documented the interactions between the Chinese contractor and the Nepali side at the more technical level. He noted how Chinese technicians worked closely with Nepali teams and helped transfer technical know-how to the locals, often with the help of Nepali STEM students from Chinese universities serving as interlocutors between the Chinese contractor and the Nepali developer. Many were later hired by Nepal’s aviation authority, allowing some of the technical knowledge to be retained in the country.
He also took note of the issue of technical standards. CAMC applied Chinese technical standards in the construction of the airport but found it challenging to adequately explain them to the developer. This was not just an issue of language competency (although English skills on the Chinese side was a problem highlighted by Zhao), but more about making sense of the Chinese standards in comparison to international standards (Indian standards, in particular) in a convincing way to the Nepali developer and its engineering supervisors. In Zhao’s words, Chinese engineering firms still have a long way to go in competently “selling” Chinese standards to international clients, especially when it comes to laying out the relative merits of such standards. The promotion of Chinese standards in overseas projects is a major agenda item for the architects of the BRI, who see it as occupying a strategic commanding height paving ways for future project contracts.
As a policy bank executive, Zhao also experienced first-hand how a “comprehensive and integrated approach” is needed in driving the BRI forward. During one of his on-site inspection trips, he fell seriously ill and was lucky to receive medical care from a Chinese medical aid team nearby. The Chinese medical team, based in Chitwan, has been part of China’s foreign aid to Nepal since 1999 and played a key role in supporting Pokhara Airport construction. “Different parts of [China’s] overseas aid and investments can create synergy, a fundamental force for the success of the BRI,” he surmises.
The full blog post (Chinese only) is available to read HERE.