China got a big contract. Nepal got debt and a pricey airport

Pokhara, Nepal: On a sweltering June morning, the new international terminal at the airport in Pokhara, Nepal’s second-biggest city, roared to life with the arrival of a Sichuan Airlines flight from China.

A water cannon showered the plane, an Airbus A319, the first international flight to land at the airport since it had opened six months earlier. A throng of people gathered in the arrival area to greet the passengers, wishing them a “hearty welcome” to “the Land of Everest” with their signs.

These maiden arrivals were athletes and Chinese officials who had come for a goodwill dragon boat race. Their flight had been chartered and funded by Beijing. Like almost every other facet of the airport, even the first batch of international passengers had relied on China’s favor.

The celebration masked an unsettling reality: The expensive airport, built largely by Chinese companies and financed by Beijing, was a diplomatic victory for China and a windfall for its state-owned firms. For Nepal, it was already an economic albatross, saddling the country with debt for years to come.

Nepal had sought to build an international airport in Pokhara since the late 1970s, hoping that it would catapult the city into a global tourist destination. But the project had stalled for decades, mired in political turmoil, bureaucracy and money problems, until China stepped in.

The airport was part of China’s ambitions to establish its own sphere of influence as an alternative to American hegemony. To China, few developing nations offered the geopolitical allure of Nepal, its neighbor to the south with close ties to India, an emerging rival for regional dominance.

After the airport’s construction, Beijing began declaring that it had been part of the Belt and Road Initiative, Chinese President Xi Jinping’s signature infrastructure campaign, which has doled out an estimated $1 trillion in loans and grants around the world. This designation, which Nepal has quietly rejected, has thrust the airport into the middle of a diplomatic tug of war between China and India.

As dozens of countries, including Nepal, gather in Beijing this week for the 10th anniversary of the initiative, China’s overseas development projects are facing criticism for costly and poor-quality construction that leaves borrower nations awash in debt. The Pokhara airport highlights the pitfalls for countries that import China’s infrastructure-at-any-cost development model, which spins off money for Chinese firms, often at the expense of the developing country.

In Nepal, China CAMC Engineering, the construction arm of a state-owned conglomerate, Sinomach, imported building materials and earth-moving machinery from China. The airport, built to a Chinese design, is packed with security and industrial technology made in China. Chen Song, China’s ambassador to Nepal, said it “embodied the quality of Chinese engineering.”

But an investigation by The New York Times, based on interviews with six people involved in the airport’s construction and an examination of thousands of pages of documents, found that China CAMC Engineering had repeatedly dictated business terms to maximise profits and protect its interests, while dismantling Nepali oversight of its work.

This has left Nepal on the hook for an international airport, at a significantly inflated price, without the necessary passengers to repay loans to its Chinese lender.

Signing Off on a 20-Year Loan

Set in the foothills of the Himalayas, Pokhara is a picturesque destination for tourists drawn to Nepal’s natural beauty. On a clear day, three of the world’s 10 tallest mountains are visible from the city, making it a hub for trekkers in the Annapurna mountains.

In 2011, a year before China officially agreed to lend the money for the airport, Nepal’s finance minister signed a memorandum of understanding to support CAMC’s proposal, before any bidding process had even started.

The Chinese loan agreement allowed only Chinese firms to bid on the work. CAMC’s winning bid of $305 million, almost twice what Nepal had estimated the airport would cost, raised the ire of some Nepali politicians, who called the price outrageous and the bidding process rigged. CAMC then lowered the price about 30 per cent, to $216 million.

China and Nepal signed a 20-year agreement in 2016; one-fourth of the money would be an interest-free loan. Nepal would borrow the rest from the Export-Import Bank of China, a state-owned lender that finances Beijing’s overseas development work, at 2 per cent interest. Nepal agreed to start repaying the loans in 2026.

Construction started a year after the loan deal.

In 2018, Murari Gautam was one of the first engineers and outside consultants brought on to help the Civil Aviation Authority of Nepal oversee the Chinese contractor. He had worked abroad for much of the preceding decade in Saudi Arabia and in Qatar, where he served as an engineer building the soccer stadiums for the 2022 World Cup.

Gautam, an outgoing man with an easygoing personality, said being hired for the airport had been special because it was a big project for his home country and it was in the city where he had gone to high school.

Upon starting work, he immediately noticed red flags. Nepal’s aviation agency was supposed to have teams of domestic and international experts as consultants, critical for a project of this magnitude, he said. But key roles were vacant, and the positions that were filled relied on recent college graduates with almost no experience.

The initial construction budget had earmarked $2.8 million for Nepal to hire consultants to make sure CAMC was abiding by international construction standards, according to documents. As the project went on, the Chinese firm and Nepal lowered that allocation to $10,000, using the money elsewhere.

Gautam said that CAMC had started work before any consultants were in place and that the work CAMC had done did not meet international standards. CAMC completed earth-filling work for the 8,200-foot runway, but it had no documentation that it had tested the soil density. Gautam said no one on the Nepal side “knew how the foundation of the runway was built.” Without proper soil density, the runway could become bumpy or littered with cracks and potholes in the future.

There were other problems, he said. CAMC designed the airport drainage system without taking into account historical rainfall data in locations across Pokhara and the sloping topography near the site, forgoing a standard practice in international construction.

Without such considerations, Gautam said, the airport was at risk of flooding during heavy rains. There was also no paperwork ensuring the quality of Chinese-made building materials or information on the Chinese vendors providing the components, he said, contrary to the stipulations in CAMC’s contract with Nepal.

Gautam said he had pressed CAMC for additional information or documentation. But CAMC sidestepped the consultants to deal directly with aviation agency officials, who were reluctant to push back and had little construction experience, he said. In November 2018, CAMC sent a curt letter to the Nepali agency with a warning that the project would be delayed because of “unnecessary revisions” from Nepal’s consultants.

That month, Gautum resigned in frustration after a year on the job. He said that in his experience, it was not unusual for contractors to try to cut corners to maximise profits, but that he was stunned because there had been “no oversight at all” from Nepal. As a result, he said, the contractor was able to inflate the cost of the project — to double the market rate, by his estimate — and “quality had been compromised.”

Krishna Paudel, an engineer at the aviation authority, said that the agency had maintained a “satisfactory” working relationship with CAMC and that its staff, as well as outside consultants, had provided oversight. He said there had been occasional misunderstandings over language and design standards and acknowledged that CAMC “never budges from its stance.”

CAMC squeezed more money from the project while eliminating oversight. China’s Export-Import Bank, which had provided the loan, had appointed China IPPR International Engineering, a consulting firm, to track the quality, safety and timetable of the construction while ensuring that Nepali officials were satisfied with CAMC’s work.

The consulting firm and the construction company are subsidiaries of Sinomach, a machinery giant ranked in the Fortune Global 500. The potential for conflicts of interest became even more pronounced in 2019 when CAMC acquired IPPR, turning it from a sister company into a direct subsidiary. The fees to pay IPPR came from Nepal, as part of its loan from the Chinese bank.

Jacky Zhao, who was IPPR’s deputy team leader on the project, said his bosses in China had told him not to scrutinize CAMC’s work too closely.

“We were told that our job was only to make sure that the project produced an airport and not a chicken farm,” he said. The words for airport and chicken farm sound similar in Mandarin.

Zhao said IPPR had falsified documents to the Chinese bank about the resumes of its workers in Pokhara. Wang Hui, Zhao’s wife, who was also employed by IPPR as an accountant, said someone had fabricated her credentials using fake certificates. A copy of her college diploma was altered to show that she had majored in financial management, but she had actually majored in Chinese language and literature.

In August 2022, IPPR dismissed Zhao and Wang for failing to follow instructions to return to China. They said the company had retaliated after they filed complaints about $11,000 in unpaid expenses.

CAMC and IPPR did not respond to multiple emails and messages seeking comment about their work at the Pokhara airport.

A Fatal Crash and a ‘Big Manager’

In late 2022, as the project neared completion, Zhu Zhanfeng, the contractor’s project site manager, was feeling boastful. He said in an interview that Pokhara would have “the first modern airport in Nepal” that adhered to the “Chinese standard.”

There was no mention of the fact that three years earlier, Zhu had struck and killed a pedestrian in Pokhara after a night of drinking. According to a police report, an officer at the scene suspected that Zhu was drunk when he struck Deu Kumar Tamang, who was walking in a crosswalk around 11 p.m. on July 2, 2019, with his Toyota Hilux, a pickup truck. Tamang died on impact from “blunt force injury to the abdomen,” according to the autopsy.

Shortly after the crash, CAMC approached Tamang’s family to offer 1 million Nepali rupees (about $7,500) as compensation, according to the victim’s brother, Nabin. When the family refused, a CAMC employee told his family that Tamang was “already dead” and that “you might as well settle,” Nabin said.

Then, CAMC offered to double the payment and grant the family space to open a coffee shop inside the new airport. The family, who live in a shack in a rural mountain village, accepted the offer. CAMC said it would pay only after Zhu was released from prison.

“Killing someone is a serious crime,” Nabin said. “They treated this like a minor business transaction.”

When the case went to trial, Zhu’s lawyers argued that Tamang had been drinking and that he “himself came to hit the car and the car didn’t hit the deceased,” according to court filings. His lawyers added that Tamang’s family had “already received last rites expenses.” Zhu said that he had consumed one beer earlier in the night and had been driving carefully when he struck Tamang.

Zhu was found guilty of committing a “traffic death” and sentenced to four months in prison — less than the maximum one-year sentence for that offense. He made bail after serving 50 days. He avoided the more serious charge of vehicular manslaughter, which carries a prison sentence of up to 10 years.

When contacted by the Times, Zhu said it was “inconvenient” for him to discuss the incident and asked that all further inquiries be directed to the Chinese Embassy in Nepal, which did not respond to an email seeking comment.

Zhu appealed the four-month sentence to Pokhara’s High Court, which ruled in his favor and determined that neither alcohol nor careless driving had played a role in the death. In February 2021, it reduced Zhu’s sentence to time already served.

Nabin Tamang said CAMC and Nepali authorities had received the outcome he believed they wanted: no interruptions in airport construction.

“The driver is a big manager who handled most of the airport work, and they wanted him released quickly,” he said. CAMC stopped answering his phone calls asking about the coffee shop once Zhu was released.

Struggling to Generate Income

On Jan. 1, 2023, Pushpa Kamal Dahal, Nepal’s prime minister, officially opened the airport. The local headlines that day, however, were about a tweet from the Chinese Embassy in Nepal declaring Pokhara airport “the flagship project” of China and Nepal’s Belt and Road Initiative cooperation, even though work on the airport predated China’s infrastructure program.

In June, Chen Song, the Chinese ambassador to Nepal, called the airport a “new chapter” of Belt and Road cooperation. The Kathmandu Post, a leading English-language newspaper in Nepal, responded with a headline: “China envoy again packs a geopolitical punch as new Pokhara airport suffers.”

Chen later told the Times that China would “not force the name” on Nepal, “but we will go with our own plans.”

For Nepal, the airport’s association with Belt and Road is fraught because India has looked askance at the Chinese initiative — a problem for an airport struggling to attract international flights. So far, no Indian airlines plan to serve Pokhara.

Buddha Air, Nepal’s biggest airline, said it had proposed a twice-weekly flight from Pokhara to Varanasi, a city in northern India, before adding flights to Dehradun and Delhi, but the Indian government has yet to grant those requests.

A 2014 feasibility study commissioned by CAMC projected that the airport would be able to repay loans from its profits. That forecast, however, was based on an estimated 280,000 international passengers traveling through the airport starting in 2025. As of now, there are no international flights.

With the airport struggling to generate the income necessary to pay off its loans, Nepali government officials requested that China turn the loan into a grant, according to local media reports. When Dahal visited Beijing in late September, the two countries issued a statement expressing “satisfaction” over the completion and operation of the Pokhara airport. China agreed to open more flights and routes to Nepal, including Pokhara.

The statement, however, did not mention any plans to waive the Pokhara airport loan.