Nearly four years after the promulgation of the consti­tution, the National Natural Resources and Fiscal Commission (NNRFC), a constitutional body man­dated to ensure just and equitable distribution of natural and fiscal resources among the three tiers of government, has started its work after the appointment of former secretary Balananda Poudel as its chairman last month.

Earlier, the NNFRC Secretariat consisting only of government offi­cials had conducted some prepara­tory work but the commission was largely dysfunctional in the absence of a chairperson. The government is yet to appoint the other four mem­bers of the commission, which is also likely to affect its work. After taking charge of the commission, Poudel has started consulting with stakeholders to prepare a work plan that would guide the commission’s short- and long-term tasks.

“It has been a month since I joined. In this time we have prepared a draft of a law relating to natural resources, and are working on both our short-and long-term goals,” says Poudel. He adds that his office is also working out a strategy for effective communi­cation with federal, provincial and local governments.

 Major duties of the commission as identified by the constitution and law

• To make recommendations on equalization grants to be pro­vided to the provincial and local governments out of the federal consolidated fund.

• To carry out research and define parameters for condi­tional grants to be provided to the provincial and local gov­ernments in accordance with national policies and programs, norms, standards, and the state of infrastructures.

• To determine a detailed basis and modality for the distribu­tion of revenue between the provincial and local govern­ments out of the state consoli­dated fund.

• To recommend measures to meet expenditures of the feder­al, provincial and local govern­ments, and to reform revenue collection mechanisms.

• To analyze macro-economic indicators and recommend ceilings on internal loans that the federal, provincial and local governments can take out.

• To review the basis for revenue distribution between the feder­al and provincial governments and recommend revisions.

• To set bases for the determi­nation of shares of the feder­al, provincial and local gov­ernments in investments and returns and in the mobilization of natural resources.

• To conduct research on pos­sible disputes between the federation and the provinces, between provinces, between a province and a local level, and between local levels, and make suggestions on ways to prevent such disputes.

• To carry out environmental impact assessment required in the course of distribution of natural resources, and make recommendations to the government.

Underpinning federalism

The commission’s role is crucial in the transformation of the old unitary state structure into a functional fed­eral one. While the unitary system had the provision of distributing projects from top to bottom, funds would be transferred from one level of government to another under the federal model. An effective NNRFC can significantly reduce the chances of disputes among the three levels of government—federal, provincial and local. Most such disputes are over natural resources and revenue distri­bution; and the commission is man­dated to make recommendations on revenue distribution, equalization grant, conditional grant, internal borrowing and sharing of natural resources among the three govern­ments. An equitable and fair shar­ing of natural and fiscal resources among the three governments is a challenge, but is a prerequisite for the effective functioning of the new federal model.

As the commission is a constitu­tional body, its recommendations are binding on all three levels of government. The commission can essentially force any level of government to imple­ment its recommendations. Addi­tionally, the role of the commission is akin to that of ‘a referee’ when it comes to implementing fiscal federalism. If the NNRFC functions effectively, it will enable all levels of government to make informed and evidence-based decisions.

The constitution has made pro­visions regarding the distribution of revenue among the federal, pro­vincial and local level entities. Taxes such as custom duty, excise duty, Value Added Tax (VAT) and income tax are under the federal government’s jurisdic­tion, while house and land registration fees, motor vehicle tax, agro-income tax and local taxes are within the remit of the provin­cial and local govern­ments.

Three levels of funding

There are clear fiscal gaps at the provincial and local levels as they have to deliver services that require much more money than what they can collect in revenue. As such, the central gov­ernment has to make fiscal transfers to the provincial and local lev­els to bridge the gaps. Similarly, the center needs to mobilize the provincial and local lev­els to implement com­prehensive national pol­icies and programs. This is where the NNRFC comes in.

While recommending revenue distribution, the commission will have to take into account certain criteria and frameworks such as population and demographic fac­tors, area, human development index, expenditure needs, revenue collection efforts, infrastructure development, etc.

The commission is working on forming four thematic divisions, namely Revenue Sharing Division, Research and Management Division, Sharing of Natural Resources Divi­sion, and Grant and Loan Manage­ment Division. The Intergovernmen­tal Fiscal Management Act (2017) is already there to manage matters related to revenue rights, revenue sharing, budget management, pub­lic expenditure and fiscal discipline among the federal, provincial and local level entities.

This Act has identified issues such as revenue and expenditure respon­sibilities, intergovernmental fiscal transfers and internal loans provin­cial and local entities can take out as the important elements of fiscal federalism. Last year, the commis­sion recommended the government on revenue sharing and fiscal equal­ization grants for the fiscal 2018-19— before Poudel joined it.

Poudel says his immediate prior­ity is to settle issues related to the distribution of revenues and royal­ties collected from natural resourc­es. Observers say the commission needs collaboration from all three tiers of governments to function effectively.

Lack of seriousness on the part of political par­ties and their ‘delay tactics’ have increased the risk of ‘international intervention’ in Nepal’s Transitional Justice (TJ) process, which has not made substantial progress since the sign­ing of the Comprehensive Peace Agreement (CPA) in November 2006. Experts and observers say failure to amicably settle war-era human rights cases would attract the wrong kind of international attention. Avert­ing such a scenario requires Nepal to address the issue through credible national mechanisms by taking all stakeholders on board. But major par­ties that have been in power since the start of the peace process seem indifferent.

Of late, the international community has piled up pressure on the government to settle the tran­sitional justice process, a vital part of the peace process, at the earliest. In January, the United Nations in Kathmandu, together with nine foreign embassies, urged the government to clarify how it intends to take the TJ process forward, to great annoyance of the government and the ruling party leaders.

This month, five special rapporteurs under the United Nations High Commissioner for Human Rights wrote a 10-page letter to Foreign Minister Pradeep Gyawali seeking transparency and close consultation in selection of members of the two transitional justice mechanisms, namely the Truth and Reconciliation Commission (TRC) and the Commission on Investigation of Enforced Disappeared Persons (CIEDP). Gyawali has repeat­edly assured the international community that there will be no blanket amnesty, but the commit­ment has not been translated into action.

 'I have an impression that the army will keep its cards close to its chest until there is a broad political agreement'

Binoj Basnyat,a retired Nepali Army major-general

Dare not fail us

Conflict victims, though divided on some issues, are getting impatient and losing hope. “Parties want to derail this process by employing delay tactics. They are yet to consult with us on how to amend the law and conclude the TJ process,” says Suman Adhikari, former Chairman of the Conflict Victims Common Platform, an umbrella body of activists seeking justice and repa­rations.

Conflict victims say if national mecha­nisms fail them, they will have no alterna­tive but to internationalize this issue. In fact, some have already approached the UN and other international organizations for justice. The recent visit of the Nepal Communist Party Co-chairman Pushpa Kamal Dahal to the US, ostensibly for his wife’s treatment, also highlights the gravity of the TJ process. A complaint was filed at the Federal Bureau of Investigation to arrest Dahal and investigate war-era human rights violations, which forced the US government to issue a ‘no investigation’ circular.

Those complicit in rights violations can be arrested anywhere in the world under the principle of ‘universal jurisdiction’ of human rights. Earlier, Kumar Lama, a senior Nepal Army official, was arrested in the UK on charges of war-era violations. (He was later tried and acquitted.)

“If the ongoing national process fails to end pervasive impunity and deliver justice and reparations to the victims, they will knock on the doors of the United Nations or international courts,” says Geja Sharma Wagle, a political analyst who has been closely involved in the peace process. “But internationalizing the TJ process would be suicidal for the government as well as the ruling and opposition parties. As such, this process should soon be concluded by tak­ing conflict victims into confidence.”

It has been almost 13 years since the CPA was signed, but one key aspect of the peace process—providing justice to conflict victims—is still prickly. As per government data, around Rs 166 billion has already been spent on the peace process. But there has been little progress on the TJ front. The office bearers of the two commissions—the TRC and the CIEDP, which were set up in 2015—recently took retirement, and the government has formed a panel for new appointments.

Deadly delay

Experts, however, say having new faces would not be sufficient. They are of the view that the TRC Act should be amended in line with the Supreme Court verdict, which means the TJ process should meet interna­tional standards, and amnesty should not be given on serious rights violations such as rape, torture, killings, and disappearances. Additionally, the commissions should be empowered to recommend legal action against those involved in grave violations.

A former TRC member blames lack of support from political leadership, failure to amend the law, and inadequate resources for the two commissions’ dysfunction. No amendment to the law means a continu­ation of the same tendencies for the next five years. “It seems that some ruling party leaders think they can kill this process by using delay tactics, but that is not possible. The delay would only erode trust in our national mechanisms and attract interna­tional interest,” says a high-level official familiar with the process.

Mounting international and domestic pressure has made some leaders from both the ruling and opposition parties realize the importance of concluding the TJ process through national mechanisms. But ex-Mao­ist leaders are reluctant to go by the SC ver­dict. By and large, the former rebels want to settle the process through reparations, but this alone will not be acceptable to the international community or to the conflict victims. Although the erstwhile CPN-UML leaders are receptive to the idea of amend­ing the law in line with the SC verdict, Prime Minister KP Oli is under pressure from co-chair Dahal not to do so.

Among others, the issue of transitional justice was one reason for the unification in 2017 between the two communist par­ties led by Oli and Dahal respectively. Oli has reportedly assured Dahal that no case would be filed against him in national or international courts.

On war-era cases, the Nepal Army and the main opposition Nepali Congress hold sim­ilar positions to that of the government. NC President Sher Bahadur Deuba had served as the prime minister while the Maoist conflict was at its peak and had imposed an emergency; he fears he could be dragged into war-era cases, and therefore prefers almost blanket amnesty in those cases.

Binoj Basnyat, a retired Nepali Army major-general, says, “The army proceeds as per the government’s decision regarding gross rights violations during the conflict. So, first, a common political direction that meets international principles and national rules on human rights needs to be charted. I have an impression that the army will keep its cards close to its chest until there is a broad political agreement.”

The politicization of war-era cases in the past decade has also complicated the TJ process. Initially, the cases were used by the parliamentary parties against the Maoists as a bargaining tool. Mainly, the former insur­gents were threatened that war-era cases could be taken to international courts. Not only political parties, some human rights groups and individual activists also created unnecessary uproar about transitional justice. While some advocated blanket amnesty, others talked about international courts, both of which were against the principles of transitional justice. Now, such voices have become faint.

Currently the two transitional justice commissions are without leadership. The government on March 25 formed a five-member committee led by former Chief Justice Om Prakash Mishra to select two chairpersons and members. The govern­ment claims to be working to amend the transitional justice laws in line with the SC verdict, but there is no public discussion on it. Together, the two transitional justice commissions have received around 66,000 war-era complaints but preliminary inves­tigation has been conducted on very few of them.

2 The 2016 transit and transport treaty (April 19)

 APEX Series

EVOLVING NEPAL-CHINA RELATIONS

 1 Post-1950 turning points (April 5)

2 The 2016 transit and transport treaty (April 19)

3 China’s relations with political parties (May 3)

4 Defense ties (May 17)

5 Nepal and BRI (May 31)

The four-month-long blockade imposed by India in 2015-16 was a wake-up call for Nepal to diversify its India-centric trade and transit arrangements. Politi­cal parties as well as the general public were of the view that there should be no delay in pushing for transit access for third-country trade via China.

The then government led by CPN-UML’s KP Sharma Oli was deter­mined to strike an agreement with China. PM Oli had dispatched then Foreign Minister Kamal Thapa to Beijing for talks on a possible transit treaty between the two coun­tries. But reaching an agreement was not easy.

First, China wanted to avoid pro­jecting the transit agreement as a response to the Indian blockade. China was seeking assurances that Nepal would not backtrack from negotiations after the end of the blockade and a rapprochement with India. Second, Nepal also needed to convince India that a treaty with China was not targeted against it.

In December 2015, Thapa held talks with high-level Chinese officials and reached a tentative agreement. “We tried to per­suade India that the treaty was not aimed against it and that China was also obliged to provide port access to a landlocked country like Nepal,” says a senior official involved in the negotiations.

India did not object to the treaty, at least not openly. But some Indian officials expressed displeasure and argued that transit from Chinese ports is not feasible for Nepal due to distance- and cost-related issues. “We signed a treaty with China not only because of the Indian block­ade, but largely because it was a geopolitical necessity for Nepal. The treaty remains a fundamental survival strategy for Nepal,” says former minister Thapa.

Earlier, in the 1960s King Mahendra had introduced the approach of a balanced foreign policy

The ’89 itch

There had been efforts to diver­sify trade and transit following the 1989 Indian blockade as well. “In a cabinet meeting at the time, King Birendra had made two important proposals, namely strengthening national capacity for storing essen­tial items for three months, and looking north for alternate transit routes. But they were totally forgot­ten after the restoration of multi-party democracy in 1990,” recalls Thapa, who was also a minister in the royal cabinet of 1989.

Earlier, in the 1960s King Mahen­dra had introduced the approach of a balanced foreign policy, ending the era of ‘special relations’ with India. Nepal was a strong advocate for the rights of landlocked coun­tries. Although there were talks about diversifying trade even back then, Nepal had no substantial dis­cussion with China about alternate international transit facilities. But after Nepal started making noise about diversification, India became serious about providing it with bet­ter trade and transit facilities. In 1966, India provided separate space at the Kolkata port for cargo to and from Nepal.

But Nepali politicians paid no attention to trade diversification after 1990, which further deepened our dependence on India. Only after the months-long agonizing blockade of 2015-16 did the issue resurface, ultimately leading to the signing of Nepal-China Transit and Transport Treaty, which has been hailed as an historical accord.

No progress in implementing the treaty was made during the premier­ships of Pushpa Kamal Dahal and Sher Bahadur Deuba. Negotiations on giving a final shape to the treaty protocol were initiated only after the left alliance won a thumping victory in the 2017 elections and Oli once again became prime minister. Now, preparations are underway to sign the treaty protocol during President Bidhya Devi Bhandari’s upcoming visit to China starting April 24.

China has agreed to open for Nepal seven transit points—four sea ports (Tianjin, Shenzhen, Lianyungang and Zhanjiang) and three land ports (Lanzhou, Lhasa and Xigatse)—for third-country export and import. Under the agreement, China will be obliged to permit trucks and containers ferry­ing Nepal-bound cargo to and from Xigatse in Tibet. The two sides have also agreed that Nepal would have access to Chinese territory from the six checkpoints.

From us, not them

Following this trade and transit agreement, India has offered addi­tional ports to Nepal, arguing that the Indian ports are more cost-ef­fective than the Chinese ones. In 2016, India gave Nepal the right to use the Visakhapatnam port for third-country trade, in addition to the Kolkata port which Nepal had been using for a long time. The Indian side has frequently highlighted the additional benefits Visakhapatnam offers to Nepal.

Although Nepal and China have signed the transit treaty, it is a hard reality that Chinese ports are much farther from Nepal than Indian ports, the nearest one being about 4,000km from Kathmandu. By contrast, the distance between Visakhapatnam and Kathmandu is about 1,500km.

Similarly, the driving dis­tance between Kolkata and Raxaul is 748 km. Of late, India has also offered Nepal the use of the Dhamra seaport in the state of Odisha. Nepali officials have conducted a preliminary feasibility study of the Dhamra port, which is about 956km from Biratnagar. Another option is the Chittagong seaport in Bangladesh.

Onus on Nepal

Experts argue that although Chi­nese ports are far, Nepal can still benefit from their use in the long run. They say the current burden of cost and distance could be sig­nificantly reduced with proper infrastructure in place. Efforts are underway to build road and railway connectivity with China. Negotiations are underway for a railway line between Kathmandu and Keyrung—President Bhandari is reportedly pushing this issue in her discussion with President Xi in Beijing—on what is the traditional trade route between Nepal and its northern neighbor. Infrastructure development along this route, how­ever, started taking place only in recent decades.

Nepal and China are also holding talks about the possibility of reopen­ing the border at Tatopani, which has been closed since the 2015 earth­quake. The Rasuwagadi-Kerung bor­der point, currently the only oper­ational trade route between Nepal and China, has been developed as an international crossing point with the goal of connecting China with the larger South Asia.

As such, when the Tatopani bor­der comes back into operation, Nepal will have two viable trade routes to China. The trade and tran­sit treaty between Nepal and China has, at least in principle, put an end to India’s monopoly on Nepal’s sup­ply system.

Although the agreement is unlikely to reduce Nepal’s depen­dence on India in the near future, it will come in extremely handy in case the southern neighbor imposes another blockade. With a viable trade route open with China, a blockade on Nepal might not even be an option on the table.

After the signing of the transit treaty with China, India has given Nepal more options. Ideally, Nepal can now choose the ports—both Indian and Chinese—that are most cost-effective. There are obvious reasons why two-thirds of Nepal’s trade is with India: geographical proximity and a well-connected border. Officials, however, say that highly-profitable trade with East Asian countries like Japan and South Korea could be carried out via Chinese ports.

Soon after a devastating windstorm swept across the districts of Bara and Parsa on the evening of March 31, security forces, other government agencies and the general public rushed to the affected areas to mount rescue operations. Adequate manpower was necessary to take the injured to hospitals and provide support to those who lost family members. All political parties should have employed their cadres to support government agencies, but only a few did. Instead of collaborating on rescue efforts, cadres of different parties competed to gain public and media attention.

Top leaders of major parties including Prime Minister KP Sharma Oli, Nepal Communist Party Co-chairman Pushpa Kamal Dahal and Nepali Congress President Sher Bahadur Deuba rushed to the devastated villages for inspection. Some senior leaders reached the affected areas with bags of food grains and fruits. Security forces were compelled to give greater priority to these leaders’ safety than to relief efforts.

Social media were filled with suggestions to leaders to avoid such visits and allow government agencies to do their tasks. As in the past, top leaders pledged aid but only a small amount has been deposited so far. This suggest the real purpose may have been to attract future voters.

It is uncertain when the victims will get the money. And it’s not just the aid pledged by the political parties; there are several cases where even the promises made by the government have gone unfulfilled. Victims are in immediate need of temporary shelter, food, medicine and clothes, but past experiences show that they have to go through endless red tape to receive aid.

Not just national organizations but even international bodies have exposed the excessive politicization of aid and relief materials in the aftermath of a crisis

Gorkha earthquake

Relief efforts in the aftermath of big natural disasters in the past one decade have been heavily politicized. Such politicization of aid was much more pronounced after the Gorkha earthquake in 2015, which claimed more than 8,000 lives and injured or displaced thousands more.

Following critical media reports and widespread complaints, the National Human Rights Commission (NHRC) had monitored aid distribution in some places. The monitoring found dirty politics at play, which led the NHRC to publicly urge the government and other stakeholders to prevent the politicization of aid distribution to quake victims. The constitutional body also asked the government to ensure that victims can access aid directly without having to beseech the politicians acting as middlemen. A parliamentary committee had also found excessive politicization in the distribution of relief materials in some districts.

“We have been closely following the process of relief distribution and urging concerned stakeholders to stop the politicization of aid, but we have not been able to completely curb such tendencies,” says Mohana Ansari, a commissioner at the NHRC. “The politicization of aid and relief materials was even more evident in Bara and Parsa this time. It is unnecessary for everyone to reach the spot; victims can access relief materials through government agencies later. Now that a federal setup is in place, the government should undertake relief and rehabilitation with this reality in mind,” says Ansari.

Not just national organizations but even international bodies have exposed the excessive politicization of aid and relief materials in the aftermath of a crisis. A report published by Amnesty International in June 2015 reveals how humanitarian aid was used as a political instrument. It says, “There are reports of discrimination in the distribution of relief, including on the basis of caste and gender, as well as political favoritism and patronage without regard to actual need. This is a particular risk where one party is dominant, where a VDC is demographically heterogeneous with different religions, castes or ethnic groups represented, lacking a coherent and fair decision-making mechanism, and where local political actors compete for status through the provision of relief.”

Unspent aid

On 3 October 2017, a settlement in then Makha Village Development along the Arniko Highway was completely swept away by a landslide. A district-level trust fund was set up, in which people willing and able to help could deposit money. Within three months, approximately Rs 3 billion was collected from national and international donors. When the Chief District Officer started the process of aid distribution, there was a clash of interest among major parties. Cross-party lawmakers tried put pressure on the administration not to hand out money without their consent, painfully delaying the decision-making process.

While the Nepali Congress argued that land should be purchased for each family seeking aid from the government, the then CPN-UML claimed adequate research on the affected people had not been carried out. And the then CPN (Maoist Center) said money from the trust could not be given before the government provided aid of its own. All these were populist agenda meant to gain voters’ sympathy. The money deposited in the trust has still not been provided to the victims.

“Earlier, the administration failed to hand out aid because of disputes among political parties. Now, the bureaucracy is the biggest hurdle in aid distribution,” says Yubaraj Puri, a local journalist, who is closely following the matter. “I have seen many cases where political parties distribute aid and relief materials so as to influence voters. They provide aid during a crisis and come election time, they seek support claiming that they were the ones who helped,” says Puri.  

Myriad problems

There is rampant politicization in rescue and rehabilitation process after any natural calamity. Yet another problem is that political parties try to distribute aid only to those victims who are party sympathizers. For example, if the NC distributes relief materials, it is unlikely to provide aid to those who vote for the Nepal Communist Party, and vice versa. There is also a tendency or providing relief materials along religious and caste lines.

Lack of coordination among various aid providers is another matter of concern. Similarly, in the aftermath of a disaster, people start collecting money but there is no proper study of whether the money is being rightly spent. The government needs to introduce clear legal provisions to regulate rescue and rehabilitation so that genuine victims can access humanitarian support promptly.

The Nepal Communist Party is now a formidable political entity, with absolute hold over the federal government as well as six of the seven provincial govern­ments. It also controls most local level units. And yet it is a divided house. Although it has been a year since the CPN-UML and the CPN (Maoist) formally united, old divi­sions have been hard to bridge. The trust deficit between the leaders from the two former parties remains strong. And even senior leaders in the ex-UML party suspect Co-chair­man and Prime Minister KP Oli of striving to cut them to size ahead of the next general convention.

According to insiders, Oli wants to maintain the status quo to retain his hold. “Of the 45 stand­ing committee members, 13 are hardcore Oli supporters who are either in government or in top par­ty positions. Oli does not want to change this favorable setup,” says a senior NCP leader, requesting anonymity. Other senior leaders like Pushpa Kamal Dahal, Madhav Nepal and Jhalanath Khanal would like to tweak this status quo to their own advantage going into the general convention.

If the divisions within the NCP are largely the product of party unification, those within the Nepali Congress have older origins. After the passing of Girija Prasad Koirala in 2010, no single leader has been able to command the party well. Current Congress President Sher Bahadur Deuba has lost the trust of the par­ty’s rank and file following a humiliating defeat in the 2017 elec­tions under his watch. The 73-year-old Ram Chandra Poudel still har­bors hopes of getting to lead the party, if not the country, by outwit­ting Deuba. Challenging them for party leadership will be the Koirala faction that continues to believe in the “natural right” of a Koirala to lead the NC.

1 Post-1950 turning points 

APEX Series

EVOLVING NEPAL-CHINA RELATIONS

1 Post-1950 turning points (April 5)

2 The 2016 transit and transport treaty (April 19)

3 China’s relations with political parties (May 3)

4 Defense ties (May 17)

5 Nepal and BRI (May 31)

Nepal and China formalized their age-old bilateral ties by establishing diplomatic relations on 1 August 1955. Since then, the relationship has evolved through different stages, without any major hiccups. And although formal bilateral relations were estab­lished only in 1955, there were close contacts between the two peoples much before that.

In the first part of our APEX Series ‘Evolving Nepal-China Relations’, we explore some turning points in bilat­eral relations after the 1950s. “There is an element of consistency in Nepal-China relations ever since dip­lomatic ties were established during King Mahendra’s direct reign. India has invested a lot in every major political change in Nepal, but for some reason it is China that every new Nepali government or regime feels more comfortable dealing with,” says Ramesh Nath Pandey, a former foreign minister.

One year after the establishment of diplomatic relations, Nepal and China signed the Economic Assistance Agreement on 7 Oct 1956 during the reign of Prime Minister Tanka Prasad Acharya, laying the foundation for further economic cooperation. Under the agreement, China pledged Rs 60 million to Nepal. Observers say the visits to China by then PM Acharya in 1959 and by BP Koirala in 1960 were vital in creating an environ­ment of trust between Nepal and its northern neighbor.

Until the 1950s, connectivity between the two countries was rather poor. In this light, China signed an agreement in 1961 to con­struct a 112-km highway linking Kath­mandu to the Nepal-China border in Kodari. This was a vital step towards breaking Nepal’s total dependence on India. For over six decades, this highway served as Nepal’s only via­ble trade link with China.

High-level visits to China

 - Prime Minister Tanka Prasad Acharya (1956)

- Prime Minister Bishweshwar Prasad Koirala (1960)

- King Mahendra (1961)

- Prime Minister Kirti Nidhi Bista (1972, 1978)

- King Birendra (1973, 1982, 1987, 1993, 1996, 2001)

- Prime Minister Girija Prasad Koirala (1992, 1993)

- Prime Minister Manmohan Adhikari (1995)

- Prime Minister Sher Bahadur Deuba (1996)

- King Gyanendra (2002, 2005)

- Prime Minister Pushpa Kamal Dahal (2008, 2017)

- Prime Minister Madhav Kumar Nepal (2009)

- Prime Minister Sushil Koirala in (2014)

- President Ram Baran Yadav in (2010)

- Prime Minister KP Oli in (2016, 2018)

 High-level visits from China

 - Premier Zhou Enlai (1957, 1960)

- Deng Xiaoping (1978, in his capacity as Vice Premier)

- Premier Zhou Ziyang (1981)

- President Li Xiannian (1984)

- Premier Li Peng (1989)

- President Jiang Zemin (1996)

- Premier Zhu Rongji (2001)

- Premier Wen Jiabao (2012) 

Broader interests

Border issues are always a threat to bilateral relations. But Nepal and China resolved their border issue amicably in 1961. Since then, there has been no major border dispute between the two neighbors, which has contributed to peaceful ties. (Although some minor border disputes remain.) In 1962, when India and China fought a war, Nepal decided not to take sides. It took the same stance in 2017 when its two neighbors were locked in a dis­pute over the contested territory of Doklam. On both occasions, China supported Nepal’s position.

When King Birendra proposed that Nepal be declared a ‘zone of peace’ in 1975, China was the first country to support it. After that China initi­ated several projects in Nepal such as the Kathmandu-Pokhara highway, Pokhara-Butwal highway, an agri­cultural tool factory, etc. From the mid-1980s, the Chinese government, under the Economic and Technical Coopera­tion Program, has been giving Nepal grant assis­tance to implement mutually acceptable development projects.

Import of military hardware from China in 1988 is considered one of the most important mile­stones in bilateral rela­tions. Nepal had bought some military hardware, including anti-aircraft guns, from China, which caused outrage in New Delhi and it responded by imposing a blockade on Nepal. India argued that Nepal was not free to import weapons from third countries without its consent. Because of the blockade, Nepal had to import many essential items from China.

When Nepal was a monarchy, China worked closely with the palace to safeguard its security interests in Nepal, mainly related to Tibet. The abolishment of the mon­archy in 2008 marked a turning point in China’s policy on Nepal. After 2008, China started cul­tivating relations with various Nepali politi­cal parties and became more vocal about its security interest. Simi­larly, ahead of the Bei­jing Summer Olym­pics in 2008, Tibetan refugees living in Nepal staged large demonstra­tions, which led China to work actively on its Nepal policy.

New party plays

“The post-conflict political transition in Nepal coincided with large-scale anti-China protests between March and August 2008 by Tibetan refu­gees living in Nepal—the most orga­nized demonstrations in the past 50 years,” writes Nihar R. Nayak, a research fellow at the Institute for Defense Studies and Analyses, in his book Strategic Himalayas. “In 2008 Tibetan separatists in fact tried to cross the border into the TAR to disrupt the journey of the Olympic torch to the Mount Everest and the summer Olympic Games in Beijing. This forced China to redraft its Nepal policy.” After 2008, China began showing active interest in Nepal’s political affairs, mainly in provinces, and the frequency of high-level visits from China to Nepal increased drastically.

The signing of the Transport and Transit Treaty between Nepal and China in 2016 against the back­drop of India’s undeclared block­ade was another important devel­opment. The treaty, at least in principle, has paved the way for Nepal’s use of Chinese ports and other routes for third-country trade, and ended Indian monopoly on Nepal’s supply system.

Nepal and China signed a Mem­orandum of Understanding on the Belt and Road Initiative (BRI) on 12 May 2017, which marked another milestone in bilateral relations. The major thrust of the MoU is to pro­mote mutually beneficial cooper­ation between Nepal and China in economy, environment, technology and culture. Negotiations are under­way between the two countries to finalize projects under the BRI and their investment modalities.

A joint military exercise between Nepal and China that began in 2017 was another big develop­ment. The military drill named Sagarmatha Friendship was a clear indication of growing ties between Nepal Army and the People’s Liber­ation Army.

In recent years, another major dimension of bilateral relation has been growing Chinese investment in Nepal. China is now the largest source of Foreign Direct Investment in Nepal, topping the list of FDI con­tributing nations in fiscals 2015-16, 2016-17 and 2017-18, with growing pledges from Chinese companies in hydropower, cement, herbal medi­cine, and tourism.

Former foreign minister Pandey says Nepal should have a dynamic China policy considering the changing face and status of China in the global arena. “We in Nepal need to carefully take stock of the situation and benefit from our two rising neighbors. For this we need diplomatic finesse and our embassies abroad need to be awak­ened. We have to rise above partisan politics, which has sadly led to the decay of all our vital state institu­tions,” he says.

Delay in constitution amend­ment, a life sentence to law­maker Resham Chaudhary for his role in the 2015 Tikapur killings, and an 11-point agreement with the secessionist leader CK Raut seem to have brought two Madhes-based parties, the Rastriya Janta Party Nepal (RJPN) and the Federal Social­ist Party Nepal (FSPN), closer.The unification process is in its initial phase. The RJPN has recently formed a talk team led by Rajendra Mahato with four other members, namely Brikesh Lal, Ramesh Yadav, Keshav Jha and Sunil Rohit. The FSPN had already formed a talk team led by Rajendra Shrestha five months ago. Unification may take some time, but leaders of both the parties claim sincere efforts to that end have been made since their electoral alliance in 2017.

A few factors have contributed to bringing them together. Madhesi leaders say they had expected Prime Minister KP Oli to push the consti­tution amendment proposal. With no progress, the RJPN withdrew its support to the government and pres­sure is building on FSPN Chairman Upendra Yadav to speak up about the amendment.

Ram Sahaya Yadav, FSPN Gen­eral Secretary, and other senior party leaders are of the view that if the two-point agreement the party signed with the government is not implemented, there is no point in staying on in the government. As a result, Upendra Yadav is gradually hardening his stance on constitution amendment. He recently said, “The prime minister has assured us that he won’t renege on his promise. But there is a limit to our patience.”

Leaders of both the FSPN and the RJPN aver that only a united party can put enough pressure on Kath­mandu to amend the charter. Says Professor Surendra Labh, a Janak­pur-based political analyst, “Grass­roots cadres see ongoing efforts as inadequate. They feel a need for more concerted pressure on the government to see the amendment through. This thinking seems to have brought the two parties closer.”

 'The prime minister has assured us that he won’t renege on his promise. But there is a limit to our patience'

Upendra Yadav, FSPN Chairman

Chaudhary irritant

The Kailali district court’s deci­sion to hand down a life sentence to RJPN lawmaker Resham Chaudhary has served as another unifier, with both parties considering it a political case that should have never gone to court. Immediately after the Kailali court issued its verdict, the govern­ment reached an 11-point agreement with CK Raut, who was behind bars for championing an independent Madhes. The Madhes-based parties were irked that the government did not consult them and suspect the move was aimed at weakening them.

“The deal with Raut prompted the FSPN and the RJPN to expe­dite unification,” says a Madhes observer. Leaders of the two parties fear Raut could emerge as a strong political force in Madhes and pose a threat to them. Labh says although talks of unifica­tion between the FSPN and the RJPN had begun earlier, the 11-point deal with Raut was an addi­tional spur. Leaders and Madhes watchers also point to the pressure from India. It is an open secret that the southern neighbor has been urg­ing the Madhes-based parties to unite and come up with a strong political force.

Despite all these fac­tors, the question as to whether the two par­ties will actually unite remains open. Their leaders say despite broad convergence of views on various issues, it is not easy to form a single party. The immediate challenge is related to support for the govern­ment. While the RJPN thinks Yadav should quit the government before unification, the FSPN maintains no condi­tion should be imposed for unity talks and government-related issues should be dealt with after unification.

Figuring out the new party’s leadership will be tricky too. The RJPN is for a presidium model, under which six mem­bers take turns as party coordinator. In the third week of April 2017, six of the seven Madhes-based parties under the then Samyukta Loktantrik Madhesi Morcha (SLMM) had formed the Rastriya Janta Party Nepal (RJPN) so as to consolidate their strength. But Upendra Yadav chose not to join it.

Problematic presidium

As the presidium model has already created many problems in the party, it is unlikely to be con­tinued after the unification. At least three RJPN leaders will claim leadership of the unified party. But so will Yadav, given the FSPN’s strength in federal and provincial parliaments. Says political analyst Vijya Kanta Karna, “Party leadership will be difficult to settle. But if it is settled, unification won’t be diffi­cult.” Karna says the ruling Nepal Communist Party (NCP) is also beset by problems because it has two chairmen.

If the presidium model is accepted at the center, it will lead to organi­zational problems at the grassroots.

Yet another challenge, according to Madhes observers, is the intra-party dispute rife in both the RJPN and the FSPN. “There are disputes within the two parties over leader­ship. These disputes could worsen if the parties decide on unification,” says Labh.

The RJPN and the FSPN aren’t much divided on the ideological front. They had the same position during constitution drafting and had jointly launched the Madhes move­ment. They also fought the election together and they have a coalition government in Province 2. As such, the two parties have many common interests, which could provide a solid foundation for unification.

If and when the unification goes ahead, each party’s strength at the federal and provincial levels will obviously count. The RJPN was formed after the unification of six Madhes-based parties, but in the three tiers of elections in 2017, the FSPN secured almost equal seats in the House of Representatives and won more seats than the RJPN in Province 2.

In the HoR, the RJPN has 17 mem­bers—11 directly elected and six from proportional representation—while the FSPN has 16 members—10 directly elected and six from pro­portional representation. In the National Assembly, they have two seats each.

Contested claims

In Province 2, the FSPN has formed the government with the RJPN’s support. In the provincial parliament, the FSPN is the larg­est party with 29 seats against the RJPN’s 25. FSPN leaders say their claim to party leadership is there­fore justified.

Upendra Yadav has a strong organizational base at the grass­roots, which is why his party secures a sizable presence even in difficult times. Observers say hard work sets him apart from other Madhesi leaders. Yadav frequently visits Tarai districts and meets the party rank and file. He has also maintained good relations with other political parties and the international community.

The caste factor seems to be equally important. Upendra Yadav is regarded as a towering figure in the Yadav community, which is eco­nomically and educationally strong. Even in the whole of Madhes, Yadav is considered an important leader, second perhaps only to Mahanta Thakur. As such, the FSPN is strong and coherent. The RJPN, by con­trast, is not united either at the cen­ter or at the grassroots, and is rela­tively weaker.

Even if unification between the two parties proves elusive, they are likely to forge an alliance to press for constitution amendment and to minimize the Raut factor in Madhes. During the Madhes movement in 2015 and the elections in 2017, there was already a working alliance.

“During the formation of the Oli-led government, the RJPN and the FSPN made decisions inde­pendently. Whereas Yadav joined the government, the RJPN sup­ported it from the outside. Now, even if they don’t unite, it’d be good for Madhes if they can maintain an alliance,” says Labh.

The government is holding the Nepal Investment Sum­mit with the goal of attract­ing foreign investment. The sum­mit, which begins March 29, is the second of its kind in the past two years. In 2015, the government had organized a donor conference to solicit international support for post-quake reconstruction, but that was not an investment sum­mit. Political leaders, businesspeo­ple and economists who spoke to APEX say there is a tendency of organizing investment summits with fanfare, but successive gov­ernments have not given priority to other vital aspects such as embrac­ing liberal political and social val­ues, ensuring policy consistency, setting up follow-up mechanisms, clearing bureaucratic hurdles, among others.

Says Dipendra Bahadur Chhe­tri, a former Governor of Nepal Rastra Bank (NRB), “We seem to be organizing such summits as a formality. The new government, with a strong support from the parliament, should instead solve various practical problems that are hindering foreign investment.”

The communist govern­ment also faces the challenge of demonstrating full commitment to protecting foreign investment and adopting liberal economic policies. “First, the government should convince international investors that it embraces liberal political and economic values as enshrined in the constitution. Sec­ond, there should be follow-ups on the pledged investment after the summit. Third, there should be policy consistency as frequent changes in foreign investment-re­lated laws create confusion,” says Nabindra Raj Joshi, who as then Minister for Industry was in charge of organizing the Investment Summit in 2017.

At the same time, economists and businesspeople point out the need for an in-depth study on why the flow of foreign investment in Nepal is small. Speaking at a par­liamentary committee a few days ago, Binod Chaudhari, a billionaire lawmaker from the Nepali Con­gress said, “We should formulate laws only after a detailed study that takes into account the views of all stakeholders. Or we will always revolve around the same issue.”

If the flow of FDI doesn’t shoot up, Nepal’s target of graduating to a middle income country by 2030 is unlikely to be met

Big commitments, low flow

Government data show that since 1990, although the pledged foreign investment is high, only a small percentage of it has materi­alized. According to official figures, foreign investment constitutes 0.5 percent of the country’s GDP. In the past 20 years, Nepal only saw Rs 170 billion in foreign direct investment out of the Rs 440 bil­lion endorsed.

In the last investment summit held in 2017, various countries and donor agencies committed $13.51 billion, but not even half the pledge has materialized, according to official records. Investment was pledged in sectors such as agricul­ture, roads, tourism and railways. “After the summit, there was no regular interaction and follow-up with international investors,” says Joshi. According to a survey released by the NRB in June 2018, FDI inflows into Nepal are substan­tially lower than into neighboring countries. In 2016, the share of the total global FDI that entered Nepal and South Asia was 0.01 percent and 3.1 percent respectively.

“Foreign investors from 39 coun­tries have made investment in 252 firms in Nepal. India is the main investor in Nepal in terms of paid up capital. However, West Indies comes ahead of India if we con­sider total stock of FDI by includ­ing reserves and loans,” the NRB report says. The report also reveals that most of the FDI into Nepal comes from tax havens, which means Nepali businesses parked money in those countries through illegal means and brought it back as FDI.

Many hurdles

Now that Nepal has a strong gov­ernment with a five-year mandate, there is favorable political climate for foreign investment, but other factors impede FDI. “Nepal needs to make paying taxes easier by simplifying the process of social security-related payments. This is the reason that the recent labor act has made the process more cum­bersome and contributed to push­ing the country down five places to 110th in a global ranking for the ease of doing business”, says an October 2018 World Bank report.

According to the annual ranking, Nepal made paying taxes more difficult through a 2017 labor act, which introduced a labor gratuity, medical insurance and accident insurance paid for by employers in a way that places a larger adminis­trative burden on companies that already face considerable red tape.

A business licensing system and a proper legal framework have not been created. International inves­tors often complain they face vari­ous obstacles when applying for a license. Multinational companies are facing difficulties in registering their offices in Nepal.

In order to clear the bureaucrat­ic hurdles foreign investors are facing, the government has intro­duced a provision of endorsing an investment proposal within seven days if all necessary documents are submitted. The government is preparing to provide all com­pany registration-related services through a one-door policy. Former NRB Governor Chhetri, howev­er, says such a policy had already been introduced in 1993, but was not implemented. “The problem lies not so much in policy as in its implementation,” he says.

Settlement of court cases is also a concern for foreign investors, who are not confident Nepal’s judi­ciary would settle cases without prejudice if a legal issues arise. They are also concerned about the visa renewal process for foreign workers in Nepal. Land acquisi­tion has also been a considerable challenge. Stability in politics hasn’t translated into stability in bureaucracy as there are frequent changes of secretaries and chiefs of government bodies.

Of late, the activities of the Netra Bikram Chand Biplab-led Nepal Com­munity Party have also spoiled the investment climate. “Such activities have sent mixed messages. The gov­ernment should ensure the country is safe for investment. We now have a strong government and a courageous prime minister, so there’s reason to hope that past trends will change and the country will attract more invest­ment,” says Chhetri.

Nepal’s constitution has liberal provisions on foreign investment. It says, “The policy of the state is to encourage foreign capital and techno­logical investment in areas of import substitution and export promotion.” Although the new government has accorded high priority to economic diplomacy, it is still failing to woo international investors.

Muted expectations

In the summit, the government is all set to showcase specific projects with detailed investment modali­ties. Nepal Investment Board has selected around six dozen projects under seven broad headings: agricul­ture infrastructure, education and health, energy infrastructure, indus­trial infrastructure, tourism infra­structure, transport infrastructure, and urban infrastructure. This could make the investment process smooth­er for foreign companies.

Experts suggest tempering expec­tations though. “If the government takes measures to achieve policy clarity and remove procedural hur­dles, we can expect much from the summit. Otherwise, more investment won’t be forthcoming,” says Chandra Mani Adhikari, an economist.

Targeting the investment summit, the government has already made amendments to some laws and a few more are in the cards. The govern­ment has prioritized amending the Special Economic Zone Act and intro­duction of new laws such as Economic Procedures and Fiscal Accountability Act, Public-Private Partnership and Investment Board Act, and Foreign Investment and Technology Transfer Act. Nepal, a Least Developing Coun­try (LDC), has set a target of becoming a middle-income country by 2030. It is virtually impossible to meet the target without huge foreign direct investment, as internal resources are insufficient. If the flow of FDI doesn’t shoot up, Nepal’s target of graduating to a middle income country by 2030 is unlikely to be met.