Is Pokhara Airport China’s debt trap?

Of all the aerodromes in Nepal, perhaps the most sumptuous looking of them all is Pokhara International Airport. The towering mountain that lies to the opposite of its magnificent entry, the obvious lack of danger associated with other airports such as Lukla Airport, the ability to serve the go-to touristic city in Nepal- Pokhara, are only some of the reasons why it could have been not just good, but a great airport.

However, the fact that an international airport such as this, which was hoped would shed the load of Tribhuvan International Airport, is so far from functioning to its fullest capacity is a worry. And so is the fact that there were hundreds of millions of rupees that were put into it. And given the airport’s covert connections with China has meant that a lot of people have been beginning to ask whether the airport is China’s debt trap. Let’s find out.

Digging up half a century old history of Pokhara Airport, though not (international)

In 1971, the concept of an international airport in Pokhara emerged. This was partly due to the limitations of the existing airport, which had a north-south runway flanked by hills, preventing expansion. Shankar Raj Pathak, head of the Gandaki Zone, envisioned the Pokhara International Airport to accommodate larger aircraft and promote tourism. One day, while sitting by Phewa Lake, King Birendra asked Pathak how to enhance tourism in Pokhara, and Pathak suggested building an international airport, reported online Khabar:

“I told Shah about the reason why tourists visit only Kathmandu and not Pokhara. And, the solution to attracting more tourists directly in Pokhara would be having an international airport in Pokhara.  This will increase the number of tourists in Pokhara. It will not just develop Pokhara but also the entire Gandaki zone”

To facilitate site selection, detailed engineering, and planning, the Nepalese government hired the German engineering firm DIWI. Here are a few events in the timeline:

• 1976:  the government began acquiring land for the airport.
• 1988: the Japan International Cooperation Agency (JICA) reviewed DIWI’s master plan and proposed a two-phase construction plan: the first phase from
• 1995 to 2000: the first phase of construction plan had a budget of 40 million dollars
• 2001 to 2010: the second phase of the construction plan had a budget of 45 million dollars

The project was initially to be funded by a loan from the Asian Development Bank (ADB), but ADB later withdrew. After a long period of internal conflict, which also saw the Dharan Airport’s construction plans be shrugged off due to civil war and its eventual transitioned to democracy, Prime Minister Pushpa Kamal Dahal (who was a central figure in the Maoist insurgency) announced the revival of the project.

At that time, an Air Transport Agreement was signed to facilitate commercial flights between Nepal and India. However, due to political instability, Nepal saw three prime ministers in quick succession. when another central figure of the Maoist insurgency, Baburam Bhattarai became the prime minister, the airport was included in the list of national pride projects, with Barsaman Pun serving as Finance Minister in his cabinet.

Start of the scandal and secret dealings behind Pokhara International Airport

On September 20, 2011, the project behind constructing an international airport in Pokhara was revived after Barsaman Pun signed a memorandum of understanding (MoU) with China CAMC Engineering Company. The contract was controversial because it was signed unofficially and secretly, aimed at helping CAMC secure the building contract, reported Misguided Nepal.

The publication went on to claim that different companies should be invited to bid before starting any project. However, Pun signed the MoU before the bidding process began and set an unusually short bidding period of just 10 days. When the Commission for the Investigation of Abuse of Authority (CIAA) sought clarification, Pun claimed the government had dismissed the MoU. Following the controversy surrounding Pun, CAAN reopened bidding for the airport on July 18, 2012.

Airport Technology reported that there were palpable threats of hunger strikes to facilitate the airport’s construction:

” A Facebook group calling on followers to “lobby the government to sign a loan with a Chinese bank” in order to fund the project has gathered 3,636 likes, and in 2013, the head of the Nepal Hotel Association, Bidlap Paudel, even went on hunger strike to try and force the government’s hand into green-lighting a project that he and many other business leaders believed could light a fire under the city’s tourism trade.”

Another controversy arose when China Exim Bank stated that only companies on its list could bid for the international airport project. Although 22 firms obtained bid documents, only 9 submitted bids after Exim Bank’s announcement, with 6 firms not on the list. The top three bidders were all from Exim Bank’s list. Here’s a bit on how much the companies had bid:

CAMC	305 million dollars
Sinohydro Corporation	337.82 million dollars
The third bidder	349.28 million dollars

 CAMC’s bid was 85% higher than the Nepalese government’s estimate. Such exorbitant costs meant that Nepal wasn’t ready to move ahead in the airport’s construction. 

Commission setting 

Former Vice Chairman of the National Planning Commission, Jagadish Chandra Pokhrel, stated that Pokhara International Airport could be constructed in 132 million dollars. He claimed that the inflated costs were to be pocketed by politicians and decision-makers. A senior executive from Buddha Air revealed that the airport project involved kickbacks and commissions amounting to 50 million dollars just for decision-making and contract awards.

In Centre for Social Innovation and Foreign Policy (CESIF)’s publication, the senior executive from Budhha Air, a major airline operator in Nepal, was quoted to have said:

“If Chinese gain traction in our country, the (magnitude of) play of corruption in Nepal will be more than anywhere else. Their intention was to boost their profit by increasing the costs of the airport, which would have also increased corruption…“If CAAN fails to pay the debt, the Chinese could take up operation of the airport, just like the Hambantota port in Sri Lanka*”

[ *China’s debt trap is quoted to be one of the reasons why Mattala Rajapaksha Airport (in Sri Lanka) is dubbed to be emptiest airport in the world.]

He also disclosed that senior Chinese contractors had requested him to lobby for additional components, such as parking bays, promising that this would secure more loans from China. In 2013, China indicated that the project could escalate to 305 million dollars. Ultimately, in 2016, the deal was signed for 215.96 million dollars. This figure was 50 to 70 million dollars more than what the Former Vice Chairman of the National Planning Commission had estimated. 

In 2014, negotiations led to the awarding of the contract for Pokhara International Airport to CAMCE Engineering, with the China Exim Bank agreeing to provide 217 million dollars as decided by the CAAN board. However, CAAN’s General Director, Ratish Chandra Lal Suman, refused to sign the contract, and the CAAN employees’ union opposed it, raising concerns about the government’s ability to repay the loan. As a result, the project faced a postponement.

In 2014, a new controversy arose and Pokhara International Airport’s deal was signed 

In May 2014, under the government of Sushil Koirala, CAAN’s General Director, Ratish Chandra Lal Suman, signed a deal with CAMC for 215.96 million dollars. However, China Exim Bank imposed a condition requiring CAAN to establish a joint escrow account to deposit all income generated from its airports. 

This condition raised concerns about the ability to repay the loan solely from the revenue of Pokhara International Airport, causing project funds to become stuck and delaying construction. Eventually, both parties agreed to use only the revenue from Pokhara Airport.

Eventually, Nepal signed a soft loan agreement for 215.86 million dollars, with 25% of the loan being interest-free and a 2% annual interest rate applied to the remaining amount. This loan must be repaid by Nepal within 20 years. On April 13, 2016, K.P. Oli laid the foundation stone for the airport, and CAMC began construction on November 1, 2017. On January 1, 2023, Pushpa Kamal Dahal inaugurated Pokhara Airport, and this marked the transition of Pokhara Airport into an international one.

Can Pokhara International Airport repay its debt?

Pokhara International Airport has 13 years left to repay its loan from China, following a 7-year construction period and an impending grace period expiration. It will soon need to start making annual interest and principal payments.

• The airport’s ability to meet these obligations hinges on its revenue generation, which is currently projected at about 300 million rupees annually, far below
• The estimated 1.5 billion rupees needed to avoid losses. Without international flights, its financial outlook remains bleak

Not enough revenue 

In the Nepalese fiscal year 2077/78 BS, (AD 2020/2021) Pokhara’s old airport generated a total revenue of NPR 11,59,00,000 (approximately 887,732 USD). It was also reported that STOL aircraft, helicopters, and ultralights would continue to operate at the old airport, while other flights will move to the new airport, with revenues from both airports combined. At that time, Pokhara International Airport needed to generate an annual income of 11.4 million USD, which is 13 times less than the year before. Additionally, the airport must pay 3.2 million USD in interest to China. As of March 2023, the 7-year grace period has ended, and the airport is now required to make installment payments every six months.

The economics of the whole situation was encapsulated in an article in My Republica:

“When the construction of Pokhara International Airport started, the land of the airport was 3106 ropani*. But the airport is built on an area of 3899 ropani. The authority has spent about 8 billion rupees from its own resources to buy the insufficient land. Apart from that, the Authority had initially taken a loan of 22 billion rupees from China’s Export-Import (Exim) Bank to build the airport. It has now increased to more than 28 and a half billion rupees. Out of which 25 percent (7 billion 130 million) has no interest agreement. 2% interest has to be paid on the remaining 75% amount (21 billion 400 million).”

*1 ropani = 5,476 square feet

Nepal is in debt already

The Civil Aviation Authority of Nepal (CAAN) is also under pressure from Gautam Buddha Airport, which has a loan and grant totaling 37 million USD, along with an 11 million USD loan from the OPEC Fund at a low interest rate of 1.5%. This airport is the second largest in Nepal, after Tribhuvan International Airport, and was built at half the cost of Pokhara Airport. At a point in its time, Gautam Buddha Airport had only seen flights from Himalayan Airlines and Jazeera Airways – both of which had suspended flights previously but now there are 150 international flights every month. 

The runway of Pokhara International Airport is only 2,500 meters long, compared to 3,350 meters at Tribhuvan International Airport and 3,000 meters at Gautam Buddha Airport. As a result, large aircraft such as the wide-body Airbus A330 and Boeing 777 cannot land at Pokhara International Airport.

Only regional and short flights can operate at Pokhara International Airport, leaving the authority uncertain about how to repay its debt. This raises questions about whether it is a debt trap from China, as feasibility studies are typically conducted before starting any project to assess potential revenue generation and viability.

Not Financially feasible 

A feasibility study for Pokhara International Airport was first conducted in 1971 by the German engineering firm DIWI, and again in 1988 by the Japan International Cooperation Agency (JICA). As mentioned earlier, the Asian Development Bank withdrew from the project, believing it would not be profitable in the future, while China was eager to provide the loan. China typically offers loans to developing countries for various projects, and when these countries struggle to repay, China often takes the projects on lease for the duration of the loan. This pattern can be observed in many projects funded by China, reported ANI News, which warned Nepal about China’s debt trap: 

” China’s project of cooperation with Nepal, the Pokhara International Airport might be approaching a dubious fate. Built largely with Chinese aid, the airport has come under scrutiny after an explosive investigative report by the New York Times. The much-hyped airport hasn’t seen any frequent international flights except for the chartered Chinese flights. Pokhara airport serves as a stark example of pitfalls associated with importing China’s infrastructure development model. “

China’s Debt trap patterns

In 2010, Sri Lanka took a loan of 1.1 billion USD to build Hambantota Port, which now sees minimal shipping traffic. Unable to generate revenue, Sri Lanka handed the port over to China for 99 years. Some of the others trap of China have included the following: 

Project name	Amount
Pakistan’s Gwadar Port,	USD 57 billion
Montenegro’s highway project	$1 billion
China-Maldives Friendship Bridge	$3.1billion

If Nepal struggles to repay the loan for Pokhara International Airport, it may seek additional loans, potentially leading to a debt trap similar to other countries. This situation raises concerns that, like Sri Lanka’s Hambantota Port, Nepal could end up leasing the airport to China if it cannot meet its financial obligations. Just a day before the inauguration of Pokhara International Airport, the Chinese Embassy stated that the project falls under the Belt and Road Initiative (BRI), a detail not mentioned in the CAAN-China Exim Bank agreement.

No international flights yet 

Nepal has formally requested China to convert the loan for Pokhara International Airport into a grant due to financial challenges. On the day of the airport’s inauguration, the Chief Minister of Gandaki Province, Krishna Chandra Pokharel, requested that the loan be converted into a grant. Given the airport’s financial constraints, repayment seems highly unlikely.

Currently, Pokhara International Airport is only operating domestic flights. Himalaya Airlines, in which Tibet Airlines of China holds a 49% stake, and Jazeera Airways have expressed intentions to offer international flights, but no international services have commenced yet. If the airport cannot facilitate international flights, its purpose is questionable, as domestic flights were already available at the old airport.

Currently, the expenses of Pokhara International Airport are rising, and the recent Yeti Airlines crash has made it more difficult to attract international flights. Most tourists visiting Pokhara are Indian religious tourists, yet no Indian airlines have shown interest in operating there, likely due to geopolitical concerns surrounding the airport’s Chinese funding and construction. Additionally, challenges such as the potential relocation of paragliding activities could impact adventure tourism. A landfill site located just 2 km from the airport poses a risk of bird disturbances, and there are discussions about moving it.

Pokhara International Airport aims to boost tourism, but it its tale might be grim and grimmer.