Concrete, Cables & Competition

If all goes as planned, Nepal’s first tunnel road, the 2.5-kilometer Nagdhunga-Sisnekhola tunnel, will open by the Nepali New Year in mid-April 2026. Built with concessional loans from Japan, the tunnel is designed to ease chronic congestion at Kathmandu’s western gateway.

Construction progressed with little controversy but slipped behind  schedule. As completion nears, the Department of Roads has shortlisted 10 international companies for a five year operations contract, to be executed in joint venture with a Nepali firm. Since Nepal has no experience of operating tunnel roads, the government wants a foreign operator paired with a local partner.

On paper,  the contract is technical, covering  day to day management, safety and emergency response, routine maintenance, and traffic management. In practice, however, it gives one operator a long-term presence at a strategic entry point to the capital. That is where geopolitics enters.

Officials involved in the process say that, as the tender progressed, Japan made an unusual  request. It asked Nepal to avoid awarding  the contract to a foreign state owned company,  or to a firm blacklisted by an international financial institution.

The message arrived while Chinese  firms were actively bidding in Nepal, and against the backdrop of procurement rules that leave little scope  to exclude companies on the basis of nationality. Japan’s request surprised many, not least because it amounts, indirectly, to urging the exclusion of Chinese  companies from projects financed  through Japanese assistance. For observers of geopolitical dynamics, however, it underlines a pattern Nepal has faced with growing frequency in recent years.

India, China and the United States are now openly competing for strategic and economic influence  in Nepal. Large infrastructure and telecommunications projects are increasingly  shaped less by development priorities  than by geopolitical  calculations. Nepal is trying to balance  relations with all three powers, even as its room for maneuver narrows. Hydropower, connectivity and transportation, and telecommunications have become the main arenas of this contest.

Hydropower sits at the center of the rivalry. Nepal’s vast generation potential contracts with its dependence on export markets. India remains  Nepal’s dominant electricity buyer and has stepped up investment to blunt China’s entry into the sector. New Delhi’s refusal to purchase electricity generated from projects involving Chinese investment had a chilling effect on Chinese participation in export-oriented projects.

China nevertheless remains a major infrastructure investor. It continues to deploy development capital in projects with long-term strategic value, including the proposed Kerung–Kathmandu transmission line. The US engagement is most visible through the $500 million Millennium Challenge Corporation (MCC) which prioritizes  electricity transmission. While framed  as development assistance, the program  is designed to facilitate cross-border power trade with India, aligning Washington’s intervention, directly or indirectly, with India’s interests.

Connectivity and transportation show similar competition. China’s role is anchored in Belt and Road Initiative (BRI) projects, notably the Kerung–Kathmandu cross-border railway feasibility study, the Kathmandu Ring Road Improvement Project (Phase II), and multiple highway schemes. India’s completion of a detailed feasibility study for a rival Raxaul–Kathmandu railway highlights how infrastructure planning itself has become a geopolitical  battleground. The US presence in this sector is limited, though the MCC includes components aimed at modernizing road maintenance systems.

Telecommunications forms the third and increasingly  sensitive front. Chinese  influence  is entrenched through Huawei, which has secured near-monopoly control over Nepal Telecom’s 2G, 3G and 4G infrastructure and is well positioned to dominate the eventual 5G rollout. This concentration has intensified concerns over long-term technological dependence and strategic vulnerability. The Rs 5 billion tender for a new billing system, recently scrapped, is reported to have favoured a Chinese  firm, heightening these anxieties.

Geopolitically, Nepal is increasingly  constrained. Its efforts to preserve strategic autonomy are weakened by external pressure and domestic political fragmentation. Project delays, policy reversals,  and institutional paralysis have become common side effects of this rivalry. At the same
time, India and the US appear to be coordinating more closely to counter China’s expanding economic footprint, leaving Nepal caught between competing blocs with diminishing space  to set its own development agenda.

Partners, Preferences and a Tunnel

How the tender for managing the Nagdhunga Tunnel Road ultimately plays out, and how Japan responds if the contract goes to a joint venture involving Nepali and Chinese  firms, should become clearer  over time. Even so, the fact that Japan, a long standing development partner of Nepal, has conveyed its preferences highlights the tighter constraints Kathmandu is navigating.

What led Japan to raise concerns about Chinese  participation in the tender is not fully clear. Some observers point to two developments, former  prime minister KP Oli’s presence at a Victory Day event in Beijing on 3 September 2025,  and a wider cooling in Japan China relations.

China had initially invited President Ram Chandra  Paudel, but he declined, citing Nepal’s close ties with Japan. Paudel received the Grand Cordon of the Order  of the Rising Sun, one of Japan’s highest civilian honours, in 2022. In Kathmandu, some see this as one reason he was cautious about attending a Beijing event framed  in historical terms that can be sensitive for Japan.

Oli’s party defended his attendance. Others in Nepal, however, worried  it could be read in Japan as needlessly  provocative, and at odds with Nepal’s usual practice of steering clear of symbolic gestures that might unsettle key partners. A senior official involved in the tender process said the legal room for maneuver is limited. “There is no legal provision that allows us to exclude companies based  on nationality. The public procurement law does not permit this. Accepting  such a condition could land us in legal trouble,” the official said.

The Public Procurement Act 2007 does not provide  for excluding bidders  on the basis of country of origin, which makes it difficult to apply donor  preferences in a formal way. Despite the concerns described by officials, six Chinese  firms submitted bids, each in partnership with a Nepali company. When  technical bids were opened, six of the ten submissions were joint ventures involving Chinese  companies, Gansu Hengtong Road and Bridge Engineering  Co Ltd, Shaanxi Road and Bridge Group Corporation Ltd, Jiangxi Tianfeng Construction Group Co Ltd, China First Highway Engineering Co Ltd, Chongqing  Yuxin Road and Bridge Development Co Ltd, and Yangken Railway Construction Group Co Ltd. Officials said the firms are fully or partly state owned. Shaanxi is listed on the Shanghai Stock Exchange, with the state holding a 30 per cent stake. The others are described as wholly state owned.

Officials say Japan’s focus was on two issues, whether any bidders  had been  blacklisted by international financial institutions, and the implications of state ownership. Keshav Kumar Sharma, then ministry secretary, said Japan was particularly  interested in how Nepal would treat companies blacklisted by institutions such as the World Bank and the Asian Development Bank. Another senior  roads official said Japan had also raised  concerns that foreign state owned companies could affect competition.

Nepali officials say they remain bound by the criteria set out in law. The project chief, Saujanya Nepal, said, “We started the procurement process under the Public Procurement Act, which has no provision to bar a company based on country of origin. We will evaluate bids using the same criteria, regardless of where the company is from.” He added that the financial proposals of those that pass the technical evaluation would be opened, and the contract awarded accordingly.

The Nagdhunga Tunnel episode shows how external preferences can surface late in the process, particularly  around who operates, and remains  present within, critical infrastructure. Officials say such messages often  come framed  as concerns about reputational risk, blacklisting, or the effect of state ownership on competition, even as Nepali agencies remain legally responsible for the award, its defence, and its implementation. They add that similar sensitivities are increasingly felt in some of Nepal’s higher risk technology procurements too.

Telecom at the Crossfire of the Global Rivalry

Nepal’s strategic squeeze is most visible in the telecommunications sector. The government’s plans to roll out 5G have been  stalled for years, and a major software procurement at the country’s largest state owned operator was scrapped again recently.

After the interim government was formed  in September 2025,  the Ministry of Communication and
Information Technology halted Nepal Telecom’s tender to replace its billing system. Ministry sources say Chinese vendor Huawei was widely expected to win the contract.

The tender, worth nearly Rs 5 billion, was issued in April 2025. Only two Chinese  companies, Huawei and Whale  Cloud, submitted bids. With the tender now scrapped, ministry sources say the value of the new billing tender could rise. Public procurement rules require contracts to be awarded to the lowest bidder. Under this structure, US and European firms were effectively unable  to compete, even though companies from the United States, Sweden,  the United Kingdom, and Ireland had expressed interest. These  included  CSG International, Oracle, Netcracker Technology (formerly Amdocs Netcracker), Cerillion, and BearingPoint, among others. In total, six companies were said to have explored the opportunity, suggesting the tender drew attention well beyond the two bidders  who ultimately submitted bids.

Nepal Telecom has relied on AsiaInfo’s billing system for 15 years. Efforts to replace it have dragged on for more than five years. During Sunil Paudel’s tenure as managing director, Nepal Telecom signed a 4+1 year annual maintenance contract with AsiaInfo. According to Rabindra Manandhar, Nepal Telecom’s spokesperson, the current agreement allows the system to remain in use until September 2027.

While the extended timeline reduces immediate operational risk, it also prolongs dependence on ageing software. Sources  at Nepal Telecom describe a geopolitical  tug of war over the billing system. The US reportedly wants to introduce its own system, while China treats the issue as a matter of prestige. “If you want to see what geopolitical  interests look like in a small country, just look at this billing system,” an official at the state owned operator said.

Regardless of geopolitics, the operational problem  is straightforward. Running a 15 year old billing system has damaged Nepal Telecom’s credibility and performance. Persistent billing errors and service disruptions hit customers first, reduce revenue collection,  and weaken competitiveness in a market where trust and uptime  matter.

While India has rolled out 5G and announced an ambitious path towards 6G, Nepal’s 5G project, first announced nearly three years ago, remains  stalled. The reasons are no longer purely technical.

Nepal Telecom has relied on Huawei technology for decades. Huawei built much of its 3G and 4G infrastructure and was expected to play a key role in a 5G rollout as well. Officials do not openly admit US pressure to drop Huawei, but some privately acknowledge it. Against this backdrop, Nepal Telecom announced multiple timelines  for 5G trials and repeatedly missed them. Trials that did take place were limited, internal, and largely symbolic. Meanwhile, Ncell, the private operator, has not received approval  for 5G trials.

The delay in rolling out 5G is tied to the role of Chinese companies in Nepal’s telecom sector. For its Rs 19 billion nationwide 4G expansion, Nepal Telecom hired ZTE and Hong Kong based China Communication Service International (CCSI). ZTE supplied core network equipment, while CCSI oversaw the installation and testing of Huawei radio equipment. The deal also included a commitment from ZTE and Huawei to supply trial 5G equipment at no cost.

The government budget for the current fiscal year announced that Nepal Telecom would roll out 5G. In line with that, Nepal Telecom formed  a committee to decide  between standalone (SA) and non-standalone (NSA) 5G. Standalone requires building both the core network and the radio access network from scratch. Non-standalone allows the existing 4G core network to be used.

A senior Nepal Telecom official says the committee recommended standalone. “Standalone mode allows multiple suppliers  to participate in bidding,” the official said. “It will be costlier than non-standalone because both the core and the RAN networks are new.”

Given Huawei’s dominance in Nepal Telecom’s network, expanding the existing 4G core would have been  cheaper. But geopolitics appears to have influenced the preference for standalone. Manandhar said he was not aware  of the committee’s recommendation.

Nepal cannot simply exclude  Huawei without risking fallout with China. Standalone bidding allows multiple bidders  and, at least in theory, addresses US concerns. The US and India have reportedly pushed Nepal to limit Huawei’s role in 5G infrastructure.

During Sher Bahadur Deuba’s tenure as prime minister, US Ambassador Randy Berry raised the issue directly with Deuba. A source described the tone as “somewhat harsh rather than diplomatic.”

Berry served as US ambassador from 2018 to 2022.

Huawei remains deeply embedded in Nepal’s telecom ecosystem. Experts warn that Nepal may struggle to launch 5G successfully without it.

In December 2025,  Nepal Telecom announced a possible standalone 5G network with open  bidding, separate from the existing 4G network. If implemented, the move would effectively end Huawei’s role in the 5G rollout.

Officials insist the decision  is based  on internal assessments, not geopolitics. Skeptics, however, are not convinced. “There has been speculation for years that the delay is geopolitical,” said a former Nepali ambassador and security analyst. “We cannot pretend otherwise.”

Hydropower caught between neighbors

It has been  more than five years since Nepal sought India’s approval  to export electricity from the 456MW Upper Tamakoshi Hydropower Project. Nepali officials say New Delhi has ignored  repeated requests, partly because the scheme was built with the involvement of a Chinese contractor.

Nepal began  exporting electricity to India in November 2021. But it must operate under Indian rules that restrict imports from Nepali projects linked to Chinese investors, contractors, or equipment. The effects have been  swift. Chinese  interest in Nepal’s hydropower sector has cooled, while Indian investment, particularly  from state owned firms, has grown.

On January  4, 2024,  a long term power  trade agreement was signed at Singha Durbar by then Energy Secretary Gopal Prasad Sigdel and Indian Energy Secretary Pankaj Agrawal. Under the deal, India will purchase 10,000 MW of electricity generated in Nepal over the next decade. For Kathmandu, the agreement promises a stable export market. It also underlines a hard reality, exports to India are far more viable than exports to China because the cross border transmission network points south, and India sets the market rules. China Three Gorges Corporation  withdrew from the West Seti project, citing the lack of a guaranteed market for the electricity, among other reasons. China Gezhouba Group Corporation did not proceed with the 1,200MW Budhi Gandaki hydropower project, prompting the government to take the licence back. West Seti, along with the Seti River 6 (SR 6) project, is now being developed by India’s NHPC Limited.

Officials also point to the Arun basin. The government awarded it to India’s SJVN Limited, which is also building Arun 3. SJVN (Satluj Jal Vidyut Nigam) has obtained licences for Arun III (900
MW), Lower Arun (679 MW) and Arun IV (490 MW), and is seeking approval for the Tamor (769 MW) project. Tamor was one of two storage projects discussed during Chinese President
Xi Jinping’s 2019 visit to Nepal, and in 2020 the Investment Board signed an MoU with PowerChina to undertake feasibility studies and begin construction. That initiative has since stalled.

Another Indian state owned firm, NHPC, has signed agreements with Investment Board Nepal to advance the West Seti (750 MW) and Seti River 6 (450 MW) projects, and has also received approval to develop the 480 MW Phukot Karnali project in partnership with Vidyut Utpadan
Company Limited. Phukot Karnali was initially expected to move forward under Nepal China cooperation following Nepal’s accession to the Belt and Road Initiative in 2017. However, with many BRI linked projects frozen, the government has increasingly turned to Indian partners for large hydropower developments.

Former Prime Minister Sher Bahadur Deuba  later acknowledged that the project was awarded to India because New Delhi would otherwise refuse to purchase the electricity, laying bare how geopolitics is shaping Nepal’s hydropower future.

India’s reach extends beyond project awards  to financing. Until late 2023, the World Bank appeared ready to lead a consortium to fund the 1,061MW Upper Arun project in Sankhuwasabha, while the Asian Development Bank focused on the 635MW Dudhkoshi storage project.

But World Bank financing comes  with a standard condition: upstream and downstream riparian countries must not object to major hydropower schemes. Former  finance minister Barsa Man Pun told New Business Age that the Bank sought clearances from China, India, and Bangladesh. China and Bangladesh raised no objections, he said, but India signalled reservations, leaving the Bank hesitant.

Kathmandu had expected the process to be routine. It was not. A former  energy  minister, speaking on condition of anonymity, said India wanted the project awarded to an Indian developer. “The Indian side never  stated this outright, but the message was unmistakable,” the former  minister said.

The World Bank has not formally withdrawn, but former  energy  minister Kul Man Ghising later said the absence of a clear signal left Nepal with little choice. On 25 November, his ministry announced that Upper Arun would rely on domestic financing, a move framed  as both pragmatic and assertive.

With SJVN already constructing three downstream schemes, Lower Arun (669MW), Arun 3 (900MW), and Arun 4 (490MW), India sees value in shaping  the entire cascade. Above Upper Arun lies the proposed 454MW Kimathanka Arun, near the Chinese  border. A former minister said India may want “an integrated ecosystem” of projects involving Indian companies across the basin.

Nepal had wanted to develop Upper Arun itself, partly as a strategic buffer between India and China. Officials say Kathmandu had also hoped China would develop Kimathanka Arun, a request Nepal made as early as 2016. With India embedded across the Arun  corridor, that option looks less likely.

Ashish Garg, vice president of the Independent Power Producers’ Association,  Nepal (IPPAN), argues India’s push for Upper Arun is driven by a desire  to keep China out of the Arun river system. In his view, Nepal’s dependence on India, to export surplus electricity in the monsoon and to import power  in winter, has become a source of leverage.

India is now Nepal’s benchmark market. When  there is excess  electricity during the monsoon, Nepal sells south. When  there is a shortfall in winter, it imports from the same neighbour. Looking ahead,  if Nepal reaches its target of 28,500MW within a decade, domestic demand will not absorb the supply. Much of it would still need  a route to India. Electricity has become a strategic commodity.

From New Delhi’s perspective, hydropower sits within a wider geopolitical  contest with China. Under  Prime Minister Narendra Modi’s “Neighbourhood First” policy, Nepal is a key arena. The power  sector, especially hydropower, is one of the main tools India sees for maintaining influence.

That shapes how rules are written and how decisions  are made, from market approvals and purchase agreements to ownership structures, contractors, and equipment. The pressure is rarely formal, Nepali industry figures say, but it is felt.

Critics argue that awarding  strategic projects to Indian state owned companies without competitive bidding undermines transparency and national interest. The Public Private Partnership and Investment Act, 2019 mandates fairness  and competition in project selection, yet these concerns have not produced sustained political resistance.

As Indian firms consolidate their position, Chinese  companies are withdrawing. India’s refusal to buy power from projects involving third country investment has made many China linked ventures commercially unviable. Sichuan Wangping Energy Science and Technology surrendered survey licences for the Humla Karnali 1 and Humla Karnali 2 projects, which were later transferred to a Nepali firm.

China was Nepal’s dominant supplier of hydropower equipment until the COVID 19 outbreak. Since then, developers have shifted away. Ganesh  Karki, president of IPPAN, estimates that about 10 percent of hydropower equipment now comes from China. Of the remaining 90 percent, he says 50 to 60 percent comes  from India, with most of the rest sourced from Europe.

Developers describe COVID 19 as the turning point. Foreigners were barred from entering China for roughly two years, while Chinese  suppliers  also struggled to travel, disrupting orders and after sales support. Many Nepali firms began  searching for alternatives. “When Chinese  equipment dominated the Nepali market, it was about half the price of European equipment,” Karki said. Over time, European manufacturers shifted  production to India, and supplies  routed via India became cheaper than sourcing from China.

Geopolitics has reinforced the trend. In February 2021, India introduced the Procedure for Approval and Facilitating Import and Export of Electricity (Cross Border Trade of Electricity). The framework restricts Indian traders from dealing in power  linked to investment from countries that share a land border with India, when the third country does  not have a bilateral power  cooperation agreement with India.

In practice, Nepali developers say India has sought project specific details, including investors, contractors, and equipment. They say projects with Chinese  links have been  excluded from eligibility to export power  to India.

Even private developers, who sell electricity to the state owned Nepal Electricity Authority, have adjusted their choices. They worry that if their projects are later deemed ineligible for export to India, the Authority may struggle to monetise surplus power.  “It is not only geopolitics,” Karki said. “But there is a feeling in the private sector, why take the risk, considering what might happen in the future?”

Foreign solar projects stalled

India-China rivalry is also shaping  Nepal’s solar pipeline. Two large foreign-funded solar power projects have stalled, showing  how geopolitics can block approvals even before  procurement begins. Risen Energy Singapore JV, linked to a Chinese parent but based in Singapore,  was expected to sign a project development agreement (PDA) with the OIBN during the 2024 Nepal Investment Summit. However, the $190 million deal did not materialize. OIBN has not offered a public explanation on why the deal failed.

Risen had proposed two 125MW solar plants in Banke and Kapilvastu. Both sites were designed with battery storage to shift about 20MW  of daytime  generation to morning and evening  peak hours. Officials say the delay stemmed from Indian objections to a large Chinese-backed project near its border.

Preparatory work for the two projects began in 2021 when then OIBN CEO Sushil Bhatta and Wang Qiyang of Risen Singapore signed an agreement to conduct a detailed feasibility study. Progress slowed  during the pandemic, even though the Department of Electricity Development had issued a survey license.

Risen was to finance the entire investment. The company,  listed on the Shenzhen Stock Exchange,
manufactures its own photovoltaic panels. It has prior experience in Nepal as the main contractor for the NEA’s 25MW Devighat solar plant in Nuwakot, which is now operational.

A source close to the project told New Business  Age that Banke and Kapilvastu projects would require India to be more accommodating to move forward.  According to the source,  the PDA was stalled due to direct Indian intervention.

Risen had already deposited $1 million and spent significant amounts on surveys,  reports, and office operations. Even after the plan to sign the PDA failed, discussions between IBN and Risen have continued. OIBN has since introduced additional conditions. OIBN CEO Sushil Gyewali
said the board  now prioritizes  solar projects that can supply power during peak evening  demand. Risen was therefore asked to submit a revised plan incorporating battery storage.

“Our requirements for solar projects have changed. We do not just need daytime  generation. The plant must supply power  even in the evening, when demand surges,” Gyewali said. “That is why we asked the company to prepare a plan that includes battery storage.”

Even if Risen submits a revised proposal, approval  is not guaranteed. Gyewali says the project would follow a Swiss-challenge model. “First, Risen Energy will be asked to offer a price for solar energy,  and other developers will be asked to submit competing bids,” Gyewali said. “If a lower bid emerges, Risen would be given the option to match it. If it declines, the project could be awarded to another bidder.”

A second major solar project has also stalled. In 2018,  IBN allowed  a European firm, Dolma Fund
Management, to survey a 150MW solar project in Mustang, near the Chinese border. Dolma completed preparatory work and was ready to proceed. However, then-Industry Minister Matrika Yadav asked OIBN to cancel the agreement.

The decision  was widely seen  as linked to Chinese  pressure, given Mustang’s strategic location  and its sensitive history along the northern border.

Friendship park faces Chicken Neck sensitivities

China-Nepal Friendship Industrial Park was another project whose PDA could not be signed during the 2024 Nepal Investment Summit in May, citing a lack of preparation. According to sources at the OIBN, India had expressed reservations about projects involving Chinese investment close to its border in Damak of Jhapa. As a result,
agreements related to the industrial park were put on hold. Because the site is close to the Indian border,  officials said there was pressure not to proceed, citing potential security risks to India.

“Due to India’s suspicion  regarding the industrial park, then-Prime Minister Pushpa Kamal Dahal conveyed to promoters that the PDA would not be signed until some understanding is reached with India,” an OIBN official told New Business Age last year.

A large Chinese  delegation had already arrived in Nepal to sign the PDA.

The situation changed after KP Sharma Oli returned as prime minister in July 2024 with the backing of the Nepali Congress. On November 28, 2024,  a meeting of the OIBN Board of Directors, chaired  by Oli directed the OIBN to submit the final draft of the PDA, planned in his home district, within two months.

Later, during Oli’s visit to China, an agreement was signed to implement the project under the Belt and Road Initiative (BRI). That was Oli’s first foreign visit as the Prime Minister even though Nepali Prime Ministers have a long-standing custom of making India their first port of call after assuming  office. The China visit was planned as Oli did not get an official invitation from India despite waiting for a long time.

“There still are complications in implementing the project because Indian reservations still exist,” the OIBN official said. The official added that the PDA process has been put on hold despite Oli’s instruction due to India’s concerns.

The site for the industrial park lies about 60 kilometers west of the Kakarbhitta border point. Across the border lies India’s sensitive Siliguri Corridor, which connects its northeastern states. Known as the “Chicken Neck”, the area is strategically sensitive for India.

However, Gyewali said geopolitical factors were being overstated. “The PDA was not signed during the Nepal Investment Summit mainly due to inadequate preparation,” he said.

OIBN officials say several  policy, tax, and lease-related issues of the industrial park are still not resolved.

Chinese  investors have sought tax exemptions for both the industrial park developer and the industries operating within it. They also want facilities similar to those offered in Special Economic Zones (SEZs). Since the project is an industrial park, not an SEZ, the SEZ law could not be applied directly.

“Our approach is that industries inside this park can receive  SEZ-like facilities if they meet export requirements set by the SEZ law. Industries serving the domestic market will get facilities similar to those in industrial estates,” Gyewali said. “The government is ready to support export-oriented industries with SEZ-level facilities. But tax exemptions for industries producing for the domestic market require  further discussions with the finance ministry.”

The OIBN has also urged Chinese promoters to allow companies from any country to operate within the park.

Asked whether the project could proceed without India’s tacit understanding, Gyewali said India’s concerns should be addressed, if they are raised. “I have not been  informed of India’s concerns regarding this project,” Gyewali said.

The industrial park illustrates Nepal’s strategic tightrope. Its location  near a sensitive border allows security concerns to overshadow economic logic. The project has become a test of how Nepal balances neighborly sensitivities without stalling its own industrial ambitions. Arun Subedi, former foreign policy advisor to then-Prime Minister Deuba,  said Nepal must recognize the sensitivity of India’s north-eastern frontier, especially the Siliguri Corridor. “The ‘Chicken’s Neck’ has always been  India’s most sensitive area,” he said.

With tensions rising between India and Bangladesh, Subedi said Nepal should be particularly cautious. “If Nepal brings Chinese contractors to Jhapa under  the pretext of river works or similar projects, how would India receive  that? We must understand these sensitivities,” he said. “Just
as China closely watches activity in Mustang and along the northern frontier, Nepal must respect the concerns of both sides while continuing development.”

Rules, Rivalries, and Risk 

Across sectors as different as road tunnels and telecommunications, Nepal is learning that development now comes  with unwritten conditions. These terms do not appear in loan documents or policy papers. They surface instead through diplomatic  conversations, informal warnings, delayed  approvals, and concerns shared quietly behind closed doors.

When  a project is seen  as strategic, whether it controls access to Kathmandu or sits at the core
of a national  telecom operator, procurement can turn into a stage for bigger rivalries. Analysts say the tunnel and telecom cases fit a long-established pattern. External powers have always treated
aid and strategic projects in Nepal as matters of influence. “Foreign aid and geopolitical  interest have been  present since Nepal started receiving assistance in the 1950s,” said journalist Sudheer Sharma who is also the author of acclaimed  books like Monks, Trade and Rebellion and The Nepal Nexus. “During King Mahendra’s rule, India objected strongly to the construction of the Kodari Highway. Under the Panchayat system and King Birendra’s rule, the state still managed to balance these pressures. Today, state institutions are weaker and geopolitical  pressure is stronger. This maneuvering will continue. Nepal’s real challenge  is to manage  it skillfully."

As competition among major powers reshapes the global order, even small countries are feeling the strain. In Nepal, projects that once seemed economic or technical are now treated as contests over influence, especially in infrastructure and technology. Geography makes this unavoidable. Nepal lies between two rival powers, India and China, and it also draws  steady attention from the US. That leaves Kathmandu navigating  an external environment that is getting  more crowded and sensitive each year.

Nepal has faced this before. It once backed  away from awarding  a section of the East-West Highway to China, largely to address Indian concerns. For more than two and a half centuries, balancing powerful neighbors has shaped Nepal’s foreign policy. What has changed is the intensity and the range of arenas where rivalry shows up.

Nepal is again at a crossroads. But the stakes now go beyond diplomacy. They affect the pace of development and the space  for sovereign decision-making. That leads to a hard question: can Nepal modernize critical infrastructure while keeping  decisions  within its own institutions?

Foreign policy experts and economists say Nepal’s position is partly self-inflicted. Successive governments have failed to maintain a balanced foreign policy, often prioritizing short-term politics over national interest. The disputes around the US-backed MCC and the China-backed BRI exposed deep fault lines in Nepal’s diplomacy and its handling of large infrastructure projects.

Dr. Poshraj Pandey, an economist and former senior adviser at the Finance Ministry, says this is a diplomatic  failure on our part. “Bangladesh managed to mobilize funding from China, India and the World Bank during Sheikh Hasina’s rule. When  diplomacy is used well, getting  things done is not that difficult. In Nepal, we have not managed it well.”

In the past, external influence  came through formal channels, donor conditions, structural reforms,  and clauses  written into agreements. Those  pressures were disputed, but visible. Today’s influence is subtler and harder to name. Decisions that once hinged on feasibility studies and procurement rules are now shaped by another calculation:  who might be offended if this goes ahead?

One consequence of this shift is that domestic institutions absorb  the political risk of choices shaped elsewhere. Ministries clash over tenders. Regulators delay decisions. Agencies are blamed for decisions that were never fully in their control.

But development cannot pause. Roads must be built, border points must function, telecom networks need  upgrades, and livelihoods still depend on export markets. Nepal needs procurement decisions that can be defended under  its laws, and institutions strong enough to absorb external pressure without freezing projects. It also needs better coordination, so that no single agency  carries the risk alone.

"Before building Gautam Buddha  International Airport or Pokhara  International Airport, we should have taken India into confidence,” Pandey  said. “We should have explained  the costs and benefits and been  able to say this would not harm India. Even with the Kathmandu-Tarai Expressway, India objected to Chinese contractors and refused to supply explosives.  This points to a broader diplomatic  failure."

Sharma argues that faster development will require  stronger decision-making capacity at home and clearer ways to prevent strategic rivalry from turning routine projects into long delays. One  option,  he says, is to bring more neutral partners. “The Gulf states are also interested in investing,  and are also Nepal’s main source of remittances. Their relative  neutrality could reduce the risk of being pulled into an India-China-US  cold war," he added.

Pandey  says Nepal cannot afford a situation where both neighbors become veto players over major projects. “Our statecraft must be stronger. We need leaders and diplomats who can work with both sides,” Pandey  said. “If both India and China begin blocking projects, Nepal will slide into deeper trouble.”

(The cover story of February 2026 issue of New Business Age magazine.)