By Jennifer Loy

K.P. Oli took office in February as Nepal’s Prime Minister.  His ruling communist party merged with the Maoists and a new party, the Nepal Communist Party, formed.  Meanwhile, foreign relations took an odd turn as it appeared Nepal changed its angle from India and looked toward China.  Xi Jinping’s Belt Road Initiative (BRI) was taking hold and seemed an enticing economic opportunity for the impoverished nation.  India, the once sole strength in South Asia is now in economic and military competition with China.  Indian Prime Minister, Narendra Modi, needed to work quickly to maintain a solid relationship with Nepal, one that is replete with history, as well as assure China the two economic superpowers could work together.  Modi and Xi met to restore relations and Modi and Oli have met a couple of times since the election.  What does all of this mean for Oli?  What angle will he take: the historic with India or the new economic with China?

The Nepali-Indian relationship was strained during the blockade in 2015 in the southern border.  Subsequently, Nepal looked to China for assistance.  Although China could not provide all the nation’s fuel needs, it opened significant talks between the two, leading to big hydropower project agreements, Nepal-China fiber optic connections that ended India’s monopoly on internet in Nepal, now the agreement on railway, access to Chinese port in Tianjin and so on. This has allowed for greater third-party trade, of which India previously had a monopoly. With Xi on the doorstep knocking loudly, Modi realized the need to be a stronger ally.

To promote their economic partnership and maintain their historic relationship, Modi visited with his counterpart in Nepal on May 11-12.  They agreed on several items including transportation and energy. Aviation became a priority, as Nepal is quite limited with its airports.  The Civil Aviation Authority of Nepal and the Airports Authority of India agreed to provide several two-way routes to Nepal, which is constructing international airports in Pokhara, Lumbini and Nijgadh.  During Modi’s visit, they launched a transportation incentive, a direct bus services between Janakpur and Ayodhya.  The Nepali and Indian cities respectively are major Hindu destinations.  The former is believed to be the “birthplace of Sita, the wife of Hindu god Ram, in the epic Ramayana.”  The latter is believed to be the birthplace of Ram and is one of seven holy sites in India.  This bus route will promote religious tourism, a major connecting point between the two nations.

Similarly, Oli and Modi solidified their energy relationship.  They laid the foundation stone for the Arun III Hydroelectric Power Plant.  The 900 megawatt plant, if implemented well, is expected to create thousands of jobs and bring Nepal an estimated $1.5 billion in foreign direct investment over the next five years of its construction.  Although a nation replete with potential hydroelectric power sources, Nepal is unable to deliver its citizens reliable electricity. However, the religious character of Modi’s visit had a mixed effect in Nepal. A geostrategic analyst, Geja Sharma Wagle, said: “the visit was high on style and low on substance.” He said: “Modi repeatedly referred to the age-old religious bond between two countries.”  With whatever motives Modi emphasized the historic and cultural ties with Nepal, what is clear is that maintaining solid relations with Nepal is a must for him.

Oli for his part in his visit to China tried to appease the Middle Kingdom by stating the “the success story of the 21st century will be written as the success story of China” and “our great friend, China, has astonished the world by attaining unprecedented progress in many spheres.”  Did Oli meant those words, or was he just relying on China’s $79.26 million foreign direct investment into the nation (more than twice India’s at $36.63 million)?  Regardless, he was successful in obtaining more Chinese investment.  The two nations signed four Memorandums of Understanding (MoU) concerning construction of hydroelectric projects producing a combined total of 900 megawatts.  China has also promised $130 million in investment for 3000 tons of cement per day.  For a developing nation, these are clearly positive agreements.

Prime Minister Oli is in a very interesting predicament.  With tensions seemingly cooled between Beijing and Delhi, Chinese foreign minister Wang Yi asked India to be part of the endeavor to develop Nepal.  He said: “Whether it’s China or India, our two countries shall be happy to see Nepal’s new development after its political transition.” This statement should be concerning to Oli, and the rest of the world.  How can one country determine another’s economic future, much less invite another to share in the process?  Nepal is a sovereign, legitimate nation and can choose whom to share economic relations, but Oli has a lot to consider.  He needs to also meet the concerns of his people, whether it is resentment for past events and actions or a need for economic advancement.  He needs to understand Xi’s determination with the BRI, as well as Chinese diplomatic norms.  He also needs to understand Modi’s concern for losing regional hegemony.  Geopolitics will always have a hold and Oli will have to maneuver and balance the equation of history and modernity.  Time will tell which angle Oli ultimately relies on.

Jennifer is Research Associate at Nepal Matters for America, Washington DC.