21 Oct 2019
Record BRI-backed FDI Investment Cements China-Nepal Relationship
China's US$360 million funding for state-of-the-art cement plant represents new overseas investment record for Nepal.
Due to increased Nepali-Chinese joint-venture investment within the wider Belt and Road Initiative (BRI) framework, Nepal is now largely self-dependent with regard to cement supply. This major step forward for the Himalayan country was acknowledged by a recent statement from the Cement Manufacturers' Association of Nepal, one of the nation's leading trade bodies.
It's a fortuitous development given that Nepal has embarked on an ambitious infrastructure programme – again supported by BRI backing – that encompasses building bridges, laying new roads, developing its hydropower resources and extending its telecommunications network. Underpinning these projects, of course, is a continued and growing demand for cement. Although the country still imports a small amount from overseas, the volume of imported clinker – the base material required for cement manufacture – has already dropped significantly.
Annual market demand for cement in the country stands at about 10 million tonnes (about $1.3 billion in value terms). Over the course of the fiscal year that ended 16 July, Nepal imported $11 million worth of cement, a slight increase on the $10 million recorded for the previous fiscal year. Over the same period, though, clinker imports plunged to $102 million, down from $263 million for 2017-18.
China-backed projects have played a major role in raising the level of domestic production. Representing total investment of nearly $360 million, the Hongshi-Shivam Cement facility was the country's first modern cement plant and the destination of the highest level of foreign direct investment (FDI) in Nepal to date.
A joint venture, Hongshi-Shivam is 70%-owned by Hong Kong Red Lion Cement No. 3, a subsidiary of China's Hongshi Group, and 30%-owned by Nepal's Shivam Holdings. The plant extends across 66.7 hectares and has a production capacity of 6,000 tonnes of clinker a day, as well as a waste heat power-generation system with a capacity of 12MW. The factory was built in just 16 months and completed in May 2018. With an annual clinker cement output of about two million tonnes – about a quarter of Nepal's total clinker cement output – it has substantially plugged the demand previously met by imports, saving the country about $200 million in foreign-exchange costs.
A further China-backed cement project was launched in December 2017 when the Investment Board of Nepal (IBN), a government agency, announced it had signed a preliminary agreement with China's Huaxin Cement Company to build another plant. This major factory comes with an overseas investment tag of about $140 million, making it the country's second-most sizable FDI project. To deliver on the development, Huaxin Cement teamed up with a local entrepreneur – Suraj Vaidya, the former President of the Federation of Nepalese Chambers of Commerce and Industry – to establish the Huaxin Cement Narayani joint-venture vehicle, which agreed a project investment deal with the IBN in June last year.
The new plant will produce 3,000 tonnes of cement a day and provide about 1,000 jobs. The company has already purchased about 25 hectares of the land for the plant's construction at Panikharka in the country's mountainous Dhading district. Following a global tender, it has also acquired a limestone mine from the Department of Mines and Geology at a cost of NPR600 million ($5.25 million).
Despite the success of the Hongshi-Shivam plant, both projects highlight the resilience foreign investors need to demonstrate in order to overcome Nepal's particular challenges. During the construction phase, Hongshi Cement, for instance, continually faced problems related to the required implementation of access roads, electricity transmission lines and other necessary infrastructure items.
The company reported it had to find $10.5 million from its own resources to complete roadworks it hadn't budgeted for. Similarly, Huaxin Cement Narayani ran into difficulties when a land rental agreement was unexpectedly cancelled as a planned factory compound allegedly encroached on public land. Subsequently, however, the government ruled in its favour and the agreement was restored, ensuring the project could be duly completed.
Geoff de Freitas, Special Correspondent, Kathmandu