For the Pokhara International Airport to be commercially successful, Nepal has to target Indian and Chinese tourists and establish direct flights to major cities of the two countries. Sadly, none of these has happened till date. While CAAN has been claiming that some international airlines have shown interest to start their flights to Pokhara, they are yet to realize.
Even before the airport was inaugurated, Nepal’s leading private airline, Buddha Air had announced that it would start Pokhara-Varanasi flights from the new international airport. The airline had said that it was preparing for three weekly flights from Pokhara to Varanasi as well as flights from Pokhara to Delhi. Aviation experts say the government should start diplomatic initiatives with India. According to them, a special agreement should be made with India to make both international airports in Pokhara and Bhairahawa operational. No aids, only concessional loans In 2014, Luo Yan, chairman of the China CAMC Engineering Co. Ltd., and Ratish Chandra Lal Suman, director general of CAAN, had signed a contract worth $215.96m for the construction of the airport. Then, on 21 March 2016, China Exim Bank and the Government of Nepal signed a government concessional loan (GCL) agreement worth RMB 1.37bn for the Pokhara International Regional Airport Construction Project. According to AidData, a research lab based in Washington DC, 25 percent of the loan value (RMB 355.9m) was provided without interest and with a maturity period of 20 years and a grace period of 7 years. The remaining 75 percent of the loan value (RMB 1.02bn) was provided at a 2 percent interest rate, 20-year maturity period and a 7-year grace period. The AidData report further says Nepal used the proceeds from this loan agreement to on-lend to CAAN at a 5 percent interest rate (with a 20-year maturity period and a 7-year grace period) through a Subsidiary Loan Agreement (SLA) that was finalized on 5 June 2016. The airport construction project was delayed after China Exim Bank set a condition that a joint escrow account should be set up into which CAAN—the project executing agency—would have to deposit the income generated from all its airports, according to the report. CAAN refused to do so which delayed the release of the project funds, and construction of the airport stalled. However, CAAN and China Exim Bank eventually agreed in 2017 to only deposit revenues generated by Pokhara International Regional Airport into the escrow account. It involves the construction of a 2,500-meter-long and 45-meter-wide airport that can accommodate medium-category jets like the Boeing 757 and the Airbus A320. It also involves the construction of an apron, international and domestic terminal buildings, an air traffic control tower, a cargo terminal building along with an airport hangar, AidData report says. Vijay Kant Karna, executive chairperson at Center for Social Inclusion and Federalism (CESIF), says there is no aid component as it is 100 percent loan taken from the Chinese bank, so it is inappropriate to publicize it as aid from China. “The only concession is that we do not have to pay the interest of 25 percent loans,so if we say it is a loan it gives another message to the public,” he adds. Questions of viability A study conducted by CESIF observes that the airport is an example of the state driving a development project for the sake of political imagination, while muting concerns about commercial viability and corruption. According to the report, Pokhara airport is not economically viable and CAAN “would be under pressure to make investments for Pokhara International Airport.” CAAN, as a regulatory agency, runs on the revenue generated from commercially viable projects and also bears the cost of construction and operation of commercially non-viable airports. It is not yet clear who is going to pay the gap between repayments and revenue for the airport. Even once the airport is constructed it will have significant technical shortcomings, limiting commercial viability. According to the CESIF report, given the geography and climate of the region, the airport operating minima are problematic, limiting the operation of big aircraft. Questions about commercial viability and national interests also came to the fore when the Exim Bank of China insisted that an escrow account should be opened into which the CAAN would deposit the income generated from all its airports. The work over airport construction was thus delayed for months in early 2017 over the issue, the report says. After intense negotiations, the Exim Bank issued a letter in April 2017, saying it had amended its earlier condition, allowing CAAN to deposit revenues generated by Pokhara International Airport. Jagadish Chandra Pokharel, former vice chairman of the National Planning Commission, says that the Pokhara International Airport’s actual cost was only $132m. In the research by CESIF, Pokharel further says, the airport could have been built at a cost of $100m. “There are so many inconsistencies and irregularities to suggest Pokhara airport will become a burden to the country,” he says. Pokharel’s opinion is echoed by a senior government official with direct knowledge of the developments regarding the airport. He says senior Chinese contractors, in Dec 2017, had requested him to lobby to add several components to the airport like parking bays, promising they would get more loans from China. “Their intention was to boost their profit by increasing the costs of the airport, which would have also increased corruption,” says the official. He suspects that China could have long-term geo-strategic interests in the operation of the Pokhara International Airport. “If CAAN fails to pay the debt, the Chinese could take up operation of the airport, just like the Hambantota port in Sri Lanka.” Is China ready to convert loans into grants? It is certain that Pokhara International Airport cannot pay the loan to the Chinese bank. That is why some Nepali politicians have started requesting the Chinese side to convert a 75 percent loan into a grant. But there have not been any negotiations between the two sides over the matter. This is likely to cause friction between Nepal and China. Tourism sector awaits international flights With the construction of the international airport, there was an expectation that they would see a huge number of tourists. Many new hotels were built around the airport. People who were already involved in the hospitality industry expanded their investments. Almost more than half of tourism entrepreneurs took loans to expand their business for which they have been paying high interest. But their returns so far have been dismal. Every day, they turn their heads up to the sky to count how many planes are landing in the city. “I always hope to host a number of guests in our hotel,” says Sita Kunwar, owner of a new hotel near the Pokhara International Airport Gate. She invested around Rs 20m to build the hotel, but now she is worried about paying off the loan. Another hotel owner Bhuwan Bhandari shares a similar plight. With an assumption that the number of foreigners and business persons will pour in Pokhara once the airport comes into operation, he upgraded the hotel, but the visitor numbers to the city have not increased as expected. Bimal Karki also shifted from Kathmandu to Pokhara with the hope of setting up a hotel business. He built a hotel near the airport but now fears his investment could sink. Considering the benefits of the international airport, 25 trekking agencies, almost a dozen travel agencies, and almost 100 new hotels have entered the tourism business in Pokhara. They now stare at an uncertain future.
