Proposed Pokhara international airport project snags on price tag

The Civil Aviation Authority of Nepal ( CAAN ) has said that the decision whether or not to move ahead with the development of a regional international airport in Pokhara will depend on negotiations with the project’s lowest bidder CAMC Engineering Co of China.

China Airport Construction Company (CACC), a consultant appointed by the lowest bidder CAMC Engineering Co, submitted its draft feasibility study report to CAAN recently with a revised estimated cost of US$ 264 million. The study has proposed an additional 16 percent as price escalation cost.

As the total cost according to the study amounts to more than US$ 300 million, nearly equal to the price tag quoted by the Chinese company earlier, negotiations between the two parties failed to progress, a high-level government source said.

The bidding process for the airport had been put on hold since July 2012 after CAMC quoted a price of US$ 305 million which is 85 percent higher than the government-estimated cost.

The Cabinet gave the go-ahead to the project after the company agreed to implement it for the government-estimated cost of US$ 166 million or stay within CAAN ’s bill of quantities. After the government’s okay, CAAN assigned CMAC to carry out a detailed study by signing a five-point agreement.  

As per the agreement, CAAN and the Chinese company were scheduled to revise and finalize the project at the end of August. An agreement was also reached that CAAN would finalize the project cost after holding negotiations with CAMC by August.

“We failed to meet these two deadlines as the consultant hired by CAMC failed to submit a complete report,” said a CAAN official.

Meanwhile, government officials said that both the parties are scheduled to sit for negotiations this week. It was also agreed that after the study report is approved, a commercial agreement of the updated loan proposal for the project and other documents to evaluate the project for the China EXIM Bank would be forwarded through the Finance Ministry by September-end.

The bank has pledged soft loans worth $ 145 million for the development of the airport. The agreement also says that the Chinese side will release the funds for the project as per the report by the end of October.

Some officials said that the project had been engulfed in technical glitches again and that a number of legal clauses would have to be cancelled if the project is to be awarded to the company under the current circumstances. “Technically, the government has no alternative but to go for a re-tender.”

In the first week of August, a delegation of EXIM Bank was in Kathmandu to discuss the status of the airport in Pokhara as part of its final assessment to finance the project. However, meetings between government officials and the bank’s delegation ended without a concrete outcome.

On Feb 9, 2012, CAAN had invited bids to build the airport under the Engineering Procurement and Construction model. However, it was forced to extend the deadline twice due to intervention by the Commission for Investigation of Abuse of Authority. On July 18, 2012, CAAN ’s tender evaluation committee had opened the financial proposals for the project.

Subsequently, the project was dragged into controversy with CAAN unions opposing the deal, arguing it was not economically viable under the authority’s existing financial status.

A detailed study of the project conducted by the government in 1989 in association with the Japan International Cooperation Agency had proposed building a 2,500 m long and 50 m wide runway, a terminal and a cargo building. The construction of the airport, expected to be completed in four years, was estimated to cost US$ 39.6 million then.

source:the kathmandu post,13 Sep 2013