ASIAN DEVELOPMENT BANK

PPA:NEP 18194

PROJECT PERFORMANCE AUDIT REPORT

ON THE

SECOND TRIBHUVAN INTERNATIONAL AIRPORT PROJECT (Loans 388/783/936-NEP[SF])

IN

NEPAL

November 1999

CURRENCY EQUIVALENTS Currency Unit Nepalese Rupee/s (NRs) At Appraisal (October 1978) NRs1.00 $1.00 = = $0.083 NRs12.000 At Project Completion (May 1996) $0.018 NRs55.800 ABBREVIATIONS CAAN DCA DPT EIRR FIRR ICAO IPT m m2 OAC O&M OEM PCR PHP PMO PPAR SDR TA TIA TIAIP Civil Aviation Authority of Nepal Department of Civil Aviation domestic passenger terminal economic internal rate of return financial internal rate of return International Civil Aviation Organization international passenger terminal meter square meter operations/airlines building and control tower operation and maintenance Operations Evaluation Mission project completion report peak hour passenger project management office project performance audit report special drawing right technical assistance Tribhuvan International Airport Tribhuvan International Airport Improvement Project NOTES (i) (ii) The fiscal year (FY) of the Government ends on 15 July. In this report, $ refers to US dollars. At Operations Evaluation (March 1999) $0.015 NRs67.505

Operations Evaluation Office, PE-527

CONTENTS Page BASIC DATA EXECUTIVE SUMMARY MAPS I. BACKGROUND A. B. C. D. E. F. II. Rationale Formulation Objectives and Scope at Appraisal Financing Arrangements Completion Postevaluation ii v Error! Bookmark not defined. 1 1 1 1 2 3 3 1 1 3 4 4 6 6 1 1 3 4 4 5 5 5 6 8

IMPLEMENTATION PERFORMANCE A. B. C. D. E. F. Design Contracting, Construction, and Commissioning Organization and Management Actual Cost and Financing Implementation Schedule Compliance with Loan Covenants

III.

PROJECT RESULTS A. B. C. D. E. F. G. H. Operational Performance Institutional Development Financial Performance Financial and Economic Reevaluation Socioeconomic and Sociocultural Results Gender Development Environmental Impact and Control Gestation and Sustainability

II.

KEY ISSUES FOR THE FUTURE A. B. C. Successful Transfer of Commercial and Financial Management Practices to the New Airport Administration Adequacy of Tribhuvan International Airport Budget Level of Airport Maintenance

8 8 8 1 1 1 2 3

III.

CONCLUSIONS A. B. C. Overall Assessment Lessons Learned Follow-up Actions

APPENDIXES

ii BASIC DATA Institution Building TA No. 21- NEP 153-NEP TA Name Air Transport Development Tribhuvan International Airport Type Advisory TA Advisory TA Amount $350,000 $250,000 Approval Date 18 Dec 1969 2 Oct 1975

Key Project Data ($ million) Project Completion 1996 38.16 30.74 7.42 26.85 23.73 3.12

Loans 388/783/936-NEP(SF) Total Project Cost Foreign Exchange Cost Local Currency Cost ADB Loan Amount Foreign Exchange Cost Local Currency Cost
a

Appraisal 1978 20 12 8 11 7 4

Reappraisal 1986 31.75 23.50 8.25 21.25 18.13 3.12

Reappraisal 1988 41.80 32.64 9.16 30.35 27.23a 3.12

Adjusted to take account of the increased amount in $ terms of Loan 783-NEP(SF).

Key Loan Data ($ million) As Per ADB Loan Documents

Item Loan 388-NEP(SF) Total Project Cost Foreign Exchange Cost Local Currency Cost ADB Loan Amount/Utilization Foreign Exchange Cost Local Currency Cost ADB Loan Amount/Cancellation OPEC Special Fund Loan 783-NEP(SF) Total Project Cost Foreign Exchange Cost Local Currency Cost ADB Loan Amount/Utilization Foreign Exchange Cost Local Currency Cost ADB Loan Amount/Cancellation

Actual

20.00 12.00 8.00 11.00 7.00 4.00 5.00

18.17 13.82 4.35 10.74 7.62 3.12 0.26 5.00

(SDR million)

11.75 11.50 0.25 8.72 10.25 10.25

13.94 12.40 1.54 8.72 11.62 11.62

iii

Item Loan 936-NEP(SF) Total Project Cost Foreign Exchange Cost Local Currency Cost ADB Loan Amount/Utilization Foreign Exchange Cost Local Currency Cost ADB Loan Amount/Cancellation

As Per ADB Loan Documents

Actual

(SDR million)

8.95 8.04 0.91 5.94 8.00 8.00

6.05 4.52 1.53 3.10 4.49 4.49 2.84

Key Dates Item Fact-Finding Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness First Disbursement Reappraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness First Disbursement Reappraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness First Disbursement Project Completion Project Completion Loan Closing Loan Closing Project Completion Loan Closing Months (Effectiveness to Completion)

Loan No. 388-NEP(SF) 388-NEP(SF) 388-NEP(SF) 388-NEP(SF) 388-NEP(SF) 388-NEP(SF) 388-NEP(SF) 738-NEP(SF) 738-NEP(SF) 738-NEP(SF) 738-NEP(SF) 738-NEP(SF) 738-NEP(SF) 936-NEP(SF) 936-NEP(SF) 936-NEP(SF) 936-NEP(SF) 936-NEP(SF) 936-NEP(SF) 388-NEP(SF) 738-NEP(SF) 388-NEP(SF) 738-NEP(SF) 936-NEP(SF) 936-NEP(SF) 388-NEP(SF) 738-NEP(SF) 936-NEP(SF)

Expected

Actual 28 Jul4 Aug 1978 25 Sep9 Oct 1978 2124 Nov 1978 22 Dec 1978 26 Dec 1978 26 Mar 1979 4 Apr 1980 2-9 Oct 1985/ 1-8 Mar 1986a 02 May 1986 10 Jul 1986 3 Sep 1986 11 Feb 1987 4 Jun 1987 10-29 Sep 1988 14-15 Nov 1988 15 Dec 1988 16 Dec 1988 13 Jan 1989 28 Sep 1989 31 Jan 1990 31 Jan 1990 24 Apr 1991 9 Aug 1993 31 Dec 1996 9 Apr 1997 120 35 95

26 Mar 1979

2 Dec 1986

16 Mar 1989 28 Feb 1983 31 Mar 1989 30 Jun 1985 30 Jun 1990 31 Dec 1989 31 Mar 1992 47 27 9

Follow-up Reappraisal Mission.

iv Key Performance Indicators (%)

Appraisal 1978 Reappraisal 1986 Reappraisal 1988 PCR 1996 PPAR 1999

Financial Internal Rate of Return Economic Internal Rate of Return Borrower: Kingdom of Nepal

5.5 26.8

7.6 17.1

7.0 15.6

6.0 10.3

4.3 14.9

Executing Agency:

Civil Aviation Authority of Nepal (formerly Department of Civil Aviation)

Mission Data Type of Mission Fact-Finding Appraisal Reappraisal Project Administration - Inception - Disbursement - Review - Special Loan Administration - Project Completion Review Total Operations Evaluation Missions (No.) 1 1 3 1 4 17 3 2 27 1 Person-Days (No.) 8 79 128 8 21 172 24 44 269 28

EXECUTIVE SUMMARY The Project was the third major Asian Development Bank (ADB) assistance to the civil aviation sector of Nepal and the second to Tribhuvan International Airport (TIA), the countrys only international airport and a principal hub of domestic air traffic. The objective of the Project was to reduce constraints on increasing passenger traffic by (i) relieving congestion in the existing terminal area; (ii) accommodating future international aircraft and passenger traffic; and (iii) improving the safety of aircraft operations by implementing the first phase of Nepals longterm airport master plan which was completed in 1977. The project rationale and mix of components proved sound. Nevertheless, due to several inappropriate assumptions about the design, implementation issues, and external events, some changes were made to the Projects original scope. Changes in scope necessitated by robust traffic growth during implementation were justified and helped maintain project effectiveness. All additional works were required for well-defined operational, safety, or practical reasons. The design standards and specifications of the project facilities met accepted international standards, and the buildings and civil works are functional and economical in the use of space and materials. The Project was scheduled to be completed in February 1983, but it was only completed in December 1996. The Project experienced serious delays throughout implementation. ADB ultimately provided three loans (totaling $29.25 million equivalent) for the Project, of which two were supplementary loans. The actual project cost of $38.2 million was nearly double the appraisal estimate of $20 million. The cost overrun of $18.2 million was due to (i) budget overruns with underestimation of costs, implementation delays, and price escalation; (ii) additional works; and (iii) exchange rate fluctuations, principally in the escalation of the Japanese yen against the dollar leading up to the building works contract. The overall effectiveness of the Projects Executing Agency, the Department of Civil Aviation (DCA), in airport operations, maintenance, and project management was strengthened through the Projects formal training, technical and advisory support, and day-to-day involvement with the project consultants. In December 1998, in line with efforts to strengthen civil aviation, DCA was replaced by a new entity, the Civil Aviation Authority of Nepal (CAAN). CAAN took over DCAs responsibilities, physical assets, and staff. CAANs mandate is to operate Nepals airport system on a financially self-sustaining basis. Because CAAN is presently in transition, it is premature to assess institutional performance and predict how successful CAAN will be in fulfilling its mandate. Despite cost overruns and implementation delays, the Project achieved its main objectives. The Projects physical outputs were successfully completed and the quality of services provided satisfactory. The Project contributed to reducing constraints on increased tourist flows as well as providing the landlocked country with a well-run, modern international airport with good facilities. The airport is fully functional and downstream economic benefits, principally from tourism, have been substantial. The Project also contributed to improved air safety at TIA. Project benefits were in line with expectations at appraisal and project completion. The base case recalculated financial and economic internal rates of return were 4.3 percent and 14.9 percent, respectively.

vi A key social benefit of the Project was the creation of employment opportunities and income. The Projects substantive impact is a result of national revenues generated by increased tourist arrivals and tourist spending. The modern airport facilities have produced significant positive impacts on expanding and developing the tourism industry in Nepal. Passengers have increased from 599,000 in 1990 to 1,048,000 in 1998 (7.2 percent per annum) since the new international passenger terminal was commissioned. The tourism sector promoted nonagricultural income and employment opportunities, with an estimated 250,000 jobs in direct and indirect employment in 1997. Interrelated issues that are crucial for sustaining the benefits achieved by the Project are (i) adequate maintenance of TIA facilities, (ii) airport user charges sufficient to cover operation and maintenance and upcoming debt service costs, and (iii) continued safe air operations and acceptable level of service to air carriers and passengers. While current tourist flows are robust and prospects for sustained numbers are encouraging, the deteriorating environmental quality in Kathmandu if left unchecked, could adversely affect future tourist flows. The Project is considered to be generally successful. The sustainability of project institutions and benefits will depend on the financial and management performance of TIA under CAAN. ADB needs to monitor TIAs performance so as to ensure smooth transition in management and operations. The transition from DCA to CAAN has taken longer than envisaged, and follow-up by ADB is important to ensure sustainability of the physical assets as well as the human resource capabilities upgrading achieved under the Project. The Government must help TIA achieve financial and managerial sustainability under the new structure. The policies of CAAN toward the countrys secondary airports should not jeopardize TIAs financial health. CAAN management needs to be transparent in allocating TIA-generated revenues for use by the regional airports, especially given the large increases in maintenance and debt repayment expenditures projected for TIA over the next five years and beyond. As a rule of thumb, cross-subsidies to support regional airports (where necessary) should be used only if there is net revenue surplus after a full budget allocation for operation and maintenance and debt retirement for TIA.

I. A. Rationale

BACKGROUND

1. Being landlocked and situated in the Himalayan mountain range, an effective air transport network is critical for moving people and goods to, from, and within Nepal. Tribhuvan International Airport (TIA) in Kathmandu is the only international airport in the country, making it the principal point of entry for air travelers. TIA serves as a primary international gateway and the center of domestic air traffic. Since the 1960s, the Government has accorded high priority to investments in civil aviation infrastructure. At project formulation, TIAs facilities were experiencing congestion, particularly during peak traffic periods, and the terminal required upgrading to support the anticipated growth in tourism-based activities. B. Formulation

2. The Second Tribhuvan International Airport Project1 was based on the long-term airport master plan and designs completed in 1977 by consultants under an earlier ADB loan to TIA.2 The master plan proposed that airport development be carried out in three phases with phase 1 to be implemented as soon as practicable to accommodate the forecast increase in traffic needs up to 1985. Detailed engineering designs and tender documents for the five contract packages of phase 1 were completed in August 1978. In October 1978, the Project Appraisal Mission recommended implementing the most essential facilities first: the site development and supporting utilities, a partial extension of the international apron, the international passenger terminal (IPT), and the operations/airlines building and control tower (OAC).3 The Asian Development Bank (ADB) approved the Project on 22 December 1978. Subsequently, ADB provided two supplementary loans following reappraisal of the Project in 1986 and 1988. 4 C. Objectives and Scope at Appraisal

3. The Projects main objectives were to (i) relieve congestion in the existing terminal area, (ii) provide for future international aircraft and passenger traffic, and (iii) improve the safety of

2 3

Loan 388-NEP(SF): Second Tribhuvan International Airport Project, for $11.0 million equivalent, approved on 22 December 1978 (the original Project); Loan 783-NEP(SF): Second Tribhuvan International Airport Project (supplementary loan), for $10.25 million equivalent, approved on 10 July 1986; and Loan 936-NEP(SF): Second Tribhuvan International Airport Project (second supplementary loan), for $8.0 million equivalent, approved on 15 December 1988. Loan 233-NEP(SF): Tribhuvan International Airport Project, for $10.0 million, approved on 2 October 1975. Prior to project appraisal, an ADB mission, the Government, and consultants, jointly reviewed the master plan and agreed that facilities under the Project include those for phase 1 development but exclude the new domestic passenger terminal, international cargo building, crash fire rescue complex, and a portion of the aircraft parking apron extension. The existing domestic passenger terminal, with some minor expansion done by the Government, could still handle traffic for the next five years. The Government also decided to construct a temporary cargo building outside of the new terminal complex. The existing rescue and fire fighting station, although not in a desired location, continued to be used. The delays in project implementation led to an expansion of the scope, to handle the greater than predicted increase in traffic, and to accommodate additional items and cost overruns. For these purposes, a supplementary loan was provided in 1986. Further unexpected costs overruns occurred, which necessitated a second supplementary loan.

2 aircraft operation. To achieve these objectives, the Project expanded the TIA terminal facilities by constructing the first phase of a new terminal complex. 4. The principal components of the Project as approved in 1978 comprised (i) site preparation, including earthworks; (ii) construction of a new 19-bay IPT; (iii) construction of a new OAC and electrical substation; (iv) ancillary works; and (v) consulting services for construction supervision and financial management. These were the minimum requirements to fully meet the needs of the traffic forecast for 1985. The Project is detailed in Appendix 1. 5. Following two loan reappraisals carried out by ADB in 1986 and 1988, the Project was revised and IPT was expanded to 23 bays,5 while some of the designs completed in 1978 were upgraded. The revised Project included additional components, such as the services of an adviser to assist in transferring operations from the old to the new buildings (Appendix 1). Between 1990 and 1995, the Government requested, and ADB approved, the use of savings6 from the second supplementary loan to finance further improvements: (i) extension of the international aircraft parking area with associated road and electrical works, and construction of a new vehicle parking area; (ii) augmentation of the airport water supply system; (iii) construction of additions to the domestic apron and refurbishment of the existing domestic passenger terminal; and (iv) overlay of the runway and construction of paved shoulders (Appendix 1). D. Financing Arrangements

6. The appraised cost of the Project was $20 million equivalent, of which $12 million was the foreign exchange cost and $8 million equivalent was the local currency cost. On 22 December 1978, ADB approved a loan of $11 million equivalent from its Special Funds resources to finance $7 million of the foreign exchange cost and $4 million equivalent of the local currency cost. The Organization of Petroleum Exporting Countries Fund for Economic Development approved a loan for a further $5 million to meet the balance of foreign exchange costs. The Government financed the remaining local currency expenditures of $4 million equivalent. 7. ADB ultimately provided three loans for the Project, together equivalent to $29.25 million. In 1986, ADB approved an initial supplementary loan of $10.25 million equivalent to finance construction cost overruns and the cost of additional works. The financing plan was again revised in 1988 with ADBs approval of a second supplementary loan. The supplementary loan for $8 million equivalent was to finance cost overruns that, at that time, were projected to arise from sudden and adverse exchange rate fluctuations, and the increased cost of the building works.7 A minor portion of each supplementary loan was also intended to finance essential changes in the Projects scope.

6 7

The need to upgrade the terminal design reflected the impact on service life capacity of the project facilities being completed behind schedule, and the results of a traffic review and update carried out by the project consultants with assistance from the International Civil Aviation Organization (ICAO). Principally, as a result of subsequent favorable exchange rate fluctuations. Particularly for the international passenger terminal contract, which provided for substantial payments in Japanese yen.

3 E. Completion

8. The Project was scheduled to be completed by February 1983. However, implementation was significantly delayed, and the Project was finally completed in December 1996, nearly 14 years after its target completion date. ADB provided the Project with two supplementary loans. The original ADB loan was closed in April 1991 following four extensions. Additional works financed under the first supplementary loan was completed in January 1990, 0.8 years later than envisaged at reappraisal in 1986. Additional works financed under the second supplementary loan were completed in December 1996, 7 years later than envisaged at appraisal in 1988. The first supplementary loan was closed in January 1990, following three extensions, and the second in April 1997, following four extensions. 9. The project completion report (PCR) was prepared by ADBs Infrastructure (West) Department/Transport and Communications Division and circulated to the Board in December 1996. The PCR was based on a comprehensive assessment of completed works, providing a detailed account of the scope, costs, implementation, and operational aspects of the Project at that stage. The financial internal rate of return (FIRR) was recalculated at 6.0 percent, the economic internal rate of return (EIRR) at 10.3 percent, and the Project was rated as generally successful. The Operations Evaluation Mission (OEM) found the PCR to be complete and straightforward in its assessment of the Projects implementation and physical achievements. F. Operations Evaluation

10. The project performance audit report (PPAR) assesses the projects effectiveness in terms of appropriateness of formulation and design, progress and quality of implementation, degree of achievement of its objectives, and sustainability. The PPAR presents the findings of the OEM that visited project sites at TIA from 8-19 March 1999. The PPAR is based on a review of the appraisal reports (for the initial and supplementary loans), PCR, and materials from ADBs files, Civil Aviation Authority of Nepal (CAAN), and TIA.

II. A. Design

IMPLEMENTATION PERFORMANCE

11. The project rationale and mix of components were sound.8 Nevertheless, due to several inappropriate assumptions about the design, implementation issues, and external events, several changes were made to the Projects original scope. Changes in scope necessitated by higher than expected traffic growth during implementation were justified and helped to maintain project effectiveness. All additional works were required for well-defined operational, safety, or practical reasons. The design standards and specifications of the project facilities met accepted international standards, and the buildings and civil works are functional and economical in the use of space and materials. 1. Design Rationale

12. The topography of the airport site is very restrictive: the runway, taxiway, and principal buildings are on a plateau with not enough lateral space for a new international terminal complex. Under preproject conditions, the presence of several buildings combined with large aircraft parked on the apron violated the standards of the International Civil Aviation Organization (ICAO).9 The master plan and engineering designs called for extensive earthworks adjacent to the existing apron to create a platform upon which to construct the IPT, OAC, electrical substation, and vehicle parking area. This plan permitted the new buildings and widebody aircraft parked on the apron to be set back from the runway and taxiway, enabling the airport to comply with ICAO standards. The plan placed the international and domestic passenger terminals and principal airport operations facilities in proximity and allowed them to share utilities and road access. This arrangement proved to be the most cost-effective and practical of all the alternatives considered. 13. The original 1978 design of IPT, apron extension, and supporting facilities adopted a design year of 1985.10 The original design of 19 structural bays, with a total area of 7,700 square meters (m2), was based on a peak hour passenger (PHP) flow of 300-340 passengers in each direction given IPT processing and space requirements. With protracted delays in implementation, continuing growth in traffic, and a review of PHP definition, it became evident that the original IPT design would be insufficient if passenger growth rates continued at the levels observed then.11 It was decided to adopt 1995 as the new design year, which would provide sufficient capacity for a 10-year service life after which further expansion would be required depending on traffic levels. The IPT was increased to 23 bays (with a total area of 10,160 m2) using a 1995 PHP value of 500-530 in each direction for design purposes. The

The airport master plan has proven successful with no substantive changes in the past 25 years. Only the timing of the individual project components has been adjusted to suit traffic growth, availability of funding, and financial and economic criteria. 9 ICAO. 1990. ICAO International Standards and Practices, Annex 14 Aerodomes. Montreal: ICAO. 10 Terminal facilities were sized to handle peak traffic conditions in 1985 at an acceptable level of service. 11 Actual international passenger arrivals were 227,000 in 1985 and 439,000 in 1995, an average annual growth rate of 6.8 percent per year.

2 resulting design space of 18.5-20 m2 per PHP is economical.12 Parking and other supporting facilities were expanded proportionately to meet the larger IPTs requirements. 14. During implementation, several airport facilities were expanded/refurbished to enable the airport terminal to handle increasing passenger and aircraft traffic and to improve aviation safety. These changes, in effect, helped advance several of the development requirements identified in the airport master plan. The principal addition was the extension of the international apron to provide seven aircraft stands, which would be sufficient to handle the mix of aircraft types expected on international services. The apron extension allowed most aircraft to be parked without violating the ICAO limitation on obstacle clearance. The power-in, push-out configuration13 minimized the apron area required. 15. The apron extension contract also included improving the runway. The runway pavement had been strengthened under the TIA project14 (the 2,010 meter [m] northern section completed in 1981 and the remaining 1,040 m in 1985), but it required periodic maintenance and removal of a thick layer of rubber that had built up and posed a hazard to aircraft operation in heavy rains. The rubber deposits were removed and a nominal 40 millimeter overlay was applied to the entire runway. The runway shoulders were widened from 2.0 m to 7.5 m in accordance with ICAO standards for the type of aircraft using the runway. 16. In the early 1990s, growth in domestic air traffic accelerated after private air carriers were permitted to operate domestic services in competition with the State-owned Royal Nepal Airline Corporation. Accordingly, project funds were used to construct a new check-in hall and refurbish the departure lounge in the domestic passenger terminal (DPT). The domestic apron was extended to provide 15 designated parking spaces. 17. Several additional works were undertaken to improve operations in the terminal buildings and the airport complex in general, including air-conditioning and furnishings for airline offices; additional telephone lines; a maintenance stores building; and additional spare parts, tools, and equipment. TIAs water supply was insufficient and a new deepwell system with pumps and storage was constructed and connected to the existing distribution system.

The United States Federal Aviation Authority recommends a minimum of 20 square meters (m2) per peak hour passenger (PHP) for international terminals, and many designs exceed 25 m2 per PHP. 13 Refers to apron operation whereby an aircraft is able to maneuver into its final parking position under its own power but requires a tug to push it out of its parking position to a point where it can continue under its own power. 14 Loan 233-NEP(SF), Footnote 2.

12

2.

Appropriateness of Designs and Specifications

18. The IPT is well planned considering the difficult site restrictions,15 functional, and economical. Most importantly, it can be readily expanded to handle traffic in the foreseeable future. The terminal buildings are reinforced concrete structures with brick facing, which is practical and appropriate for Nepal. The IPTs architecture blends well with the local Nepali ambience and with its physical environment. The interior finishes of local brick, wood, and marble, are very durable with low maintenance requirements. 19. The apron is concrete, which is initially more costly than asphalt but resists fuel spills, bears aircraft turning loads without deforming, requires much less maintenance, and will prove more cost-effective in the long run. The other civil works conform with international practices, and efforts were made to minimize maintenance requirements, such as lining of the storm water drainage channels with bricks. Six years after completing the improvements, the runway and taxiways are in good condition, although the asphalt pavements require additional maintenance. B. Contracting, Construction, and Commissioning

20. Construction appears to have been done competently in accordance with appropriate norms and standards for this type of facility. Based on OEMs field inspection of the conditions of the airport facilities and the review of progress reports prepared during implementation, the consultants and contractors employed had the necessary competence to undertake their tasks. 21. The principal delays were experienced during the preconstruction stages. Prequalification for international competitive bidding contracts required a much longer time than planned in order to check information provided by the contractors from various countries, many of whom had not worked in Nepal previously, and to receive approval from the Government. The consultants16 underestimated the initial costs of the Project and the time needed for preconstruction activities. They also encountered many difficulties in managing the Project. Nonetheless, the overall performance of the consultants has been satisfactory as evidenced by the condition and performance of the facilities under their direction. 22. The Korean contractor completed the civil works contract in December 1985, about six months after the adjusted17 completion date in June 1985. The Japanese contractor completed the building works contract in February 1989, about three months later than the original completion date. The quality of the works is of high standard.

15

The building operates on two levels: the ground floor, containing the departures check-in and arrivals baggage claim areas, is level with the circulation road and parking; and the second floor, containing the departure lounge and the immigration hall, is level with the apron. 16 The project consultants, an international consortium in association with a Nepalese architectural firm, prepared the master plan, detailed engineering designs, and tender documents under the first Tribhuvan International Airport (TIA) loan. These consultants were retained (prequalification, tendering, and supervision services) through direct appointment by the Government, with ADBs concurrence. Their reappointment saved time by avoiding the need for a design review by new supervision consultants. On hindsight, retaining the international passenger terminal (IPT) designers was undoubtedly an advantage when it became necessary to expand the IPT. 17 The original completion date was adjusted for justified delays due to unusual weather and to delays in receiving government approvals, as specified in the contract conditions.

4 23. The international apron expansion and associated works (runway and taxiway) were carried out by the Chinese contractor who completed the work in December 1993, about eight months after the revised completion date of April 1993. The poor progress was due to slow mobilization and poor project management. The project manager was eventually replaced, and the work was completed one year later. Despite the delay, the quality of the completed works was acceptable. The domestic passenger terminal and apron works were carried out by domestic contractors under the supervision of the Department of Civil Aviation (DCA) staff. The apron expansion was completed on schedule, but the passenger terminal works took nine months longer than scheduled. The quality of the completed works was satisfactory given the constraints the domestic contractors faced. 24. Despite the delays in physically completing the project facilities, no major problems occurred in handing over the works to the Government. All the facilities and equipment provided by the Project are functioning effectively after 10 years of operation, which speaks well for the original design and specifications, and quality of construction. C. Organization and Management

25. DCA, in the Ministry of Tourism and Civil Aviation, was designated the Executing Agency for the Project. DCA was replaced by a new entity, CAAN, which assumed responsibility for TIA.18 The airport is still managed by the TIA general manager, who reports to the CAAN director general. The project management office (PMO) was established and staffed with experienced and competent personnel from the former Air Transport Development Project.19 Little authority was delegated to the PMO, and apart from minor technical details, all matters for decision had to be referred to the DCA director general and frequently to the Ministry of Tourism and Civil Aviation. 26. Coordination on technical matters was very good between the consultant, PMO staff, and the contractors. Staffing the PMO was reasonably stable, with only four project coordinators over 17 years. During the same period, there were nine airport managers and five DCA directors general. PMO and some of its staff have continued in the project management unit which oversees the ongoing Tribhuvan International Airport Improvement Project (TIAIP).20 D. Actual Cost and Financing

27. The actual cost of the Project was about $38.2 million, compared with an appraisal estimate of $20 million. The final cost exceeded estimates at appraisal by $18.2 million following (i) budget overruns due to underestimation of costs, implementation delays and price escalation; (ii) additional works; and (iii) exchange rate fluctuations, mainly due to the appreciation of the Japanese yen against the dollar leading up to the building works contract. Details of the cost estimates at project appraisal and the final project costs21 are provided in Appendix 2. Total

The transition of the Department of Civil Aviation (DCA) to Civil Aviation Authority of Nepal (CAAN), was intended to strengthen Nepals civil aviation sector, and is a covenant to Loan 1512-NEP(SF): Tribhuvan International Airport Improvement Project (TIAIP), for $27.0 million, approved on 23 January 1997. The effort was aided by TA 2749-NEP: Institutional Strengthening of the DCA, for $0.5 million, approved on 23 January 1997. 19 Loan 26-NEP(SF): Air Transport Development Project, for $6.01 million, approved on 18 December 1969. 20 Loan 1512-NEP(SF): Footnote 18. 21 PCR:NEP18194: Second Tribhuvan International Airport Project, November 1996.

18

5 disbursements under the Project reached $26.9 million, which is about 150 percent of the original appraisal estimate and 92 percent of the total ADB financing. 1. Competitiveness of Contract Price

28. Civil works for buildings were the largest project component, with a final cost of $17.2 million. The impact of the dollar-Japanese yen exchange rate fluctuations when eliminated from the bid prices led to a nominal increase of $12.66 million. Building costs under the Project (building works contract) and the current TIAIP (contract package no. 1 of TIAIP for IPT expansion and an additional OAC building) are compared in Table 1. Both costs include a proportionate amount of ancillary works, such as vehicle parking lots, and are considered reasonably comparable. The project cost includes the air traffic control tower, for which the higher unit cost per m2 increases the overall average. The unit costs for construction are remarkably close, which provides assurance that bidding for the TIAIP building works was competitive. Table 1: Comparison of Second Tribhuvan International Airport Project and Tribhuvan International Airport Improvement Project Building Costs
Item Total cost adjusted to 1998 ($ million) Gross floor area (m2) Cost per m2 ($)
m2 = square meter

Second TIA Project Final Cost 17.2 14,190.0 1,212.0

TIAIP Contract 1 15.9 13,000.0 1,223.0

2.

Supervision Costs

29. The main portion of the $5.24 million cost overrun was due to increased construction supervision costs. This increase, which is mainly associated with lengthy delays in project implementation, was $4.78 million and accounts for about 26 percent of the total project cost overrun. Costs of consultant supervision at project appraisal and project completion are compared in Table 2. At project appraisal, providing 10 percent of construction cost for prequalification, tendering, and supervision services was reasonable considering the building works constituted the largest part of the project cost (a lower percentage would be appropriate for civil works alone). Throughout project implementation, the consultants services extended well beyond tendering and supervision of the original works. The final supervision cost was about 22 percent of construction costs, which is relatively high even after considering all the additional services (20 percent would be a reasonably acceptable upper limit). The higher costs reflect the penalty paid for many unplanned delays during implementation. Table 2: Supervision Consultants Cost
Item Total ($ million) Project Appraisal 2.04 Project Completion 6.82

6
Calendar months (no.) Cost per month ($) Percent of construction cost 50.00 40,800.00 10.00 2.16 31,600.00 22.00

E.

Implementation Schedule

30. From the start, project implementation experienced delays that persisted through the preconstruction phases of the two original construction contracts, site preparation, and building works. After the two contracts were awarded, work proceeded generally on schedule. The civil works were substantially completed only six months late, and the two components of the building works contract (OAC and IPT) were completed within the contracted periods. Overall, completion of these two contracts was on 11 January 1989, about six years later than envisaged in 1978. The new IPT was put into service on 28 May 1989, six years and four months later than scheduled. The new OAC was commissioned on 18 February 1990, also six years later than originally scheduled. 31. Tender documents for the five contracts prepared under the previous loan22 were revised to form two contracts. This work and approval from the Government took much longer than originally scheduled (Appendix 3). The procurement process was also complicated by other factors. It became evident that there was a cost overrun in the building works, and the second round requested bidders to submit tenders as supply only and/or supply and finance. This contributed to the complexity of the evaluation and consumed more time. The Japanese Government offered to finance the Project but this was eventually declined in favor of a supplementary loan from ADB. 32. The original schedule for preconstruction tasks (prepared in 1978) at project appraisal was overly optimistic. Yet this problem was repeated in the apron expansion and associated works contract in 1991 when only seven months were allowed for prequalification, tendering, and contract awarding whereas in reality the process required about 23 months. Only the two domestic contract awards were processed quickly. This scale of delay is common with infrastructure construction projects in Nepal, especially those requiring international competitive bidding. F. Compliance with Loan Covenants

33. OEM concurs with the PCR assessment that the Government has complied with the majority of the loan covenants (Appendix 4). The exceptions cover three agreements: (i) the adoption of a commercial type of accounting, (ii) adequate budgets for TIA operations and maintenance, and (iii) funding through user charges. These agreements are considered important for the sustainability of airport operations.

22

Loan 233-NEP(SF), Footnote 2.

III.

PROJECT RESULTS

A.

Operational Performance

34. At project appraisal, forecast passenger flow at TIA was 233,000 international arrivals in 1985 and 413,000 in 1995 (subsequently revised to 462,000 arrivals in 1995 in the 1988 reappraisal). IPT was designed to process 500-530 PHP in each direction, corresponding to traffic levels in 1995, at a good level of service (stable flow, acceptable delays, and good level of comfort).23 Records on international passenger traffic show that TIA handled 439,000 arrivals in 1995 and about 500,000 in 1998 (Appendix 5). 35. Preproject traffic consisted mainly of narrow-body aircraft (B727s) with occasional DC10s or A300s. With the start of project operations, the aircraft types have mainly been B757s, and smaller wide-body A300s and A310s. None of these aircraft strain the IPTs capacity. With more airlines favoring larger capacity aircraft, such as B777s and A340s, IPT will be under pressure from increasing aircraft passenger loads over the next two years until the current expansion is completed.24 However, the building can handle the increase, provided CAAN continues to implement operational improvements at the terminal, and limits additional international flights during peak periods.25 36. During the tourist season of FY1999, TIA handled three international flights in each of the daily peak hours from 1100 to 1400, with a fourth flight in one of these hours on several days of the week. With the present aircraft types, IPT is processing about 700 PHP in each direction and occasionally 800 PHP, which is about 50 percent more than the design PHP.26 The terminal can handle three aircraft passenger loads within the hour with an adequate level of service (unstable passenger flow,27 acceptable delays for short periods, and adequate level of comfort) but is strained when a fourth aircraft arrives. Further, some air carriers are introducing larger capacity aircraft instead of adding more flights. The IPT level of service will definitely deteriorate with three larger capacity aircraft and will become saturated with a fourth aircraft. Saturation is estimated at about 900 PHP. Passenger volumes are much lower in the remaining 12-15 hours during which IPT provides a good level of service.
23

The guidelines for airport capacity/demand management published by international airports and air transport associations defines level of service in terms of space (congestion), time (delays), and comfort. The level of service is rated excellent, high, good, adequate, inadequate, or unacceptable. (International Air Transport Association. 1990. Guidelines for Airport Capacity/Demand Management, Second Edition. Montreal: IATA). 24 Loan 1512-NEP(SF), Footnote 20. 25 The Civil Aviation Authority of Nepal (CAAN) introduced a third shift of operational staff permitting scheduled services from 0600 to 2400, which provides the opportunity for foreign carriers to schedule evening arrivals and morning departures, resulting in a better diurnal distribution of traffic. 26 The TIAIP planning study reported that TIA was regularly handling more than 500 passengers in one direction in peak hours by 1995. This condition has continued and, with the introduction of larger aircraft, peak loads of 700800 passengers are common. The terminal is well used during the peak period in the midday. The numerical analysis was confirmed by observation during typical peak periods. The terminal is underused during the offperiods, but most airports faced this problem. The only solution is to spread the peaks, which is difficult for a spoke airport like TIA whose incoming flights depend on the time slots allowed at busy hub airports such as Bangkok and Singapore. But TIA is trying, and it is encouraging to see that new services (charters and Gulf Air) are scheduling their arrivals later in the afternoon. 27 Passenger flow is subject to slowdowns and stoppages in making its way through the terminal.

37. Processing of international passengers is adequate to good except in peak operating conditions. Many simple operational improvements are possible to increase passenger processing rates and reduce delays or make waiting more tolerable, such as ensuring that all the processing counters are staffed and operating. Some measures are within the TIA general managers control, but others require the cooperation of other agencies such as security, immigration, and the air carriers. The deficiencies currently are annoyances, but it will become essential to improve passenger processing as peak passenger volumes increase. 38. The international apron can accommodate three wide-body aircraft (A300s) and four narrow-body aircraft (B757s and A320s) but can park up to five wide-body aircraft. Apron capacity is not a problem in the foreseeable future provided CAAN exercises prudent flight schedule management. The runway and taxiway system is adequate for aircraft traffic in the foreseeable future. The parallel taxiway does not extend the length of the runway, thus requiring large aircraft to taxi along 1,000 m of runway prior to take-off on runway 2. This taxiing does not cause undue delays but it will increase the accumulated aircraft loads in this section of pavement overtime. 39. Airside operations28 on the international apron appear satisfactory. No obvious unsafe practices stood out. However, some violations of good airside operational practice, such as lack of control of vehicles and pedestrians near maneuvering aircraft, are not being handled and numerous obstacles in and around the airfield violate ICAO Annex 14 requirements. TIAIP is addressing these operational issues, but some will remain, such as infrangible objects in the runway strip that need to be removed. 29 40. DPT can handle the present passenger traffic from the seven air carriers now providing scheduled domestic services and accommodate a reasonable increase in passenger volume. The primary constraint facing both the building and domestic apron is the number of air carriers. If more companies are granted permission to operate, then further interior changes in DPT will be needed, and it will be necessary to accommodate some air carrier offices in a separate building. The domestic apron is at capacity and aircraft are often parked overnight on the international apron. TIA needs to limit the domestic aircraft parked overnight until construction of additional domestic apron space is completed under TIAIP. 41. The Project contributed significantly to improved air safety. 30 Constructing the IPT complex (apron and buildings) removed obstructions, and significantly improved safety. The air traffic control tower is an essential safety feature, allowing controllers to communicate with and direct aircraft. The electrical substation and standby generator provides a reliable power supply even if the main supply fails. The overlay of the runway pavement and construction of paved shoulders also helped to improve safety.

Airside refers to areas where aircraft operations take place (apron, taxiway, runway, and airfield areas). In an airfield, frangibility is a required design property of objects so that they easily collapse if hit by an aircraft. Infrangible objects, such as concrete or cast iron structures need to be removed. 30 The omission of a safety objective from the original loan appraisal was an oversight and possibly because the economic analyses did not try, and could not put, a value on safety. By the time the first reappraisal was carried out, safety was recognized as an additional objective and (nonquantifiable) benefit of the entire project. But the first supplementary loan merely provided more funds for completing the original scope and expanding the terminal with no specific new safety items added. The second supplementary, however, did provide funds for additional safety works (runway overlay and shoulders, removal of old buildings, and construction of the domestic apron).
29

28

3 42. Apart from the two aircraft accidents involving fatalities in 1992 (causes not related to TIA), the airports safety record has been very good with no international accidents or incidents on final approach, takeoff, or landing. TIA handles a high volume of domestic flights, but only two domestic fatal accident has been reported since operations began in 1990.31 Compared with the accident rate in the region, this is a very good record.32 However, several incidents of aircraft swinging on landing have been reported. A thick rubber deposit has built up on about 1,500 m of the runway 2 touchdown area, which is hazardous when wet. TIAIP contains a provision to purchase civil maintenance equipment, including a powered sweeper. The removal of the rubber deposit should not wait until the next runway overlay. B. Institutional Development

43. Despite shortcomings in project implementation, overall effectiveness of DCAs management and staff in airport operations, maintenance, and project management was significantly strengthened through the Projects formal training, technical and advisory support, and day-to-day involvement with the project consultants. The PMO was responsible for supervising the construction of DPT and the domestic apron. The current project management unit of TIAIP has several trained, competent professional staff members who are capable of managing other airport and civil aviation projects in Nepal. 44. While the staff, organization, and procedures for effective and timely project management and decision making were in place within the Executing Agency, in practice it was extremely difficult to obtain timely decisions. A case in point is the difficulty in obtaining data on local currency disbursements for the Project, which raises questions about the adequacy of the management information system of DCA and PMO. However, some of these implementation problems are systemic to the Government and not just DCA/CAAN (similar problems with Government ministries and departments are encountered across sectors). 45. A financial management expert was also provided under the Project. When the expert departed, the DCA Revenue Management Section comprised three trained accountants, three trainees, and additional assistants. The system had been reasonably well established and might have continued to be operated. However, staff were redeployed to other departments, and the system no longer functioned as effectively as envisaged. This assistance was provided more than 18 years ago, and was superseded by a recent advisory technical assistance (TA) for the institutional strengthening of DCA.33 The newly established CAAN has retained a local accounting firm to advise and assist in establishing an accounting system that is essential for CAANs financial operations. 46. The most significant change was the establishment of CAAN on 31 December 1998, under the Civil Aviation Authority of Nepal Act of 1996. CAAN has assumed all of DCAs responsibilities, physical assets, and staff with the mandate to operate Nepals airport system on a financially self-sustaining basis. A board of directors and a new director general have been appointed. CAAN is in the process of formally adopting new rules relating to its personnel, financing, tariffs, operations, and organization structure. CAAN has retained a chartered
31

Domestic flights in developing countries generally have a much higher accident rate than international flights which are more closely regulated. The only fatal accident at the airport was an aborted takeoff by a Royal Nepal Airlines Corporation DHC6 (Twin Otter), which plunged into the ravine at the north end of runway 2, and a recent crash that took place when a local domestic carrier accidentally hit a telecommunications tower on approach to the airport. 33 TA 2749-NEP: Footnote 18.
32

4 accountant firm to assist in financial planning. It is premature to predict how successful CAAN will be in fulfilling its mandate. There is a risk that CAAN may perpetuate the status quo (in terms of delivery of outputs), but at a higher cost. Alternatively, CAAN has the opportunity to transform itself into an effective and financially self-supporting organization. C. Financial Performance

47. The financial performance of TIA appears very satisfactory based on financial information prepared by the DCA. Appendix 6 summarizes the total revenues generated by TIA against the actual expenditure flows over the same period. Annual revenue figures are typically five to six times higher than budgeted expenditures for operation and maintenance (O&M). 48. However, until CAAN was created, TIA did not have any financial autonomy over its revenues because all income was typically channeled into the central treasury and budgetary allocations for O&M decided through administrative fiat by the Ministry of Finance. As a result, revenue surpluses were generated that bear little relation to the actual financial effort required for optimal O&M at the airport facility. 49. A recent study by an international consultant under an ADB TA,34 indicated that the current revenue surpluses generated by TIA, owing mainly to minimal maintenance requirements in the early stages of operating the facilities, will change dramatically in the coming years. Major increases in maintenance and rehabilitation expenditures will be required and may strain the airport authoritys cash flow. The report suggests that passenger service charges and aeronautical charges need to be raised substantially to cope with recurrent and periodic maintenance expenditures and servicing debt retirement payments (Appendix 6, Tables A6.1 and A6.2).35 D. Financial and Economic Reevaluation

50. In the PCR, the FIRR was reevaluated at 6 percent and the EIRR at 10.3 percent. The postevaluation analysis recalculated the FIRR and the EIRR using the same methodology as in the PCR (Appendix 7). The base case assumed that CAAN can provide adequate maintenance for TIA infrastructure and equipment to keep these assets operating at accepted international standards. The recalculated FIRR was at 4.3 percent and the EIRR was 14.9 percent. The EIRR analysis indicates that project benefits are in line with expectations at appraisal and project completion. The impact of the Project is a result of significant revenues generated by increased tourist arrivals and tourist spending by visitors to Nepal.36 51. Sensitivity analysis was also used to test the impact on the base case FIRR and EIRR of (i) changes in the level of airport revenues, (ii) increased operating costs, (iii) decreased tourism benefits, and (iv) a combination of these effects. Even under the more difficult scenario, TIA
34

35

Michael Kellaway International Group (Aviation and Tourism Consultancy Services). Institutional Strengthening of the DCA. Consultants final report for TA 2749-NEP, Asian Development Bank, Manila. Airport user charges have not been increased since 1995 except for the passenger departure charge, which was increased in 1998. The CAAN has indicated that an increase in aeronautical charges will be introduced. The new rates should be adequate in terms of parity with other airports in the region, and should be implemented immediately. Aeronautical charges should be reviewed at regular intervals and all possible commercial revenue sources from expanded terminal floor space should be aggressively promoted where possible. 36 The economic analysis excludes nonquantified benefits such as air safety and second-round income generated by other economic activities from the direct beneficiaries who spend a portion of their tourism-related earnings.

5 continues to demonstrate substantial economic impact. Financial returns, however, are seen to be marginal and will deteriorate further with increased operating costs or constraints in airportgenerated revenues. E. Socioeconomic and Sociocultural Results

52. A social benefit from the airport is the creation of direct employment opportunities and income, primarily in operations and services within the airport facility as well as for related service industries catering to the airport. The Project produced significant positive impacts on expanding and developing the tourism industry in Nepal (Appendix 8). Since the new IPT was commissioned, passenger flows have increased by 7.2 percent per annum from 599,000 in 1990 to 1,048,000 in 1998. From FY1993 to FY1997, earnings from tourism averaged about 43 percent of merchandise exports and accounted for about 17 percent of the countrys total foreign exchange earnings and 3.7 percent of its gross domestic product. The flow of tourists to Nepal allowed for a geographic distribution of foreign exchange earnings by promoting tourist access across the country.37 The tourism sector has fostered nonagricultural income and employment opportunities, with an estimated 250,000 jobs in direct and indirect employment in 1997. F. Gender Development

53. No component of the Project was specifically designed to address the issue of women in development. Women did not have any significant role in project implementation. Women currently comprise only 10 percent of TIAs work force with most in low-level secretarial, cleaning, or security positions. However, there are some positive signs of progress, with some women being employed as air traffic controllers and as air carrier check-in agents. Although the exact share of total employment is not documented, women also benefited from tourism-related activities induced by the Project. Training data from the Hotel Management and Tourism Training Center during FY1973 until December 1996 indicate that women comprise 17.2 percent of its trainees. Of the total women trainees, 42.9 percent participated in Hotel Management and Tourism Training Centers outreach training program, which provides on-thespot training in various tourist areas. G. Environmental Impact and Control

54. The Projects impact on the environment has been generally minimal. Improvement of the surface drainage has reduced flooding, and upgrading of the water supply and sewage disposal facilities has helped to enhance health conditions in and around the airport. Aircraft noise levels have not increased. However, environmental problems requiring mitigation still remain: erosion problems on the east side of the runway strip, airport and aircraft solid waste disposal, air quality, and proximity of fuel storage tanks to environmentally sensitive zones. The institutional strengthening consultants prepared an environmental management manual that has yet to be fully implemented.
37

Tourism statistics indicate that the nonstar hotels increased from 39 (2,722 beds) in 1985 to 111 (4,742 beds) in 1990 to 620 (19,833) in 1997. Likewise, training data from the Hotel Management and Tourism Training Center during FY1973 until December 1996, indicate that outreach training (on-the-spot training in various tourist destination areas) participants comprise about 26 percent of trainees. Outreach trainees totaled 1,666 between FY1991 and FY1997 compared with 1,225 during FY1962-FY1990.

H.

Gestation and Sustainability

55. The expansion of tourism continues to be an important part of the Governments development strategy in promoting sustainable growth and balanced economic development. The buildup of social and economic benefits from the new airport facilities has been in line with estimates at appraisal as well as reappraisal. Inflows of tourism are robust, if not always even from year-to-year, and the prospects for sustainable tourist flows into the future are encouraging, notwithstanding current tourist concerns over with deteriorating environmental quality in Kathmandu.38 However, if left unchecked, a worsening of environmental quality in Kathmandu valley could adversely affect future tourist flows. 56. To sustain project operations, TIA must continue to meet international standards of aviation safety for air navigation services, aerodrome standards, airside ground operations, and groundside39 fire and other safety regulations. In addition, TIA should provide an acceptable level of service to the air carriers and passengers if the airport wants to retain the existing international services and attract new air carriers. This involves a commitment to maintaining good standards and proactive management of human and equipment resources, training, and upgrading of equipment and maintenance. CAAN must recognize these requirements and provide sufficient staff and budget resources to ensure safe airport operations. The following paragraphs assess the current condition and level of maintenance of TIAs facilities. 1. Condition of Airport Facilities

57. The project facilities generally have not suffered any serious deterioration and have many years of useful life remaining. Building structures and furnishings are in serviceable condition, although furnishings are showing signs of wear. Mechanical and electrical systems are functioning but repairs and replacement of components now have become necessary and will be an increasing maintenance burden in the coming years. Electronic systems, such as the Private Automatic Branch Exchange and security and surveillance equipment, are functional but are becoming obsolete. TIAIP will replace some furnishings and equipment to provide compatibility with the expanded sections of the building. IPT itself needs a thorough cleaning. 58. The aircraft pavements and other airfield civil works are in good condition except for a buildup of rubber on the runway. Some minor cracking and stripping in the asphalt pavements has occurred, and vegetation has grown through the shoulders, which will eventually create a hazard to aircraft. Proper routine maintenance can easily rectify these conditions. 2. Airport Maintenance

38

A 1996 exit survey of departing passengers showed that the issues of air pollution and traffic congestion are major concerns among tourists, who are unaware prior to arrival, of the realities of Kathmandus deteriorating urban environment (Marg Nepal Pvt. Ltd. 1997. Report on Nepal Departing Visitors Survey conducted on behalf of the Nepal Tourism Industry and the United Nations Development Program Partnership for Quality Tourism Project). 39 Groundside refers to areas of the airport directly accessible from the community (passenger and cargo terminal buildings, parking, access roads, and airport utilities).

7 59. The Government established an airport central maintenance unit40 under the TIA general manager. The unit comprises four sections: civil, radio, electrical, and mechanical. However, no common maintenance building exists to house offices, workshops, equipment, and stores. The situation will be improved under TIAIP.41 Maintenance staff are dispersed in offices throughout the IPT, OAC, and temporary buildings. The airport lacks the management system, workshops, and many of the tools and equipment, spares, and trained staff needed to implement an effective maintenance program. The project facilities are now 15 years old and, while continuing to function as planned, are beginning to show signs of inadequate maintenance. Funding for maintenance has been insufficient, and a backlog of work has been built up. This backlog will only increase as mechanical equipment nears the end of its service life, failed electrical parts are not replaced, and pavements begin to deteriorate. 60. In 1997, ADB provided a TA for the institutional strengthening of DCA.42 The TA consultants inspected all the airport facilities and equipment and prepared a maintenance program including annual cost estimates for FY1998-FY2008 (Appendix 9). This program took account of (i) backlog of maintenance work; (ii) routine maintenance of existing facilities; (iii) increased maintenance requirements that will be created by TIAIP; and (iv) expected major periodic maintenance items, such as a runway overlay. CAAN has spent NRs30 million-NRs40 million annually on maintenance over the past 2-3 years. Based on the consultants estimates, a base of NRs44 million per year is required for routine maintenance plus NRs48 million per year on average to clear the backlog and meet future special requirements. The consultants estimated the technical personnel and training requirements and prepared a maintenance manual covering the principal airport facilities. However, funding to implement this maintenance program has not yet been forthcoming.

Covenant under Loan Agreement, Schedule 6, para. 5(a). The current TIAIP includes construction of a new civil works maintenance building and a provisional sum of $500,000 for purchasing equipment for civil works and building maintenance. 42 TA 2749-NEP, Footnote 18.
41

40

IV.

KEY ISSUES FOR THE FUTURE

A. Successful Transfer of Commercial and Financial Management Practices to the New Airport Administration 61. There are concerns about the financial adequacy and viability of TIA in the wake of lagged efforts at institutionalizing the new CAAN administration. The restructuring of Nepals civil aviation authority under CAAN is full of uncertainty about decisions taken regarding the extent and magnitude of technical, financial, and managerial skills required to properly operate the TIA complex. The transition phase is moving more slowly than envisaged, and the commitment of financial and managerial resources at TIA may be compromised unless vigorous action is taken to speed up the organizational transition of CAAN. The project team under the ongoing TIAIP should monitor developments and ensure that the restructuring exercise proceeds apace with the recommendations of the international consultants report.43 CAANs policy should also consider alternatives to government management from a cost savings and effectiveness viewpoint. Such alternatives could include contracting operations and management functions to companies and individual specialists, or it could include outright privatization of some facilities, such as the new air cargo building. CAAN could gain valuable assistance through a twinning arrangement with another airport operator, preferably in the region. B. Adequacy of Tribhuvan International Airport Budget

62. The sustainability of TIAs physical assets depends on the adequacy of future maintenance efforts and the financial management approach considered for TIA as an autonomous operating unit. The management of TIA within CAAN could differ in its approach from that of other ADB-funded regional airports projects. Maximum autonomy should be granted to TIAs management unit, relative to the overall CAAN authority hierarchy, which would enable CAAN to make appropriate decisions affecting maintenance and rehabilitation measures and airport expansion. CAANs policies toward regional airports should not jeopardize TIAs financial health.44 C. Level of Airport Maintenance

63. Maintenance is currently underfunded, and a backlog of work has accumulated. The maintenance burden (major equipment refurbishment and rehabilitation) imposed by the project facilities will significantly increase in the coming years. The new maintenance building and equipment being provided under TIAIP will greatly assist TIA but will not suffice to ensure effective maintenance. An airport asset management system that incorporates the maintenance program prepared by the international consultants is required for long-term sustainability. The TIA central maintenance unit does not have the technical resources to introduce such an asset management system, and it is recommended that the scope of the second phase of the
43 44

The second phase of advisory consulting services to CAAN is scheduled to begin in the second half of 1999. While recognizing the limited financial capabilities of secondary airports, financing of these entities, to the extent possible, should be carried out on an adequate user pay basis that aims at financial cost recovery, especially for those ADB-assisted regional airports developed to accommodate increased tourist flows.

9 institutional strengthening capacity include a specialist to assist TIA in maintenance management.

V. A. Overall Assessment

CONCLUSIONS

64. Despite experiencing cost overruns and implementation delays, the second TIA Project has achieved its main objectives and provided substantial benefits. The project design contributed to alleviating constraints on increased tourist traffic and provided the landlocked country with a well-run, modern, international airport with good facilities. The principal features of the Project include (i) a functional airport terminal facility along with related civil works structures; (ii) safe and timely aircraft operations and passenger flows through the airport facilities; (iii) fully functioning airport management and delivery of technical services; and (iv) economic benefits derived from tourism-based expenditures attributable in part to the provision of improved and expanded international and domestic flight operations at TIA. As the principal point of entry for tourists in Nepal, the TIA complex provides adequate aviation services to a commercially important tourist market. 65. Five related issues are crucial in the sustainability of project institutions and benefits: (i) airport operations which ensure aviation safety and provide an acceptable level of service to air carriers and passengers, (ii) adequate maintenance of airport facilities in terms of both management and budget, (iii) airport user charges that maximize revenues collected at TIA, (iv) allocation of sufficient budget from CAAN for TIA O&M and debt retirement, and (v) effective TIA management in place.45 Viewed overall, the Project is considered generally successful. B. Lessons Learned

66. In the future, ADB policy toward procurement should be more attentive to the risk factors that could negatively impact the cost of contract delivery. Risks associated with hard currency exchange rate volatility could have been avoided through proper forward hedging contracts which would have protected the Borrower against large-scale devaluations among hard currencies.46 Greater attention should have been focused on currency movements rather than on the purely technical issues governing the procurement process. 67. Government approval of prequalification listing, proposal or tender evaluation, and contract signing are subject to significant delays and uncertainty. In light of significant and repeated delays encountered leading up to and including contract award, greater efforts should be undertaken to significantly curtail needless bureaucratic delays in moving the procurement process forward to minimize costly overruns and facilitate a timely implementation period for completing the Project.

45

The ongoing Loan 1512-NEP(SF), Footnote 18, will address critical capacity, safety, and institutional issues on TIA and the civil aviation sector. The Projects capacity building component aim to assist the Government in establishing CAAN as an autonomous entity for managing the countrys civil aviation sector and of having TIA operations to all international safety requirements for facilities of its class. 46 It is normally not ADB policy to advise borrower governments on the risks of foreign exchange volatility, but such hedging practices were common knowledge over the contract adjudication period; the issue was flagged during the Board discussions on the second supplementary loan.

C.

Follow-up Actions 1. By the Government

68. The Government should ensure that TIA achieves financial and managerial sustainability under the new organization structure.47 CAAN must provide TIA with an adequate budget for O&M in addition to appropriate provisions for capital budgeting and debt service payments to achieve short-term financial and operational sustainability. Inevitable maintenance and operational problems are now beginning to surface, which require a proactive response in terms of major equipment refurbishment and rehabilitation expenditures. Large increases in maintenance and debt repayment expenditures are projected for TIA over the next five years and beyond. CAAN management will need to be transparent in its allocation of TIA-generated revenues for use by the regional airports. As a rule of thumb, cross-subsidies, if necessary, should only occur if net cash surpluses are left over after a full budget allocation for O&M and debt repayment. 69. The Government should ensure that the environmental management manual is fully implemented, especially with regard to the mitigation measures (para. 54). 2. By ADB

70. ADB staff must continue to monitor during their reviews of the current project the covenants concerning CAAN operations, implementation of the new civil aviation regulations, and improvement in the commercial accounting procedures at CAAN. ADB should closely monitor management performance under the new CAAN structure. ADB must continue to provide advisory and technical support to CAAN because it needs further assistance in the areas of financial, commercial, and maintenance management to achieve its mandate. ADB should follow-up on the timely implementation of critical provisions in the ADB-financed TA consultants report in order to ensure the sustainability of the physical assets as well as the upgraded human resource capabilities achieved by the Project. 71. Because CAAN only assumed responsibility for operating TIA in January 1999, the institutions performance cannot be evaluated yet. The effects of weak institutions or inadequate budget for O&M on TIAs physical infrastructure may yet manifest themselves. It would be useful to reevaluate the Project in a few years to assess medium-term viability. This could be done along with the performance audit of the ongoing TIAIP. 72. TIA airside operations and safety could benefit from a variety of improvements with the assistance of the TIAIP team, including (i) carrying out an inventory of obstacles on the runway and preparing a program for CAAN to remove them and (ii) ensuring rubber deposits are removed from the runway.

47

The issues of adequate maintenance, sufficient user charges to cover expenses, and continued safe air operations are being addressed under ongoing Loan 1512-NEP(SF), Footnote 18.

APPENDIXES Number 1 Title Components of the Original 1978 Project and Items Added to the Project Cost Estimates in 1978 Project Appraisal and Final Costs Summary of Major Task Durations Loan Covenants Not Complied With International Passenger Arrivals: Forecast versus Actual Tribhuvan International Airport Revenues, and Operation and Maintenance Expenditures Financial and Economic Analysis Socioeconomic Impacts of Tourism Maintenance Costs Page 19 Cited on (page, para.) 2, 4

22

6,27

3 4 5 6

23 24 25 26

8,31 8,33 8,34 11,47

7 8 9

27 39 42

12,50 12,52 14,60

Appendix 1, page 1

COMPONENTS OF THE ORIGINAL 1978 PROJECT AND ITEMS ADDED TO THE PROJECT A. Original Components 1. Site Preparation

1. Preparing the site for the terminal facilities involved costly earthworks due to the difficult terrain (the site was originally crisscrossed by gullies up to 20-meters [m] deep). The work entailed bringing in about 700,000 cubic meters (m3) of earthfill compacted in layers of 30 centimeters (cm) under controlled conditions. Because surface rainwater runoff from a substantial part of the airport flows through the site, special provisions were made to discharge the water without causing erosion in adjoining areas. 2. International Passenger Terminal

2. The new International Passenger Terminal (IPT) was originally designed as a functional 19-bay, four-level building, with two levels for passenger handling, the third for airport offices and a restaurant, and the fourth for mechanical equipment. IPT was to have a total floor area of about 7,700 square meters (m2), with provision for longitudinal expansion. The structure is of reinforced concrete with simple spread footings. Exterior walls and interior partitions are of local factory-made brick. The building was initially designed to handle the maximum flows forecast for 1985 of about 300 passengers per hour enplaining and 300 deplaning. The design incorporated manual baggage handling systems. After commissioning the new IPT (an obstruction according to International Civil Organization criteria) was to be demolished. 3. Operations and Airlines Complex

3. The complex comprises two buildings, each with a floor area of about 1,920 m2, linked to either side of the control tower. One wing houses radio and airport operational facilities, including the area control center. The other wing provides rentable space for airlines, airport security office, and medical clinic. Provision has been made for both wings to be extended in the future. 4. The control tower is a 29-m high reinforced concrete structure with a total floor area of about 290 m2. It houses the air traffic control center and related communications facilities. 4. Roads and Vehicle Park

5. The road works in the original Project included an approach road connecting the new terminal site to the main road to the city, a road leading to the existing domestic terminal building, and circulation and service roads in the terminal area. Vehicle parking for 90 vehicles is located near the new IPT. 5. Utilities

6. New utilities to be provided under the original Project include electrical power from a nearby high voltage line, surface drainage, water supply, sewage disposal facilities, and telephones.

Appendix 1, page 2

B.

Items Added to the Project 1. 1986 Reappraisal

7.

The following items were added in the 1986 reappraisal: (i) (ii) (iii) (iv) (v) (vi) Expansion of the IPT by 4 bays to 23 bays (from 7,700 m2 to 9,650 m2). Expansion of the vehicle parking area. Transfer and partial replacement of existing underground utilities, services, and cables. Construction of maintenance stores building. Provision of office equipment for the Tribhuvan Intemational Airport (TIA) accounting office. Services of an adviser to assist the Department of Civil Aviation (DCA) and the Airport Manager in transferring aircraft operations and passenger handling from the old to the new terminal complex. Extension of the consultants' services for the additional design work and construction supervision. 1988 Reappraisal

(vii) 2. 8.

The following items were added in the 1988 reappraisal: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) Extension of final departure lounge in IPT by 510 m2. More comprehensive, and up-to-date security and surveillance equipment. Air-conditioning and furniture for airline offices. Expansion of vehicle parking space. Provision of 200 additional telephone lines. Architectural and other revisions to IPT, and operations/airlines building and control tower. Landscaping adjacent to the new terminal area. Higher level of maintenance; more spare parts, tools and equipment; and overseas training in maintenance for DCA staff. Extension of consultants' services for additional design work and construction supervision.

Appendix 1, page 3

3. 9.

March 1990

The following items were added in March 1990: (i) Expansion of the international aircraft parking apron by 31,000 m2 (including a link road to the airside service road), removal of old buildings, and relocation of underground services. A new car park for 95 cars and 17 motorcycles in front of the future domestic terminal, including drainage and lighting. Removal of rubber deposit from the runway. Associated consulting services.

(ii) (iii) (iv)

10. The cost estimate in the design review report for the above items revealed the possibility of adding two further items within the project cost savings, subject to bid prices. These items were included in the tender documents as optional. The overall price of the accepted tender, including the optional items, was within the overall project savings, and they were consequently incorporated into the works with ADBs approval. The items were: (i) (ii) 4. A 40-millimeter thick asphaltic concrete overlay on the entire runway and selected taxiways. Construction of 7.5 m wide shoulders along both sides of the runway, and grass intrusion barriers at the edges of runway and taxiway pavements. Added in December 1990 Augmentation of the airport water supply by constructing a deepwell system, including pumps and connection to the existing storage and distribution system. 5. (i) Added in February 1994 Construction of 37,200 m2 of additional parking for domestic aircraft in two separate areas; 29,600 m2 at the west end of the old 16/34 runway and 7,600 m2 on the east side of the existing maintenance apron, including drainage and security fencing. Refurbishment of the existing domestic terminal building, including a 1,500 m2 expansion, furniture, and security equipment. Added in February 1996 Consulting assistance to the Civil Aviation Authority of Nepal to procure civil works contractors for the proposed Tribhuvan International Airport Improvement Project.

(ii) 6.

Appendix 2

COST ESTIMATES IN 1978 PROJECT APPRAISAL AND FINAL COSTS ($ million) Project Appraisal 1978 Final
Project

Item

Cost

Overrun

Construction Civil Works Building Works Maintenance Stores Apron Expansion and Associated Works Domestic Apron Works Domestic Terminal Refurbishment Consultants Supervision Financial Adviser Facilities Transfer Adviser Advance Procurement Office Equipment Land Acquisition Contingencies Physical Price Escalation Service Charges Loan 388-NEP and OSF Loans 783-NEP and 936-NEP Total

5.58 6.83

7.62 17.20 2.46 0.59 0.52

(2.04) (10.37) (2.46) (0.59) (0.52)

2.04 0.09

6.82 0.05 0.04 0.38 0.03 0.23

(4.78) 0.04 (0.04) (0.38) (0.03) (0.23)

1.24 4.22

1.24 4.22

1.20 1.00 20.00 38.14

(1.20) (1.00) (18.14)

OSF = Organization of Petroleum Exporting Countries Special Fund.

Appendix 3

SUMMARY OF MAJOR TASK DURATIONS

Activity 1. Civil Works Preparation of Tender Documents Prequalification Tendering and Award Construction Overall 2. Building Works Preparation of Tender Documents Prequalification Tendering and Award Construction Overall Original Project Total 3. Additional Works Preparation of Tender Documents Apron Expansion Domestic Apron Additions Domestic Terminal Improvements Advance Procurement Overall Revised Project Total = not available. Note: Many activities were concurrent and are not additive. 7.0 12.0 12.5 9.5 49.0 50.0 23.0 22.0 12.5 18.0 10.0 70.5 216.0 11.0 6.0 7.0 29.0 47.0 50.0 63.5 59.0 44.0 32.5 120.5 120.5 4.0 4.0 6.0 40.0 50.0 16.0 11.5 22.5 45.0 83.5 Duration (months) Scheduled Actual

Appendix 4 LOAN COVENANTS NOT COMPLIED WITH Section Loan Agreement (LA); Section 4.06 (b)(v): Submission to ADB of TIA audited financial statements. LA; Section 4.10 (a): User charges to cover operating costs and loan repayment. Status of Compliance Not carried out. CAAN financial projections do appear in various TA-related reports.

TIA revenues are sufficient to cover its own operation and maintenance expenses and debt service payments. However, CAANs total operations are in a deficit, and there is no assurance that TIA revenues will not be used to fund domestic airport operations. The DCA/CAAN increased the international passenger charges in July 1998 but has not increased aeronautical charges since 1996. CAAN intends to review aeronautical charges that take into account charges made by other airports in the region.

LA; Section 4.10 (c): Maintain user charges at parity with airports in the region.

LA; Schedule 6, para. 5 (c): Allocate funds necessary for operation and maintenance of facilities to international standards. LA; Section 6, para. 7: Maintain a commercial type of accounting system.

Maintenance is underfunded. Annual maintenance budgets should be increased to the levels recommended by the TA for institutional strengthening of DCA.a A forthcoming TA (under the current Tribhuvan International Airport Improvement Project)b will address this issue within CAANs accounting department. Responsibility for TIA has transferred from DCA to CAAN. Although not complied with as of March 1999, CAAN is preparing its budget and financial plan.

LA; Schedule 6, para. 9 (b): In the event that TIA and project facilities are transferred to CAAN, it will provide adequate funding, operation and maintenance of the project facilities.

CAAN = Civil Aviation Authority of Nepal, DCA = Department of Civil Aviation, TIA = Tribhuvan International Airport, TA = technical assistance a TA 2749-NEP: Institutional Strengthening of the Department of Civil Aviation, for $0.5 million, approved on 23 January 1997. b Loan 1512-NEP(SF): Tribhuvan International Airport Improvement Project, for $27.0 million, approved on 23 January 1997.

Appendix 5 INTERNATIONAL PASSENGER ARRIVALS: FORECAST VERSUS ACTUAL (000)

Feasibility b (1975) 132 221 244 251 259 266 274 278 288 296 302 306 311 315 320 325 330 335 340 350 361 372 383 394 406 418 Appraisal c (1977) 132 134 147 162 174 188 202 217 233 245 262 275 292 309 328 347 368 390 413 425 438 451 465 479 493 508 Project Completion d (1996) 132 156 166 183 200 200 204 230 227 256 294 316 300 316 392 380 353 387 439 459 480 503 526 550 577 606 Operations Evaluation e (1999) 132 156 166 183 200 200 204 230 227 256 294 316 300 316 392 380 353 387 439 468 480 510 526 550 577 606

Year

1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
a b

Actual data on passenger arrivals provided by the Civil Aviation Authority of Nepal (CAAN). Based on forecasts made during appraisal of the first TIA project under Loan 233-NEP(SF), traffic was assumed to grow at about 1.5 percent per annum between 1988 and 1995. Beyond 1995, a nominal growth of 3 percent per annum until 2002 was assumed. c Traffic beyond 1995 was assumed by the project consultants to increase at an annual rate of 3 percent until 2002. d Beyond 1997, passenger arrivals were estimated to reach about 550,000 persons by 2000 and 700,000 by 2005. e Beyond 1995, the Operations Evaluation Mission (OEM) assumed a growth rate of 4.6 percent per annum to 2000. Beyond 2000, traffic was assumed to grow about 4.9 percent until 2005. Source: CAAN, Project documents, and OEM staff estimates.

Appendix 6 TRIBHUVAN INTERNATIONAL AIRPORT REVENUES, AND OPERATION AND MAINTENANCE EXPENDITURES Table A6.1: Revenues, Ministry of Tourism and Civil Aviation Department of Civil Aviation (NRs 000)
Item 1. Landing, parking, and housing, AIP 2. Room and office rent, AOC 3. Land Lease and Entrance Fee 4. Oil through a. Put b. Royalty 5. Car Parking 6. Airport Tax 7. Entrance Fee 8. Miscellaneous Total FY1994 FY1995 FY1996 FY1997 FY1998

88,766.21

113,161.58

186,033.51

200,320.71

247,656.06

5,401.42

20,189.91

30,157.43

20,692.21

24,933.80

3,767.40

2,146.44

2,209.82

1,673.60

884.81 3,033.47 241,359.91 55.37 343,268.59

12.60 5,762.27 244,611.60 2,272.52 388,156.92

5,396.40 296,633.20 364.32 2,175.90 520,760.76

53.64 15,434.93 300,505.74 4,148.21 543,365.26

1.49 11,957.86 329,157.25 7,035.17 622,415.23

= not calculated AIP = Airport Improvement Project, AOC = Aviation and Operations Control Office

Table A6.2: Operation and Maintenance Expenditures (NRs 000)

Description Salary Allowance Travel and Daily Allowance Dress Water and Electric Charge Telephone Charge Other Service Charges Rent Maintenance Office Stationery Other Goods Printing Books and Magazines Fuel for Vehicles Fuel for Other Purposes Refreshments Furniture Vehicles Machinery Equipment Civil Works Total FY1996/97 17,135.95 3,157.27 805.74 2,168.54 15,017.23 1,768.69 10,425.21 1,260.45 16,946.81 732.05 1,781.56 320.90 100.58 1,667.82 952.42 127.19 1,593.93 2,382.21 17,623.28 5,546.76 84,395.77 Expenditure Total FY1997/98 21,673.52 1,717.97 669.93 2,281.31 16,288.98 1,079.64 10,071.53 1,084.48 15,262.29 579.26 1,463.15 343.68 159.13 1,930.60 1,062.76 130.39 344.48 11,733.34 5,547.78 93,424.24 FY1998/99a 10,456.96 847.74 519.82 2,555.55 9,228.44 1,162.74 4,674.35 12,960.25 143.13 394.82 137.91 40.15 747.92 457.43 86.75 3.56 3,715.97 144.65 48,278.16

= not calculated a April to December 1998 only. Civil Aviation Authority of Nepal began carrying out further (unbudgeted) expenditures in January 1999.

FINANCIAL AND ECONOMIC ANALYSIS A. Methodology and Assumptions

1. The financial and economic reevaluation of the Second Tribhuvan International Airport (TIA) Project generally followed the analytical approach and methodology used at project completion. Project benefits were derived mainly from incremental airport revenues (passenger and aircraft charges) and tourist expenditures. Both financial and economic analyses were conducted on the basis of with and without project comparisons. The without project situation assumes that preproject facilities are completely saturated in 1990. With project analysis assumes that the new project facilities will reach capacity service levels in 2005. 2. The base case model assumes that the Civil Aviation Authority of Nepal (CAAN) provides for necessary maintenance of TIA infrastructure and equipment to keep these assets operating at accepted international standards.1 Sensitivity analysis was undertaken for changes in the realized levels of project costs and benefits. 3. The methodology used in the economic analysis is consistent with ADBs Guidelines for the Economic Analysis of Projects. Major assumptions underlying the reestimation of the economic internal rate of return (EIRR) are given below: (i) The economic life of the Project is assumed at 25 years from commencement of airport operations (1991-2015). The project started generating incremental benefits in 1991. It is further assumed that at the end of that period, the residual value of the facilities will be zero. This assumption has a negligible impact on the evaluation. All costs and benefits are expressed in Nepalese rupees at 1998 constant prices. The foreign currency expenditures and benefits of the Project were adjusted to constant prices by applying the World Banks manufacturers unit value (index) and converted to Nepalese rupees using the average exchange rate in 1998 (NRs 65.98=$1). Local costs and benefits were adjusted to reflect 1998 prices using consumer price index data in the capital city of Kathmandu. Where appropriate, revenue and expenditure data that are available on a fiscal year basis are converted to calendar years using a simple average of adjacent observations. All financial costs and benefits of the Project are expressed in economic terms by deducting all taxes and charges, and applying a standard conversion factor of 0.9 to convert nontraded items to the border price equivalent.

(ii)

(iii)

Under the new organizational structure, the recently established CAAN has full financial control of its revenue base.

B.

Estimation of Project Benefits

4. Only directly quantifiable benefits were considered in the financial and economic analyses.2 The quantified project benefits consist of three general categories: (i) increased revenues to the airport through passenger and aeronautical charges; (ii) increased revenues to the airport through rental and lease revenues of airport facilities; and (iii) increased national revenues through larger tourist expenditures. Only revenues from categories (i) and (ii) are relevant to the financial analysis, while all three are used in the economic analysis. Incremental revenues from airport operations, tourist spending, and tourism-related local carrier operations were then calculated as the difference between the revenue streams of with and without project situations. The key assumptions underlying the valuation of project revenues follow: 1. Passenger Service Revenue

5. Projected passenger revenues (for 1999 and beyond) were extrapolated using 2000 and 2005 as benchmark years. The financial and economic analyses used current departure tax rates at TIA to recalculate revenues. Passenger departure charges are applied based on both nationality and destination. The assumed rates were (i) international travel, NRs900 (Nepalese) and NRs1,000 (non-Nepalese); and (ii) domestic travel, NRs100. 6. The analysis of passenger volume used TIAs records of airport operations from 19901997 (Table A7.1). Forecast growth rates are extrapolated from historical trends and growth projections at project completion and preparation of the current Bank loan to TIA for airport improvement.3 For 1998, passenger traffic is estimated based on actual air traffic during the first ten months of 1998 and operational performance between 1995 and 1997. Current airport operations are assumed to reach capacity service levels in 2005. Passenger traffic is held constant in real terms at the 2005 level at year 2005 and beyond.

The economic analysis excludes nonquantified benefits such as air safety and second-round income generated by other sectors of the economy from the direct beneficiaries, who spend a portion of their tourist earnings from tourism related activities. Loan 1512-NEP(SF): Tribhuvan International Airport Improvement Project, for $27.0 million, approved on 23 January 1997.

7. The forecast growth rates for passenger traffic are given in Table A7.2 as are assumptions on passenger departure used to calculate passenger revenues. Table A7.2: Passenger Movements
Year 1. Percent Change 1990-1995 1995-2000 2000-2005 Actual Estimate Projected 8.4 5.3 4.9 18.8 3.4 3.6 8.4 5.3 4.0 18.8 3.4 3.6 Status Project Completion International Domestic Operations Evaluation International Domestic

2. No. of Passengers 1995 2000 2005 Actual Projected Projected 850 1,100 1,400 440 520 620 897 1,200 1,500 513 600 700

Source: ADB Mission estimates.

8. Other assumptions on passenger departure used in calculating passenger revenues are given in Tables A7.3 and A7.4. Table A7.3: Projected Breakdown of International Passengers by Nationality Nepalese (000) 146 247 320 390 Nepalese (%) 24 28 27 26 Non-Nepalese (000) 453 650 880 1,110 Non-Nepalese (%) 76 72 73 74

Year 1990 1995 2000 2005

Source: ADB Mission estimates.

Table A7.4: Other Assumptions on Passenger Departure

Project Completion Traveling to Embarking SAARC (%) (%) Operations Evaluation Traveling to Embarking SAARC (%) (%)

Category A. International 1. Nepalese 2. Non-Nepalese a. Indian b. Other SAARC c. Others B. Domestic

60 80 80 40

60 50 50 50 50

60 80 80 40

55 50 50 50 50

= not calculated, SAARC = South Asian Association for Regional Cooperation Source: ADB Mission estimates.

2.

Aircraft Operations Revenue

9. Revenues from aircraft operations for 1999 and beyond were calculated based on revenues from landing and navigational aid fees extrapolated using 2000 and 2005 as benchmark years. The financial and economic analyses used current aircraft charges.4 The aircraft charges used in calculating operating revenues are provided in Tables A7.5 and A7.6. Table A7.5: Schedule of Aircraft Landing Charges at Tribhuvan International Airport (Payable in NRs)
Charges in Excess of FWG (every additional 1,000 kg) ($) 2.50 3.75 6.00 7.35 8.55 Charges in excess of FWG (every additional 1,000 kg) (NRs) 54 84.5 101.25

Aircraft Weight Up to 1,000 kg 10,000 to 25,000 kg 25,000 to 50,000 kg 50,000 to 75,000 kg 75,000 to 100,000 kg > 100,000 kg

International Charges FWG ($) 1.25 every 1,000 kg 12.25/first 10,000 kg 49.0/first 25,000 kg 140.5/first 50,000 kg 293.25 /first 75,000 kg 475/first 100,000 kg

Domestic Charges FWG (NRs) 27 every 1,000 kg 20/first 10,000 kg 1,080/first 25,000 kg 3,189.5/50,000 kg

FWG = first weight group Source: Civil Aviation Authority of Nepal.

Table A7.6: Schedule of Navigation Aid Charges at Tribhuvan International Airport (Payable in NRs) Charges ($) $ 45.90 $ 76.50 $152.75 $305.50

Aircraft Weight Up to 25,000 kg 25,000 < 50,000 kg 50,000 to 75,000 kg Above 75,000 kg

Source: Civil Aviation Authority of Nepal.

10. The analysis of aircraft movements is based on TIA records of airport operations between 1990 and 1997. Aircraft traffic forecast for 1998 are extrapolated from actual air traffic during the first ten months of 1998 and operational performance between 1995 and 1997. Current flight operations are assumed to reach capacity service levels at 2005. Therefore, aircraft traffic are held constant in real terms at the 2005 level at 2005 and beyond. The forecast growth rates for aircraft movements are given in Table A7.7.

The former Department of Civil Aviation (DCA), now Civil Aviation Authority of Nepal (CAAN), increased passenger charges in July 1998 but has not raised aircraft charges (landing and navigation aid charges) since 1996. CAAN intends to review its aircraft fees taking into account charges made by other airports.

Table A7.7: Aircraft Movements Project Completion International Domestic Operations Evaluation International Domestic

Year

Status

1. Percent Change 1990-1995 1995-2000 2000-2005 Actual Estimate Projected 1.6 2.3 2.3 24.0 1.7 1.7 1.6 2.8 1.2 24.0 1.7 1.7

2. No. of Aircraft Movements 1995 2000 2005 Actual Projected Projected 7,184 8,064 9,051 26,234 28,569 31,113 7,532 8,632 9,165 31,309 34,100 37,100

Source: ADB Mission estimates.

11. A projected aircraft mix for the benchmark years was developed by the consultant based on field interviews and a review of TIAs peak season (1999 winter) schedule. The forecast aircraft mix is summarized in Table A7.8. Table A7.8: Forecast Aircraft Mix for Benchmark Years 2000 and 2005, International and Domestic Operations Maximum Takeoff Weight (kg) 165,000 150,000 66,000 257,000 52,390 108,862 159,211 195,045 47,174 20,243 5,688 6,000 10,000 13,000

Aircraft Type A300 A310 A320 A340 B737 B757 B767 DC10 BA146 HS748 DHC6 DO228 Y12 M117 Total

International 2000 2,600 936 728 208 3,120 416 624

Domestic 2000

International 2005 525 887 1,133 1,164 696 2,825 1,314 266 355

Domestic 2005

10,366 13,528 5,843 2,003 2,360 8,632 34,100 9,165

11,278 14,718 6,357 2,180 2,567 37,100

Source: ADB Mission estimates.

3.

Miscellaneous Airport Revenues

12. Miscellaneous revenues comprise rental and concession income with expanded activity at the airport terminal. Leasing and rental revenues were based on the staff consultants estimates using financial and budget data provided by CAAN. 4. Tourist Revenues

13. The Projects primary economic justification is TIAs contribution to the economy through growth in tourist arrivals and increased tourist expenditures (excluding airfare costs). National revenues from tourism are quantified in terms of incremental revenues from tourist expenditures and incremental tourist revenues that accrue to local carriers. The project benefits from tourism were recalculated, following the analytical framework adopted by the project completion report (PCR). Updated data were used where available. (i) Revenues from tourism.5 Net revenues/gains from tourism is regarded as the expenditure on tourism services (excluding airfare) less the costs of providing these services. In 1996, non-Indian tourists spent an average 13 days in Nepal and spent an average of $430 per stay. In this evaluation, the average net gain to Nepal from tourist expenditures is estimated at 40 percent of the actual expenditure.6 Further, a portion of this net gain from tourism is attributed to TIA since travelers are primary users of the airport infrastructure. It is assumed at 30 percent of net tourism gains.7 In calculating the revenue rate from Indian visitors, the analysis assumed that the average level of Indian tourist spending was 60 percent that of non-Indian tourists.8 A more recent survey conducted on behalf of the United Nations Development Program and Nepals tourism industry suggests that the average level of Indian tourist expenditure may be 80 percent of that of non-Indian tourists.9 Tourist revenues accruing to local carriers. Project benefits have been estimated for net foreign currency earned by local airlines from carrying additional tourists.10 The projected benefits were calculated by taking 10 percent of the average revenue earned per tourist, based on average airfare expenditure. The analysis assumed that 35 percent and 20 percent of non-Indian and Indian incremental traffic purchase domestic airline tickets. Estimation of Project Costs

(ii)

C.

14. The financial project costs included in the analyses comprise capital costs for the project, service charges, incremental cost for regular operation and maintenance of the Project facilities, and periodic replacement or rehabilitation of costs of airport facilities and equipment.
Data on number of tourist visitors and foreign exchange earnings from non-Indian tourists are based on tourism statistics from Nepal. Average net gain is the value-added return to all private and public infrastructures providing services to visitors in Nepal. The assumed percentage of net gains to the country was based on the level achieved at project completion and revalidated by the Operations Evaluation Mission with concerned officials of the Ministry of Tourism. 7 The percentage of net gains ascribed to the airport was based on the level achieved at project completion and revalidated by the Operations Evaluation Mission with concerned officials of the Ministry of Tourism. 8 Foreign visitors to Nepal are categorized as Indian nationals and all other nationals because Nepal does not include Indians in visitor expenditure statistics. 9 Marg Nepal Pvt. 1997. Report on Nepal Departing Visitors Survey conducted on behalf of the Nepal Tourism Industry and the United Nations Development Program Partnership for Quality Tourism Project. 10 Net revenue from tourism excludes expenditures on local airfare.
6

Capital costs are based on actual financial costs for civil works, building construction works, ancillary works, and consulting services using Bank disbursement records and cost data provided by the Government. 15. For the economic analysis, the service charge is considered part of the return to capital of the Project. The local economic costs include direct project expenditures but exclude local taxes. Economic costs are then adjusted to account for the shadow price of labor and economic cost of nontraded goods. It has been assumed that 20 percent of the project cost comprises local labor cost, with an economic opportunity cost of 70 percent of the market wage. 16. Operation and maintenance (O&M) costs comprise mainly fuel consumption, repairs and maintenance, and other operating costs.11 Actual O&M costs from 1990 to 1997 were taken from cost data available at project completion and updated using financial and budget data for regular and periodic maintenance of the airport provided by CAAN. The estimated O&M cost stream (1998 and beyond) was based on an analysis of the maintenance program designed to keep all assets operating at accepted international standard as suggested in a Bank report.12 The proportion of O&M expenditure in foreign exchange and local currency was assumed as follows: fuel, 100 percent foreign cost; repair and maintenance, 50 percent foreign and 50 percent local cost; and other O&M costs, 100 percent local cost. Net and incremental operating costs for the airport were calculated and used in the analysis. The net operating costs were calculated by deducting miscellaneous revenues from the project facilities. D. Results

17. The financial internal rate of return (FIRR) is reestimated at 4.3 percent, which is slightly lower than the estimates of 5.5 percent at project appraisal and 6 percent at project completion. The recalculated economic internal rate of return (EIRR) for the Project is about 14.9 percent, which is lower than the 1978 appraisal estimate of 26.8 percent, but higher than the EIRR of 10.3 percent estimated at project completion (Table A7.9). The EIRR analysis indicates that project benefits are in line with expectations, and economic benefits to Nepal exceeded the financial benefits to the agency responsible for airport operation. The projects economic impact is a result of substantial national revenues generated by increased tourist arrivals in terms of spending by visitors to Nepal.13 A summary of the benefits and costs attributable to the Project are in Tables A7.10 and A7.11. Table A7.9: Base Case Performance Indicators (%) Appraisal 1978 FIRR EIRR 5.5 26.8 Reappraisal 1986 7.6 17.1 Reappraisal 1988 7.0 15.6 PCR 1996 6.0 10.3 PPAR 1999 4.3 14.9

EIRR = economic internal rate of return, FIRR = financial internal rate of return

11

12

Maintenance costs include scheduled (routine) maintenance and normal use of spare parts, irregular or periodic maintenance, and special items for unique expenditures to rehabilitate run-down assets. TA 2749-NEP: Institutional Strengthening of the Department of Civil Aviation, for $0.5 million, approved on 23 January 1997. 13 Footnote 2.

Table A7.10: Financial Analysis (NRs 000 at constant 1998 prices)

Incremental Costs
Year Project Capital Costs Operation and Maintenance Costs Total Incremental Costs Incremental Airport Revenues Net Benefits (Costs)

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

8,961 12,556 203,044 304,440 247,352 203,219 232,357 239,856 456,978 442,548 145,863 139,019 47,979 137,363 131,626 118,775 65,361 15,476 15,636 14,976 14,095 13,249 12,435 11,655 10,904 10,185 9,682 9,122 8,562 7,947 7,275 6,660 6,044 5,372 4,757 4,141

11,051 6,560 849 32,402 59,149 47,027 12,151 23,206 44,483 46,577 52,427 67,110 40,949 9,908 26,853 68,006 52,630 16,191 21,481 21,654 21,835 22,025 22,225 22,434 22,654

8,961 12,556 203,044 304,440 247,352 203,219 232,357 239,856 456,978 442,548 145,863 150,070 54,539 138,212 164,029 177,924 112,388 27,628 38,842 59,458 60,672 65,675 79,545 52,604 20,812 37,039 77,688 61,752 24,753 29,428 28,929 28,494 28,069 27,597 27,191 26,795

84,129 69,338 94,262 98,603 168,084 221,030 236,694 317,907 303,071 416,488 403,231 390,163 377,274 364,558 352,012 352,012 352,012 352,012 352,012 352,012 352,012 352,012 352,012 352,012 352,012

(8,961) (12,556) (203,044) (304,440) (247,352) (203,219) (232,357) (239,856) (456,978) (442,548) (145,863) (65,941) 14,799 (43,950) (65,425) (9,839) 108,642 209,067 279,064 243,613 355,816 337,556 310,618 324,670 343,746 314,973 274,324 290,260 327,258 322,584 323,083 323,518 323,943 324,415 324,820 325,216 4.3%

Financial Internal Rate of Return

= not calculated

Table A7.11: Economic Analysis (NRs 000 at constant 1998 prices)

Incremental Costs Operation and Total Maintenance Incremental Costs Costs 10,370 6,294 822 29,890 54,472 43,676 12,479 23,040 43,437 45,457 51,077 65,114 40,249 10,708 26,903 66,165 51,507 16,762 21,814 21,987 22,168 22,358 22,558 22,768 22,987 8,489 11,302 192,749 286,957 230,441 186,266 210,175 202,122 384,957 403,003 118,372 125,040 36,786 105,361 127,508 136,730 89,512 12,479 23,040 43,437 45,457 51,077 65,114 40,249 10,708 26,903 66,165 51,507 16,762 21,814 21,987 22,168 22,358 22,558 22,768 22,987 Incremental Benefits Local Total Net Tourism Carrier Incremental Benefits Benefits Benefits Benefits (Costs) 81,407 67,459 79,411 221,705 434,636 424,836 396,779 550,656 559,654 599,438 604,181 608,713 613,037 617,158 621,080 621,080 621,080 621,080 621,080 621,080 621,080 621,080 621,080 621,080 621,080 51,137 91,935 89,320 115,652 156,205 200,056 211,291 243,332 242,022 264,709 266,647 268,509 270,297 272,012 273,655 273,655 273,655 273,655 273,655 273,655 273,655 273,655 273,655 273,655 273,655 208,260 221,798 253,567 426,099 742,117 823,818 821,096 1,080,105 1,074,439 1,238,986 1,233,736 1,228,368 1,222,880 1,217,273 1,211,546 1,211,546 1,211,546 1,211,546 1,211,546 1,211,546 1,211,546 1,211,546 1,211,546 1,211,546 1,211,546 (8,489) (11,302) (192,749) (286,957) (230,441) (186,266) (210,175) (202,122) (384,957) (403,003) (118,372) 83,220 185,012 148,206 298,592 605,387 734,306 808,617 1,057,065 1,031,002 1,193,529 1,182,660 1,163,254 1,182,631 1,206,565 1,184,643 1,145,381 1,160,038 1,194,784 1,189,731 1,189,558 1,189,378 1,189,187 1,188,988 1,188,778 1,188,558 14.9%

Year 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Project Capital Costs 8,489 11,302 192,749 286,957 230,441 186,266 210,175 202,122 384,957 403,003 118,372 114,670 30,493 104,539 97,618 82,258 45,836

Airport Revenues 75,716 62,404 84,836 88,743 151,276 198,927 213,025 286,116 272,764 374,839 362,908 351,146 339,546 328,103 316,811 316,811 316,811 316,811 316,811 316,811 316,811 316,811 316,811 316,811 316,811

Economic Internal Rate of Return = not calculated

E.

Sensitivity Analysis

18. Sensitivity analysis has been carried out to show the impact on base case FIRR and EIRR of (i) changes in the level of airport revenues, (ii) increased operating costs, (iii) decreased tourism benefits, and (iv) a combination of these effects (Table A7.12). Even under the defined worst case scenario, TIA still demonstrates substantial economic impacts. Nevertheless, financial return was only marginal and is seen to deteriorate even further with increased operating costs and any restrictions on TIA-generated revenues. A7.12 Sensitivity Results (%)
Item Base Case Increase Airport Revenues by 10-20% Increase Tourism Benefits by 10-20% Increase Operating Costs by 10-20% Decrease Airport Revenues by 10-20% Decrease Tourism Benefits by 10-20% Decrease Airport Revenues and Tourism Benefits by 10-20% Increase Operating Costs and Airport Revenues by 10-20% Increase Operating Costs and Reduce Tourism Benefits by 10-20% Increase Operating Costs and Reduce Airport Revenues and Tourism Benefits by 10-20% EIRR = economic internal rate of return, FIRR = financial internal rate of return FIRR 4.3 5.3-6.2 4.3 4.0-4.2 1.6-3.2 4.3 1.6-3.2 1.0-2.9 4.0-4.2 1.0-2.9 EIRR 14.9 15.1-15.3 15.4-15.9 14.8-14.9 14.4-14.7 13.7-14.3 13.1-14.1 14.3-14.6 13.6-14.3 13.0-14.0

19. The preceding analysis on project risk was supplemented by calculations of sensitivity indicators and switching values (Table A7.13). Table A7.13: Calculation of Sensitivity Indicators and Switching Values
Item 1. 2. 3. 4. 5. 6. 7. 8. Base Case Airport Revenues Tourism Benefits Operating Costs Combination of 2 and 3 Combination of 2 and 4 Combination of 3 and 4 Combination of 2, 3, and 4 Change in Variable (%) (+/-) 10-20 (+/-) 10-20 (+) 10-20 (-) 10-20 (+/-) 10-20 (+/-) 10-20 (+/-) 10-20 Recalculated EIRR (%) 14.9 14.4-15.3 13.7-15.9 14.8-14.9 13.1-14.1 14.3-14.6 13.6-14.3 13.0-14.0 Sensitivity Indicatora 0.9 2.5 (0.1) 3.4 0.8 2.4 3.3 Switching Value (%)b 111.1 40.3 (820.1) 29.6 128.6 42.4 30.7

= not applicable, EIRR = economic internal rate of return Sensitivity indicator (SI) was calculated as the ratio of the percentage change in the net present value of the Project, divided by the percentage change in variable. b Switching value (%) was calculated by multiplying the inverse of the sensitivity indicator (1/SI) by the percentage change in variable, times 100.
a

20. Of the three variables tested, it was observed that only the level of tourism benefits show substantive impact on the economic success of the Project. The sensitivity indicators consistently show high levels (greater than one) for changes in the base case value for tourist benefits, as well as the lowest margins for any percentage decline in project benefits/increase in costs.

Appendix 8, page 1

SOCIOECONOMIC IMPACTS OF TOURISM Table A8.1: International Passenger Arrivals

Tourist Air Arrivals 151,870 226,421 267,932 300,946 254,140 289,381 325,035 343,246 371,145 382,708 Nepali Air Arrivals 74,944 89,904 124,195 79,288 98,828 97,184 113,696 124,257 109,103 127,783 Total Arrivals by Air 226,184 316,325 392,127 380,234 352,968 386,565 438,731 467,503 480,248 510,491 Tourist Arrivals by Land 29,119 28,464 25,063 33,407 39,427 37,150 38,360 50,367 50,712 46,649 Total Tourist Arrivals 255,933 344,789 417,190 413,641 392,395 423,715 477,091 517,870 530,960 557,140 Air as Percent of Total 88.6 91.7 94.0 91.9 90.0 91.2 92.0 90.3 90.4 91.6

Year 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998a

a Estimates. Source: Department of Tourism, Ministry of Tourism and Civil Aviation, Nepal.

Table A8.2: Foreign Exchange Earnings from Tourism

Total Foreign Exchange Earnings from Tourism (NRs million) 1,071.0 3,121.2 3,587.6 5,016.9 5,966.0 8,251.7 8,973.2 9,521.2 8,523.0 5,297.0 As Percent of Total Value of Exports of Goods and Nonfactor Services 16.3 28.5 23.5 19.5 26.7 2.4 21.6 23.3 13.8 14.6

Fiscal Year 1986 1990 1991 1992 1993 1994 1995 1996 1997 1998a
a

As Percent of Total Value of Merchandise Exports 34.7 59.5 47.1 35.9 34.5 42.7 50.0 47.9 37.9 31.3

As Percent of Total Foreign Exchange Earnings 18.5 23.3 21.8 20.0 17.6 18.9 17.2 18.0 11.1 11.4

As Percent of GDP 2.0 3.2 3.2 3.6 3.7 4.1 4.1 3.8 3.0 1.8

First eight months. Source: Nepal Rastra Bank.

Appendix 8, page 2 Table A8.3: Gross Foreign Exchange Earnings from Non-Indian Tourists
Earnings Year 1985 1990 1991 1992 1993 1994 1995 1996 1997 NRs million 719.4 1,868.9 2,260.8 2,838.1 3,225,5 4,341.7 6,059.0 6,599.7 6,698.7 $ million 39.2 63.7 58.6 61.1 66.3 88.2 116.8 116.6 115.9 Change (%) (5.1) (6.8) (8.0) 4.3 8.6 32.9 32.4 (0.1) (0.6) NonIndian Tourists (000) 127.1 195.1 200.5 227.8 210.2 224.0 246.1 271.1 288.4 Average Income per Visitor ($) 308.3 326.5 292.2 268.2 315.6 393.7 474.5 430.3 401.9 Average Length Of Stay (days) 11 12 9 10 12 10 11 13 13 Average Income Per Visitor ($ per day) 27 27 31 26 26 39 42 32 32

Source: Ministry of Tourism, Nepal Tourism Statistics.

Table A8.4: Receipts and Expenditures of Convertible Foreign Exchangea (NRs million)
Fiscal Year 1986 1990 1991 1992 1993 1994 1995 1996 1997 1998b
a b

Tourism Receipts 863.6 1,541.7 1,993.8 3,090.7 2,615.1 4,819.7 5,506.7 6,605.9 6,158.8 3,567.7

Merchandise Exports 2,072.3 4,240 5,763.4 10,020.6 10,389.5 16,033.2 15,624.5 14,719.4 15,603.9 7,604.9

Merchandise Imports 4,418.3 8,710.9 7,745.9 8,349.1 11,255.3 18,638.5 22,461.0 21,361.5 24,099.7 15,180.3

Data based on foreign exchange records. First six months. Source: Nepal Rastra Bank.

Table A8.5: Long-Term Targets in the Tourism Sector

Long-Term Target Tourist Arrivals (no.) Duration of Stay (no. of days) Per Tourist Expenditure ($/day) Foreign Exchange Earnings ($ millions) Employment (Direct) (no. of jobs) Employment (Indirect) (no. of jobs) Employment (Direct/Indirect) (no. of jobs) 1997 420,000 11.27 45 213.0 75,000 107,700 257,000 2002 676,414 13 60 527.6 111,329 162,029 371,598 2015 1,247,830 15 133.3 2,495 205,227 298,688 685,013

Source: National Planning Commission, Ninth Plan Document, Nepal.

Appendix 8, page 3 Table A8.6: Number of Hotels and Hotel Beds

Star Hotels Year 1985 1990 1991 1992 1993 1994 1995 1996 1997 No. 41 57 61 64 64 72 72 79 86 Beds 4,188 5,502 5,809 5,969 5,969 6,502 6,502 7,050 7,779 Nonstar Hotels No. Beds 39 111 131 139 150 322 448 553 620 2,722 4,742 5,398 5,803 6,578 11,228 15,305 18,588 19,833 Total No. 80 168 192 203 214 394 520 632 706 Beds 6,910 10,244 11,207 11,772 12,547 17,730 21,807 25,638 27,612

Source: Department of Tourism.

Table A8.7: Personnel Trained by Hotel Management and Tourism Training Center (FY1973 to December 1976) Course Hotel Administration Travel and Tours Trekking Other Courses/Workshop Mobile Team (Outreach Training) Total
Source: Nepal Tourism Statistics, 1996.

Female 658 296 16 94 798 1,862

Male 2,920 1,421 2,137 500 1,969 8,947

Total 3,578 1,717 2,153 594 2,767 10,809

Percents 33.1 15.9 19.9 5.5 25.6 100.0

Appendix 9, page 1 MAINTENANCE COSTS The following paragraph assesses the findings of the maintenance program reported under the technical assistance for institutional strengthening of the Department of Civil Aviation.1 1. The consultants analyzed the maintenance needs of Tribhuvan International Airport (TIA) and estimated the costs of a maintenance program that would keep all assets operating at accepted international standards. The maintenance items were divided into three categories: (i) Regular items and spares: routine maintenance and normal consumption of spares. The consultants increased this amount by 8 percent per year for inflation, as well as in specific years to account for the increased maintenance workload created by the expanded international passenger terminal and other facilities provided by the current Tribhuvan International Airport Improvement Project (TIAIP).

(ii) Cyclical items: irregular or periodic maintenance items such as pavement overlays or major equipment overhauls or replacements that occur regularly but at long intervals, such as every 10 or 15 years. (iii) Special items: unique expenditures to rehabilitate assets that are rundown, replace obsolete equipment, or acquire new maintenance equipment. 2. The following adjustments were made to create a stream of annual maintenance costs for the existing facilities, excluding the new TIAIP facilities. 3. The FY1999 cost of regular items and spares was rounded up to NRs44 million. Inflation and the requirements of TIAIP facilities are omitted, so the annual cost remains at NRs44 million. 4. Cyclical and special items are combined. The consultants estimates are used up to FY2008. All the items are justified and independent of the new TIAIP facilities, and appear to exclude inflation. If the largest items (runway and taxiway overlays) are omitted, then the average cost is about NRs36 million per year, the value used from FY2009 to FY2015. 5. The cost stream shows a period of increasing and uneven expenditures as TIA catches up and overlays the aircraft pavements, after which there will be a steady state of adequate maintenance. 6. It could be argued that TIA has operated for the past 10-15 years without these levels of expenditure on maintenance. However, sound reasons exist why meager maintenance expenditures are no longer possible. 7. First, a large backlog of work is contained in the recommended maintenance program. A significant amount of special items include telecommunications equipment that will soon need to be replaced. Other items, such as a runway sweeper, will enable TIA to perform essential maintenance more effectively. 8. Second, this maintenance program will mean additional rehabilitation or repair costs will not be needed during the analysis period. If the maintenance costs were reduced, then a provision would have to be included for rehabilitation and repair works.
1

TA 2749-NEP: Institutional Strengthening of the Department of Civil Aviation, for $0.5 million, approved on 23 January 1997.

Appendix 9, page 2

9. It is not the intention to analyze the economic level of maintenance at TIA because too many operational and safety factors are involved. The expedient, conservative solution is to assume a level of maintenance expenditure needed to operate at accepted international standards.
Table A9: Tribhuvan International Airport Projection of Future Maintenance Costs (Rp million) Area A. Electrical Scheduled Maintenance Spare Parts Cyclical Maintenance Total (A) Special Maintenance Subtotal (A) (including Special items) B. Mechanical Scheduled Maintenance Spare Parts Cyclical Maintenance Total (B) Special Maintenance Subtotal (B) (including special items) C. Radio Scheduled Maintenance Spare Parts Cyclical Maintenance Total (C) Special Maintenance Subtotal (C) (including Special items) 1.25 3.38 0.00 4.63 11.06 1.36 3.68 0.20 5.24 7.85 1.47 3.98 0.70 6.15 12.00 1.47 3.98 0.70 6.15 10.89 1.83 4.94 0.80 7.57 13.96 1.98 5.34 0.80 8.12 64.90 2.13 5.76 0.80 8.69 4.00 2.31 6.22 0.20 8.73 4.00 2.49 6.72 2.70 11.91 4.00 2.69 7.26 0.70 10.65 9.70 2.90 7.84 0.70 11.44 5.43 1.25 4.25 0.00 5.50 0.00 1.36 4.64 2.00 8.00 4.01 1.47 5.01 2.50 8.98 3.30 1.47 5.01 2.50 8.98 3.30 1.97 6.69 4.50 13.16 33.35 2.12 7.22 4.00 13.34 2.85 2.29 7.80 4.50 14.59 0.00 2.48 8.42 4.00 14.90 0.00 2.68 9.10 4.50 16.28 0.00 2.89 9.82 2.00 14.71 0.00 3.12 10.61 2.50 16.23 0.00 1.25 3.50 0.00 4.75 0.00 1.38 3.86 1.00 6.24 6.71 1.49 4.15 1.00 6.64 7.20 1.73 4.86 1.00 7.59 7.20 1.95 5.46 1.00 8.41 7.30 2.10 5.89 1.00 8.99 10.00 2.27 6.36 1.00 9.63 3.00 2.45 6.87 1.00 10.32 3.00 2.65 7.42 1.00 11.07 0.00 2.86 8.02 1.00 11.88 0.00 3.09 8.66 1.00 12.75 0.00 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008

4.75

12.95

13.84

14.79

15.71

18.99

12.63

13.32

11.07

11.88

12.75

5.50

12.01

12.28

12.28

46.51

16.19

14.59

14.90

16.28

14.71

16.23

15.69

13.09

18.15

17.04

21.53

73.02

12.69

12.73

15.91

20.35

16.87

Appendix 9, page 3
Table A9: Tribhuvan International Airport Projection of Future Maintenance Costs (Cont.) (Rp million) Area D. Civil Scheduled Mice-Buildings Scheduled Mice-Airfield Regular Mice-Engineering Services Cyclical Maintenance Total (D) Special Maintenance Subtotal (D) (including Special items) Total Regular Maintenance, Spare Parts and Cyclical Maintenance (NRs) ($) Total Equipment and Special Items (NRs) ($) 10.00 10.00 4.10 0.00 24.10 0.00 11.88 10.80 4.87 1.71 29.26 3.67 16.04 11.66 6.58 3.42 37.70 12.69 17.84 12.60 7.31 4.85 42.60 9.19 19.27 13.60 7.90 0.00 40.77 2.00 20.81 14.69 8.53 0.00 44.03 2.00 22.47 15.87 9.21 0.00 47.55 0.00 24.27 17.14 9.95 3.42 54.78 0.00 26.21 18.51 28.31 19.99 30.58 21.59 12.54 11.97 76.68 0.00 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008

10.75 11.61 53.01 125.40 108.48 185.31 0.00 0.00

24.10

32.93

50.39

51.79

42.77

46.03

47.55

54.78

108.48 185.31

76.68

38.98 0.68

48.74 0.86

59.47 1.04

65.32 1.15

69.91 1.23

74.48 1.31

80.46 1.41

88.73 1.56

147.74 222.55 2.59 3.90

117.10 2.05

11.04 0.19

22.24 0.39

35.19 0.62

32.57 0.57

56.61 0.99

79.75 1.40

7.00 0.12

7.00 0.12

4.00 0.07

9.70 0.17

5.43 0.10

Total (A, B, C, D) (NRs) ($)

50.04 0.88

70.98 1.25

94.66 1.66

95.90 126.52 154.23 1.68 2.22 2.71

87.46 1.53

95.73 1.68

151.74 232.25 2.66 4.07

122.53 2.15

Notes:

1. FY1998 figures are based on the current year's budget (FY1997) increased by 25 percent in accordance with the Bank/His Royal Majesty of Nepal (HMGN) agreement. 2. Regular maintenance and spare parts figures are increased by the rate of inflation each year. 3. Regular maintenance and spare parts figures are increased (in specific years) by a percentage rate indicative of the increased expenditure due to additional assets created under Tribhuvan International Airport Improvement Project as appropriate. 4. Cyclical items include high cost works that are necessary periodically but not every year, such as runway overlays and building refurbishments. 5. The allowance for special maintenance items represents the cost of improving or replacing some assets that are currently unserviceable or substandard, and of providing essential maintenance and vehicles. The works are planned to be completed within the first five years of Civil Aviation Authority of Nepals operations. 6. Rate of inflation = 8 percent. 7. $1.00 = NRs57.00.