Is Nepal becoming the new land of White Elephants?
A white elephant is something whose cost of upkeep is not in line with its usefulness or value. From an investment perspective, the term refers to an asset, property, or business that is so expensive to operate and maintain that it is extremely difficult to actually make a profit from it. (Investopedia)
Can you guess what we are talking about?
Yes, we are talking about the new infrastructure projects of Nepal esp. the 2 new international airports and a new dry port!
All of these were inaugurated or opened for business within a span of a year!
Pokhara Regional International Airport (PRIA)
Total Project Cost: Rs. 22 Billion (~1.37 Billion Chinese Yuan 7 years ago)
Funding: Loan from Exim Bank of China, 25% interest free and 75% of loan at 2% interest
Loan Payback Period: 20 years
Payment modality: every 6 months
First instalment due: March 2023
Gautam Buddha International Airport (GBIA)
Total Project Cost: Rs. 6.2 Billion
Funding: USD 70 Million (~USD 9.18 Billion) as follows:
40.5% loan (USD 42.75 Million) and 18% grant (USD 15.75 Million) by Asian Development Bank
30.5% loan (USD 15 Million) by Opec Fund for International Development (OFID)
11% to be borne by Civil Aviation Authority of Nepal (CAAN)
Interest rate on ADB loan: 1 % during the grace period and 1.5% after grace period
Interest rate on OFID loan:
Payment Modality: every 6 months
And news reports suggest that GBIA is already struggling to pay loan instalments due to lack of international flights. The airport has to pay Rs 400 million in annual instalments as the principal and interest amount and its annual revenue from domestic flights can only generate up to Rs. 350 million which is sufficient to cover the operational cost.
Now the question arises, if the development of these mega infrastructure projects that too on borrowed money makes sense for the Nepal Government?
It definitely does not seem to have any well thought out business model nor any strategy to solve the operational issues like the implementation of the ILF (Instrument Landing System) technology in GBIA. The ILF can help land aircraft in low visibility (800 to 900 meters) and is allegedly could not be implemented because India has not given permission to implement it. Himalaya Airlines and Jazeera Airlines, the only two airlines operating international flights from GBIA, have suspended their flights since December 2022.
And the future of the PRIA or even the Chovar Dry Port (constructed at a cost of Rs. 1.54 Billion loan from the World Bank) does not look promising and they may eventually turn into White Elephants!
While it still may be too early and there definitely was a need for an alternative international airport, would it make sense if a different approach was followed?
For example: the government may have engaged private organizations to conduct the feasibility study and carry out the project under BOOT, EPCF or other PPP models?