Money

Nijgadh Int’l Airport: DFS ‘cost reimbursement’ likely to burden state coffers

- Post Report, Kathmandu

May 7, 2017-The government will have to shell out more than double the amount of the bills as “cost reimbursement” for the detailed feasibility study (DFS) of the proposed Nijgadh International Airport in Bara it had owned in 2011, as it failed to pay the company that prepared the report on time.

Landmark Worldwide Company (LMW) of Korea had prepared the DFS at a cost of $3.55 million and submitted it to the government in August 2011. It had acquired the contract to carry out the study in March 2010.

The Korean company has formally applied for the reimbursement plus an additional fee at the Tourism Ministry, breaking down the cost of preparing the study report seven years ago, said Buddhi Sagar Lamichhane, joint secretary at the ministry. “The bills need to be validated by an independent auditor.”

The company has claimed 10 percent opportunity cost and 8 percent interest rate per year. Opportunity cost refers to a benefit that the company could have received if the same amount of money was invested in other areas. Adding the costs, the DFS cost may come to the tune of than $7 million.

As per the deal, the Korean company would not charge the government for the study if it got the contract to build the airport within three months after submitting the DFS. If not, another developer who gets the contract to build the airport should reimburse for the study report or the government should make the payment within nine months if it fails to select the project developer. Last January, the ministry had asked LMW to submit paperwork and claim payment. The move to reimburse the company follows government’s plan to assign the Civil Aviation Authority of Nepal (Caan) to prepare a fresh detailed project report (DPR). Caan has set aside another Rs600 million to prepare the DPR. Some government officials have expressed concern over Caan’s move.

“The government is yet to reach a conclusion on LMW’s report, and no one has said that the report is not workable,” said a senior official at the ministry.  “Why does Caan want to spend a pile of money to produce another similar report?” he wondered.

LMW’s report has proposed constructing the airport under the build own operate and transfer (Boot) model. It has estimated a price tag of Rs65 billion for the first phase, Rs7.78 billion for the second phase and Rs8.79 billion for the third phase.

The planned airport in Nijgadh, located 175 kilometres south of Kathmandu, will be spread over 80 square kilometres, which will make it the biggest airport in South Asia in terms of area. As per Caan’s new financial estimate, the proposed airport can be constructed at a cost of Rs121 billion.

A preliminary internal financial assessment by Caan has proposed building a 4,000-metre runway while LMW’s plan has proposed a 3,600-metre runway. Likewise,

Caan has proposed building a 100,000-square-metre international passenger terminal against the Korean company’s proposal for a 75,000-square-metre building.

Published: 07-05-2017 20:47

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