The Ministry of Finance has approved the Tourism Ministry’s proposal to hold negotiations with Lufthansa Consulting of Germany, which has shown interest to become a strategic management partner in Nepal Airlines Corporation (NAC), the national flag carrier. 

The Finance Ministry has asked the Tourism Ministry to hold talks if the German company can introduce reforms in NAC and provide optimum benefits to the state-owned airline company, according to Tourism Ministry officials. 

“We have asked the Tourism Ministry to proceed ahead by remaining within the realm of the prevalent laws. It’s their job to refer to the existing laws and proceed ahead,” said Ganesh Prasad Pandey, head of the Corporation Co-ordination Division at the Finance Ministry. 

After receiving the green light, the Tourism Ministry is preparing to table the proposal at the Cabinet to get a final approval. 

The Tourism Ministry has said there is a provision in the Public Procurement Act that allows state-owned enterprises to purchase services from foreign companies. “But even if we decide to hire the German company based on this legal provision, the new government may reverse our decision,” officials of the Tourism Ministry said. 

Last March, the Tourism Ministry had invited “closed” requests for proposals (RFP) from reputed airlines in the US, UK, France, Germany and Australia through their embassies in Kathmandu to rope in a strategic management partner in the national flag carrier. Lufthansa Consulting, an independent subsidiary of the Lufthansa Group, was the sole applicant.

Lufthansa Consulting has asked for a fee of Rs688.67 million for services it is planning to render in three phases. After the company placed this proposal, the Tourism Ministry had sought the Finance Ministry’s input before forwarding the proposal to the Cabinet for final approval. 

But the Finance Ministry could not figure out whether Lufthansa’s proposal to become a strategic management partner in NAC should be treated as a part of the privatisation process or something else. So, it decided to set up another committee comprising under secretaries of finance and tourism ministries.

The panel of under-secretaries had recommended studying possible modalities like lease contract, strategic partner with equity, strategic alliance with foreign airlines, lease contract and management contract. 

A copy of Lufthansa Consulting’s proposal obtained by the Post shows that for the first phase of the partnership known as ‘diagnostic assessment’ and the second phase known as ‘restructuring plan’, the company has proposed a fixed charge of Rs246.75 million. The first phase will last for four weeks, and the second phase will last for five months.

For the third phase, which is the implementation phase, the proposed fee for its service is Rs338.62 million. The third phase will last for three years, according to the proposal. Lufthansa Consulting has said that it can take charge of NAC for three years, and that the contract can be extended by another two years.

Income tax on the fees will be Rs103 million. As per the proposal, payment for the third phase will be based on improvement in profitability over the baseline. In 1970, the then Royal Nepal Airlines Corporation (RNAC) had invited experts from Air France under a programme to improve its management, and they handled most of the managerial positions until 1973. 

In 1972, RNAC acquired its first jet, a Boeing 727, in cooperation with the French carrier. Since the expiry of the contract with the French company, the government has been trying to find a strategic partner to improve NAC’s deteriorating performance amid recurring cases of corruption.