Caan’s Rs40 billion debt raises fears of unsustainability

- Post Report, Kathmandu
Interest payments on these loans total around Rs 3.2b annually, based on the 8pc interest rate the government charges public enterprises

Apr 16, 2016-The Civil Aviation Authority of Nepal (Caan) is already in debt to the tune of Rs40 billion, and with more projects in the pipeline, there are fears interest payments on its loans may exceed revenue.

Caan is currently implementing three major projects—upgradation of Tribhuvan International Airport (TIA), expansion of Gautam Buddha Airport in Bhairahawa into an international airport and construction of a new international airport in Pokhara. 

Caan has borrowed Rs7 billion and Rs8 billion to improve TIA and Gautam Buddha Interna-tional Airport respectively. 

The construction of the international airport in Pokhara is being financed by a loan of 

Rs22 billion. 

Interest payments on these loans total around Rs3.2 billion annually, based on the 8 percent interest rate the government charges public enterprises. The outlay excludes the cost of the land acquired for these projects. 

The new airports are likely to come online after four-five years, and income from TIA should be adequate to repay the loans. Caan earns Rs6 billion annually from TIA. The airport development tax it started last year has meant an additional Rs1.5 billion pouring into its coffers.

Caan’s overheads amount to Rs1.8 billion annually, and it spends a lot of money to maintain the 34 domestic airports. 

Meanwhile, Caan has proposed to construct a second inte- rnational airport (SIA) in Nijg-adh, Bara which has a price tag of Rs121 billion. If Caan implements the SIA project, its borrowings will swell on an unprecedented scale and jeopardise its long-term sustainability.

“Obviously, it will not be easy for Caan to undertake the SIA,” said Sanjiv Gautam, director general of Caan. “A government entity cannot operate with such a massive loan burden. So the built-operate-transfer modality would be the right option for the SIA project.”

Besides, with two new international airports being built simultaneously, Caan will have a hard time financing the training of manpower and installation of advanced technology, he said.  

“The rate of interest charged by the government is definitely high. We have requested the Finance Ministry to reduce it to 4 percent for the loan taken for the Pokhara airport project,” said Gautam. Caan, which has racked up accumulated losses of Rs1.15 billion since its establishment, made a net profit of Rs1.89 billion in the fiscal year 2012-13.  

According to government officials, Caan’s sustainability will depend on the growth in passenger traffic at TIA until the other airports are constructed.

Caan expects the number of domestic and international air travellers to jump more than twofold to 9.31 million by 2028, while aircraft movement is estimated to increase to 232,750. 

However, the year 2015 has been the worst year for Caan as international air passenger traffic through TIA dropped for the first time in 13 years. 

According to TIA, the number of travellers passing through the country’s sole international airport plunged 8.37 percent to 3.21 million in 2015. Likewise, aircraft movement fell 2.37 percent to 26,563 flights.

Meanwhile, domestic air passenger movement has shrunk for four straight years, dropping 5.96 percent to 1.36 million in 2015, as a series of disasters struck the country denting travel demand.

Published: 16-04-2016 08:15

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