The Tourism Ministry’s plan to appoint Lufthansa Consulting of Germany as a strategic management partner in Nepal Airlines Corporation (NAC) has hit a snag with a newly formed government committee asking it to explore ‘multiple modality options’ before sealing the deal.

The panel of under-secretaries has recommended studying possible modalities like lease contract, strategic partner with equity, strategic alliance with foreign airlines, lease contract and management contract, said a Tourism Ministry official. 

The report submitted to Tourism Secretary Maheswor Neupane on Tuesday has urged the government to evaluate the partnership proposal ‘rationally’ to ensure that it is in the interest of the national flag carrier. 

The Tourism Ministry set up the committee, consisting of Basudev Sharma Poudel and Promod Nepal, finance and tourism under-secretaries respectively, and Ganesh Bahadur Chand, deputy director general of NAC, after being asked by the Finance Ministry to clarify the modality under which it had decided to appoint Lufthansa Consulting as a partner.

The report produced by the under-secretaries contrasts with the recommendation given by an earlier evaluation committee. A seven-member panel led by Tourism Joint Secretary Buddhi Sagar Lamichhane had said that Lufthansa Consulting would be an appropriate partner in NAC. 

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

Lufthansa Consulting had asked for a fee of Rs688.67 million for the services it would be providing in three phases. Subsequently, the Tourism Ministry asked the Finance Ministry for its input before submitting the proposal to the Cabinet for the final approval. 

The Finance Ministry could not figure out whether Lufthansa’s proposal amounted to privatisation or something else, and it decided to set up another committee to clear the confusion.

According to a source privy to the matter, the Public Procurement Act forbids the government from considering only one partnership proposal. “There was no competitive bidding,” the source said.

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 for 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 improvements in profitability over the baseline. Lufthansa Consulting is an independent subsidiary of German-based Lufthansa Group.

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.