Second Tribhuvan International Airport Project (Loans 388,783,936-NEP[SF])

7/30/2019 Second Tribhuvan International Airport Project (Loans 388,783,936-NEP[SF])

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ASIAN DEVELOPMENT BANK PPA:NEP 18194

PROJECT PERFORMANCE AUDIT REPORT

ON THE

SECOND TRIBHUVAN INTERNATIONAL AIRPORT PROJECT(Loans 388/783/936-NEP[SF])

IN

NEPAL

November 1999


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CURRENCY EQUIVALENTSCurrency Unit Nepalese Rupee/s (NRs)

At Appraisal(October 1978)

At ProjectCompletion(May 1996)

At OperationsEvaluation(March 1999)

NRs1.00 = $0.083 $0.018 $0.015$1.00 = NRs12.000 NRs55.800 NRs67.505

ABBREVIATIONS

CAAN Civil Aviation Authority of NepalDCA Department of Civil AviationDPT domestic passenger terminalEIRR economic internal rate of returnFIRR financial internal rate of returnICAO International Civil Aviation OrganizationIPT international passenger terminalm meterm2 square meterOAC operations/airlines building and control towerO&M operation and maintenanceOEM Operations Evaluation MissionPCR project completion reportPHP peak hour passengerPMO project management office

PPAR project performance audit reportSDR special drawing rightTA technical assistanceTIA Tribhuvan International AirportTIAIP Tribhuvan International Airport Improvement Project

NOTES

(i) The fiscal year (FY) of the Government ends on 15 July.(ii) In this report, $ refers to US dollars.

Operations Evaluation Office, PE-527


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CONTENTS

Page

BASIC DATA iiEXECUTIVE SUMMARY vMAPS Error! Bookmark not defined.

I. BACKGROUND 1

A. Rationale 1B. Formulation 1C. Objectives and Scope at Appraisal 1D. Financing Arrangements 2E. Completion 3F. Postevaluation 3

II. IMPLEMENTATION PERFORMANCE 1

A. Design 1B. Contracting, Construction, and Commissioning 3C. Organization and Management 4D. Actual Cost and Financing 4E. Implementation Schedule 6F. Compliance with Loan Covenants 6

III. PROJECT RESULTS 1

A. Operational Performance 1B. Institutional Development 3C. Financial Performance 4D. Financial and Economic Reevaluation 4E. Socioeconomic and Sociocultural Results 5F. Gender Development 5G. Environmental Impact and Control 5H. Gestation and Sustainability 6

II. KEY ISSUES FOR THE FUTURE 8

A. Successful Transfer of Commercial and Financial Management Practicesto the New Airport Administration 8

B. Adequacy of Tribhuvan International Airport Budget 8C. Level of Airport Maintenance 8

III. CONCLUSIONS 1

A. Overall Assessment 1B. Lessons Learned 1C. Follow-up Actions 2

APPENDIXES 3


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BASIC DATA

Institution Building

TA No. TA Name Type AmountApproval

Date

21- NEP Air Transport Development Advisory TA $350,000 18 Dec 1969153-NEP Tribhuvan International Airport Advisory TA $250,000 2 Oct 1975

Key Project Data ($ million)

Loans 388/783/936-NEP(SF)Appraisal

1978Reappraisal

1986Reappraisal

1988

ProjectCompletion

1996

Total Project Cost 20 31.75 41.80 38.16Foreign Exchange Cost 12 23.50 32.64 30.74Local Currency Cost 8 8.25 9.16 7.42ADB Loan Amount 11 21.25 30.35 26.85Foreign Exchange Cost 7 18.13 27.23a 23.73Local Currency Cost 4 3.12 3.12 3.12

aAdjusted to take account of the increased amount in $ terms of Loan 783-NEP(SF).

Key Loan Data ($ million)

Item

As Per ADB

Loan Documents Actual

Loan 388-NEP(SF)Total Project Cost 20.00 18.17Foreign Exchange Cost 12.00 13.82Local Currency Cost 8.00 4.35ADB Loan Amount/Utilization 11.00 10.74Foreign Exchange Cost 7.00 7.62Local Currency Cost 4.00 3.12ADB Loan Amount/Cancellation 0.26OPEC Special Fund 5.00 5.00

Loan 783-NEP(SF)Total Project Cost 11.75 13.94Foreign Exchange Cost 11.50 12.40Local Currency Cost 0.25 1.54ADB Loan Amount/Utilization (SDR million) 8.72 8.72

10.25 11.62Foreign Exchange Cost 10.25 11.62Local Currency Cost ADB Loan Amount/Cancellation


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ItemAs Per ADB

Loan Documents Actual

Loan 936-NEP(SF)Total Project Cost 8.95 6.05Foreign Exchange Cost 8.04 4.52Local Currency Cost 0.91 1.53ADB Loan Amount/Utilization (SDR million) 5.94 3.10

8.00 4.49Foreign Exchange Cost 8.00 4.49Local Currency Cost ADB Loan Amount/Cancellation 2.84

Key DatesItem Loan No. Expected Actual

Fact-Finding 388-NEP(SF) 28 Jul4 Aug 1978Appraisal 388-NEP(SF) 25 Sep9 Oct 1978Loan Negotiations 388-NEP(SF) 2124 Nov 1978Board Approval 388-NEP(SF) 22 Dec 1978Loan Agreement 388-NEP(SF) 26 Dec 1978Loan Effectiveness 388-NEP(SF) 26 Mar 1979 26 Mar 1979First Disbursement 388-NEP(SF) 4 Apr 1980Reappraisal 738-NEP(SF) 2-9 Oct 1985/

1-8 Mar 1986a

Loan Negotiations 738-NEP(SF) 02 May 1986Board Approval 738-NEP(SF) 10 Jul 1986Loan Agreement 738-NEP(SF) 3 Sep 1986Loan Effectiveness 738-NEP(SF) 2 Dec 1986 11 Feb 1987First Disbursement 738-NEP(SF) 4 Jun 1987Reappraisal 936-NEP(SF) 10-29 Sep 1988Loan Negotiations 936-NEP(SF) 14-15 Nov 1988Board Approval 936-NEP(SF) 15 Dec 1988Loan Agreement 936-NEP(SF) 16 Dec 1988Loan Effectiveness 936-NEP(SF) 16 Mar 1989 13 Jan 1989First Disbursement 936-NEP(SF) 28 Sep 1989Project Completion 388-NEP(SF) 28 Feb 1983 31 Jan 1990Project Completion 738-NEP(SF) 31 Mar 1989 31 Jan 1990Loan Closing 388-NEP(SF) 30 Jun 1985 24 Apr 1991Loan Closing 738-NEP(SF) 30 Jun 1990 9 Aug 1993Project Completion 936-NEP(SF) 31 Dec 1989 31 Dec 1996Loan Closing 936-NEP(SF) 31 Mar 1992 9 Apr 1997

Months (Effectiveness to Completion) 388-NEP(SF) 47 120738-NEP(SF) 27 35936-NEP(SF) 9 95

aFollow-up Reappraisal Mission.


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Key Performance Indicators (%)

Appraisal1978

Reappraisal1986

Reappraisal1988

PCR1996

PPAR1999

Financial Internal Rate of Return 5.5 7.6 7.0 6.0 4.3Economic Internal Rate of Return 26.8 17.1 15.6 10.3 14.9

Borrower: Kingdom of Nepal

Executing Agency: Civil Aviation Authority of Nepal(formerlyDepartment of CivilAviation)

Mission Data

Type of Mission Missions (No.) Person-Days (No.)

Fact-Finding 1 8Appraisal 1 79Reappraisal 3 128Project Administration

- Inception 1 8- Disbursement 4 21- Review 17 172- Special Loan Administration 3 24- Project Completion Review 2 44

Total 27 269

Operations Evaluation 1 28


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EXECUTIVE SUMMARY

The Project was the third major Asian Development Bank (ADB) assistance to the civilaviation sector of Nepal and the second to Tribhuvan International Airport (TIA), the countrysonly international airport and a principal hub of domestic air traffic. The objective of the Projectwas to reduce constraints on increasing passenger traffic by (i) relieving congestion in theexisting terminal area; (ii) accommodating future international aircraft and passenger traffic; and(iii) improving the safety of aircraft operations by implementing the first phase of Nepals long-term airport master plan which was completed in 1977.

The project rationale and mix of components proved sound. Nevertheless, due toseveral inappropriate assumptions about the design, implementation issues, and externalevents, some changes were made to the Projects original scope. Changes in scopenecessitated by robust traffic growth during implementation were justified and helped maintainproject effectiveness. All additional works were required for well-defined operational, safety, orpractical reasons. The design standards and specifications of the project facilities met acceptedinternational standards, and the buildings and civil works are functional and economical in theuse of space and materials.

The Project was scheduled to be completed in February 1983, but it was only completedin December 1996. The Project experienced serious delays throughout implementation. ADBultimately provided three loans (totaling $29.25 million equivalent) for the Project, of which twowere supplementary loans. The actual project cost of $38.2 million was nearly double theappraisal estimate of $20 million. The cost overrun of $18.2 million was due to(i) budget overruns with underestimation of costs, implementation delays, and price escalation;(ii) additional works; and (iii) exchange rate fluctuations, principally in the escalation of theJapanese yen against the dollar leading up to the building works contract.

The overall effectiveness of the Projects Executing Agency, the Department of CivilAviation (DCA), in airport operations, maintenance, and project management was strengthenedthrough the Projects formal training, technical and advisory support, and day-to-dayinvolvement with the project consultants. In December 1998, in line with efforts to strengthencivil aviation, DCA was replaced by a new entity, the Civil Aviation Authority of Nepal (CAAN).CAAN took over DCAs responsibilities, physical assets, and staff. CAANs mandate is tooperate Nepals airport system on a financially self-sustaining basis. Because CAAN ispresently in transition, it is premature to assess institutional performance and predict howsuccessful CAAN will be in fulfilling its mandate.

Despite cost overruns and implementation delays, the Project achieved its mainobjectives. The Projects physical outputs were successfully completed and the quality ofservices provided satisfactory. The Project contributed to reducing constraints on increasedtourist flows as well as providing the landlocked country with a well-run, modern international

airport with good facilities. The airport is fully functional and downstream economic benefits,principally from tourism, have been substantial. The Project also contributed to improved airsafety at TIA. Project benefits were in line with expectations at appraisal and project completion.The base case recalculated financial and economic internal rates of return were 4.3 percent and14.9 percent, respectively.


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A key social benefit of the Project was the creation of employment opportunities andincome. The Projects substantive impact is a result of national revenues generated byincreased tourist arrivals and tourist spending. The modern airport facilities have producedsignificant positive impacts on expanding and developing the tourism industry in Nepal.Passengers have increased from 599,000 in 1990 to 1,048,000 in 1998 (7.2 percent per annum)since the new international passenger terminal was commissioned. The tourism sectorpromoted nonagricultural income and employment opportunities, with an estimated 250,000jobs in direct and indirect employment in 1997.

Interrelated issues that are crucial for sustaining the benefits achieved by the Project are(i) adequate maintenance of TIA facilities, (ii) airport user charges sufficient to cover operationand maintenance and upcoming debt service costs, and (iii) continued safe air operations andacceptable level of service to air carriers and passengers. While current tourist flows are robustand prospects for sustained numbers are encouraging, the deteriorating environmental quality inKathmandu if left unchecked, could adversely affect future tourist flows.

The Project is considered to be generally successful. The sustainability of projectinstitutions and benefits will depend on the financial and management performance of TIA underCAAN. ADB needs to monitor TIAs performance so as to ensure smooth transition inmanagement and operations. The transition from DCA to CAAN has taken longer thanenvisaged, and follow-up by ADB is important to ensure sustainability of the physical assets aswell as the human resource capabilities upgrading achieved under the Project. The Governmentmust help TIA achieve financial and managerial sustainability under the new structure. Thepolicies of CAAN toward the countrys secondary airports should not jeopardize TIAs financialhealth. CAAN management needs to be transparent in allocating TIA-generated revenues foruse by the regional airports, especially given the large increases in maintenance and debtrepayment expenditures projected for TIA over the next five years and beyond. As a rule of

thumb, cross-subsidies to support regional airports (where necessary) should be used only ifthere is net revenue surplus after a full budget allocation for operation and maintenance anddebt retirement for TIA.


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I. BACKGROUND

A. Rationale

1. Being landlocked and situated in the Himalayan mountain range, an effective airtransport network is critical for moving people and goods to, from, and within Nepal. TribhuvanInternational Airport (TIA) in Kathmandu is the only international airport in the country, making itthe principal point of entry for air travelers. TIA serves as a primary international gateway andthe center of domestic air traffic. Since the 1960s, the Government has accorded high priority to

investments in civil aviation infrastructure. At project formulation, TIAs facilities wereexperiencing congestion, particularly during peak traffic periods, and the terminal requiredupgrading to support the anticipated growth in tourism-based activities.

B. Formulation

2. The Second Tribhuvan International Airport Project1 was based on the long-term airportmaster plan and designs completed in 1977 by consultants under an earlier ADB loan to TIA.2The master plan proposed that airport development be carried out in three phases with phase 1to be implemented as soon as practicable to accommodate the forecast increase in traffic needsup to 1985. Detailed engineering designs and tender documents for the five contract packagesof phase 1 were completed in August 1978. In October 1978, the Project Appraisal Missionrecommended implementing the most essential facilities first: the site development andsupporting utilities, a partial extension of the international apron, the international passengerterminal (IPT), and the operations/airlines building and control tower (OAC). 3 The AsianDevelopment Bank (ADB) approved the Project on 22 December 1978. Subsequently, ADBprovided two supplementary loans following reappraisal of the Project in 1986 and 1988. 4

C. Objectives and Scope at Appraisal

3. The Projects main objectives were to (i) relieve congestion in the existing terminal area,(ii) provide for future international aircraft and passenger traffic, and (iii) improve the safety of

1Loan 388-NEP(SF): Second Tribhuvan International Airport Project, for $11.0 million equivalent, approved on 22December 1978 (the original Project); Loan 783-NEP(SF): Second Tribhuvan International Airport Project(supplementary loan), for $10.25 million equivalent, approved on 10 July 1986; and Loan 936-NEP(SF): SecondTribhuvan International Airport Project (second supplementary loan), for $8.0 million equivalent, approved on15 December 1988.

2Loan 233-NEP(SF): Tribhuvan International Airport Project, for $10.0 million, approved on 2 October 1975.

3Prior to project appraisal, an ADB mission, the Government, and consultants, jointly reviewed the master plan andagreed that facilities under the Project include those for phase 1 development but exclude the new domestic

passenger terminal, international cargo building, crash fire rescue complex, and a portion of the aircraft parkingapron extension. The existing domestic passenger terminal, with some minor expansion done by the Government,could still handle traffic for the next five years. The Government also decided to construct a temporary cargobuilding outside of the new terminal complex. The existing rescue and fire fighting station, although not in a desiredlocation, continued to be used.

4The delays in project implementation led to an expansion of the scope, to handle the greater than predictedincrease in traffic, and to accommodate additional items and cost overruns. For these purposes, a supplementaryloan was provided in 1986. Further unexpected costs overruns occurred, which necessitated a secondsupplementary loan.


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aircraft operation. To achieve these objectives, the Project expanded the TIA terminal facilitiesby constructing the first phase of a new terminal complex.

4. The principal components of the Project as approved in 1978 comprised (i) sitepreparation, including earthworks; (ii) construction of a new 19-bay IPT; (iii) construction of a newOAC and electrical substation; (iv) ancillary works; and (v) consulting services for constructionsupervision and financial management. These were the minimum requirements to fully meet theneeds of the traffic forecast for 1985. The Project is detailed in Appendix 1.

5. Following two loan reappraisals carried out by ADB in 1986 and 1988, the Project wasrevised and IPT was expanded to 23 bays,5 while some of the designs completed in 1978 wereupgraded. The revised Project included additional components, such as the services of anadviser to assist in transferring operations from the old to the new buildings (Appendix 1).Between 1990 and 1995, the Government requested, and ADB approved, the use of savings 6from the second supplementary loan to finance further improvements: (i) extension of theinternational aircraft parking area with associated road and electrical works, and construction of anew vehicle parking area; (ii) augmentation of the airport water supply system; (iii) construction ofadditions to the domestic apron and refurbishment of the existing domestic passenger terminal;and (iv)overlay of the runway and construction of paved shoulders (Appendix 1).

D. Financing Arrangements

6. The appraised cost of the Project was $20 million equivalent, of which $12 million wasthe foreign exchange cost and $8 million equivalent was the local currency cost. On 22December 1978, ADB approved a loan of $11 million equivalent from its Special Fundsresources to finance $7 million of the foreign exchange cost and $4 million equivalent of thelocal currency cost. The Organization of Petroleum Exporting Countries Fund for EconomicDevelopment approved a loan for a further $5 million to meet the balance of foreign exchangecosts. The Government financed the remaining local currency expenditures of $4 millionequivalent.

7. ADB ultimately provided three loans for the Project, together equivalent to $29.25million. In 1986, ADB approved an initial supplementary loan of $10.25 million equivalent tofinance construction cost overruns and the cost of additional works. The financing plan wasagain revised in 1988 with ADBs approval of a second supplementary loan. The supplementaryloan for $8 million equivalent was to finance cost overruns that, at that time, were projected toarise from sudden and adverse exchange rate fluctuations, and the increased cost of thebuilding works.7 A minor portion of each supplementary loan was also intended to financeessential changes in the Projects scope.

5The need to upgrade the terminal design reflected the impact on service life capacity of the project facilities beingcompleted behind schedule, and the results of a traffic review and update carried out by the project consultantswith assistance from the International Civil Aviation Organization (ICAO).

6Principally, as a result of subsequent favorable exchange rate fluctuations.

7Particularly for the international passenger terminal contract, which provided for substantial payments in Japaneseyen.


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E. Completion

8. The Project was scheduled to be completed by February 1983. However,implementation was significantly delayed, and the Project was finally completed in December1996, nearly 14 years after its target completion date. ADB provided the Project with twosupplementary loans. The original ADB loan was closed in April 1991 following four extensions.Additional works financed under the first supplementary loan was completed in January 1990,0.8 years later than envisaged at reappraisal in 1986. Additional works financed under thesecond supplementary loan were completed in December 1996, 7 years later than envisaged atappraisal in 1988. The first supplementary loan was closed in January 1990, following threeextensions, and the second in April 1997, following four extensions.

9. The project completion report (PCR) was prepared by ADBs Infrastructure (West)Department/Transport and Communications Division and circulated to the Board in December1996. The PCR was based on a comprehensive assessment of completed works, providing adetailed account of the scope, costs, implementation, and operational aspects of the Project atthat stage. The financial internal rate of return (FIRR) was recalculated at 6.0 percent, theeconomic internal rate of return (EIRR) at 10.3 percent, and the Project was rated as generallysuccessful. The Operations Evaluation Mission (OEM) found the PCR to be complete andstraightforward in its assessment of the Projects implementation and physical achievements.

F. Operations Evaluation

10. The project performance audit report (PPAR) assesses the projects effectiveness interms of appropriateness of formulation and design, progress and quality of implementation,degree of achievement of its objectives, and sustainability. The PPAR presents the findings ofthe OEM that visited project sites at TIA from 8-19 March 1999. The PPAR is based on a reviewof the appraisal reports (for the initial and supplementary loans), PCR, and materials fromADBs files, Civil Aviation Authority of Nepal (CAAN), and TIA.


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II. IMPLEMENTATION PERFORMANCE

A. Design

11. The project rationale and mix of components were sound.8 Nevertheless, due to severalinappropriate assumptions about the design, implementation issues, and external events,several changes were made to the Projects original scope. Changes in scope necessitated byhigher than expected traffic growth during implementation were justified and helped to maintain

project effectiveness. All additional works were required for well-defined operational, safety, orpractical reasons. The design standards and specifications of the project facilities met acceptedinternational standards, and the buildings and civil works are functional and economical in theuse of space and materials.

1. Design Rationale

12. The topography of the airport site is very restrictive: the runway, taxiway, and principalbuildings are on a plateau with not enough lateral space for a new international terminalcomplex. Under preproject conditions, the presence of several buildings combined with largeaircraft parked on the apron violated the standards of the International Civil AviationOrganization (ICAO).9 The master plan and engineering designs called for extensive earthworksadjacent to the existing apron to create a platform upon which to construct the IPT, OAC,electrical substation, and vehicle parking area. This plan permitted the new buildings and wide-body aircraft parked on the apron to be set back from the runway and taxiway, enabling the

airport to comply with ICAO standards. The plan placed the international and domesticpassenger terminals and principal airport operations facilities in proximity and allowed them toshare utilities and road access. This arrangement proved to be the most cost-effective andpractical of all the alternatives considered.

13. The original 1978 design of IPT, apron extension, and supporting facilities adopted adesign year of 1985.10 The original design of 19 structural bays, with a total area of 7,700square meters (m2), was based on a peak hour passenger (PHP) flow of 300-340 passengers ineach direction given IPT processing and space requirements. With protracted delays inimplementation, continuing growth in traffic, and a review of PHP definition, it became evidentthat the original IPT design would be insufficient if passenger growth rates continued at thelevels observed then.11 It was decided to adopt 1995 as the new design year, which wouldprovide sufficient capacity for a 10-year service life after which further expansion would berequired depending on traffic levels. The IPT was increased to 23 bays (with a total area of10,160 m2) using a 1995 PHP value of 500-530 in each direction for design purposes. The

8The airport master plan has proven successful with no substantive changes in the past 25 years. Only the timing ofthe individual project components has been adjusted to suit traffic growth, availability of funding, and financial andeconomic criteria.

9ICAO. 1990. ICAO International Standards and Practices, Annex 14 Aerodomes. Montreal: ICAO.

10Terminal facilities were sized to handle peak traffic conditions in 1985 at an acceptable level of service.

11Actual international passenger arrivals were 227,000 in 1985 and 439,000 in 1995, an average annual growth rateof 6.8 percent per year.


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resulting design space of 18.5-20 m2 per PHP is economical.12 Parking and other supportingfacilities were expanded proportionately to meet the larger IPTs requirements.

14. During implementation, several airport facilities were expanded/refurbished to enable theairport terminal to handle increasing passenger and aircraft traffic and to improve aviationsafety. These changes, in effect, helped advance several of the development requirementsidentified in the airport master plan. The principal addition was the extension of the internationalapron to provide seven aircraft stands, which would be sufficient to handle the mix of aircrafttypes expected on international services. The apron extension allowed most aircraft to beparked without violating the ICAO limitation on obstacle clearance. The power-in, push-outconfiguration13 minimized the apron area required.

15. The apron extension contract also included improving the runway. The runwaypavement had been strengthened under the TIA project14 (the 2,010 meter [m] northern sectioncompleted in 1981 and the remaining 1,040 m in 1985), but it required periodic maintenanceand removal of a thick layer of rubber that had built up and posed a hazard to aircraft operationin heavy rains. The rubber deposits were removed and a nominal 40 millimeter overlay wasapplied to the entire runway. The runway shoulders were widened from 2.0 m to 7.5 m inaccordance with ICAO standards for the type of aircraft using the runway.

16. In the early 1990s, growth in domestic air traffic accelerated after private air carrierswere permitted to operate domestic services in competition with the State-owned Royal NepalAirline Corporation. Accordingly, project funds were used to construct a new check-in hall andrefurbish the departure lounge in the domestic passenger terminal (DPT). The domestic apronwas extended to provide 15 designated parking spaces.

17. Several additional works were undertaken to improve operations in the terminal buildings

and the airport complex in general, including air-conditioning and furnishings for airline offices;additional telephone lines; a maintenance stores building; and additional spare parts, tools, andequipment. TIAs water supply was insufficient and a new deepwell system with pumps andstorage was constructed and connected to the existing distribution system.

12The United States Federal Aviation Authority recommends a minimum of 20 square meters (m

2) per peak hour

passenger (PHP) for international terminals, and many designs exceed 25 m2

per PHP.13

Refers to apron operation whereby an aircraft is able to maneuver into its final parking position under its own powerbut requires a tug to push it out of its parking position to a point where it can continue under its own power.

14Loan 233-NEP(SF), Footnote 2.


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2. Appropriateness of Designs and Specifications

18. The IPT is well planned considering the difficult site restrictions,15 functional, andeconomical. Most importantly, it can be readily expanded to handle traffic in the foreseeablefuture. The terminal buildings are reinforced concrete structures with brick facing, which ispractical and appropriate for Nepal. The IPTs architecture blends well with the local Nepaliambience and with its physical environment. The interior finishes of local brick, wood, andmarble, are very durable with low maintenance requirements.

19. The apron is concrete, which is initially more costly than asphalt but resists fuel spills,bears aircraft turning loads without deforming, requires much less maintenance, and will provemore cost-effective in the long run. The other civil works conform with international practices,and efforts were made to minimize maintenance requirements, such as lining of the storm waterdrainage channels with bricks. Six years after completing the improvements, the runway andtaxiways are in good condition, although the asphalt pavements require additional maintenance.

B. Contracting, Construction, and Commissioning

20. Construction appears to have been done competently in accordance with appropriatenorms and standards for this type of facility. Based on OEMs field inspection of the conditionsof the airport facilities and the review of progress reports prepared during implementation, theconsultants and contractors employed had the necessary competence to undertake their tasks.

21. The principal delays were experienced during the preconstruction stages.Prequalification for international competitive bidding contracts required a much longer time thanplanned in order to check information provided by the contractors from various countries, manyof whom had not worked in Nepal previously, and to receive approval from the Government.The consultants16 underestimated the initial costs of the Project and the time needed forpreconstruction activities. They also encountered many difficulties in managing the Project.Nonetheless, the overall performance of the consultants has been satisfactory as evidenced bythe condition and performance of the facilities under their direction.

22. The Korean contractor completed the civil works contract in December 1985, about sixmonths after the adjusted17 completion date in June 1985. The Japanese contractor completedthe building works contract in February 1989, about three months later than the originalcompletion date. The quality of the works is of high standard.

15The building operates on two levels: the ground floor, containing the departures check-in and arrivals baggageclaim areas, is level with the circulation road and parking; and the second floor, containing the departure lounge

and the immigration hall, is level with the apron.16 The project consultants, an international consortium in association with a Nepalese architectural firm, prepared themaster plan, detailed engineering designs, and tender documents under the first Tribhuvan International Airport(TIA) loan. These consultants were retained (prequalification, tendering, and supervision services) through directappointment by the Government, with ADBs concurrence. Their reappointment saved time by avoiding the needfor a design review by new supervision consultants. On hindsight, retaining the international passenger terminal(IPT) designers was undoubtedly an advantage when it became necessary to expand the IPT.

17The original completion date was adjusted for justified delays due to unusual weather and to delays in receivinggovernment approvals, as specified in the contract conditions.


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23. The international apron expansion and associated works (runway and taxiway) werecarried out by the Chinese contractor who completed the work in December 1993, about eightmonths after the revised completion date of April 1993. The poor progress was due to slowmobilization and poor project management. The project manager was eventually replaced, andthe work was completed one year later. Despite the delay, the quality of the completed workswas acceptable. The domestic passenger terminal and apron works were carried out bydomestic contractors under the supervision of the Department of Civil Aviation (DCA) staff. Theapron expansion was completed on schedule, but the passenger terminal works took ninemonths longer than scheduled. The quality of the completed works was satisfactory given theconstraints the domestic contractors faced.

24. Despite the delays in physically completing the project facilities, no major problemsoccurred in handing over the works to the Government. All the facilities and equipment providedby the Project are functioning effectively after 10 years of operation, which speaks well for theoriginal design and specifications, and quality of construction.

C. Organization and Management

25. DCA, in the Ministry of Tourism and Civil Aviation, was designated the Executing Agencyfor the Project. DCA was replaced by a new entity, CAAN, which assumed responsibility forTIA.18 The airport is still managed by the TIA general manager, who reports to the CAANdirector general. The project management office (PMO) was established and staffed withexperienced and competent personnel from the former Air Transport Development Project.19Little authority was delegated to the PMO, and apart from minor technical details, all matters fordecision had to be referred to the DCA director general and frequently to the Ministry of Tourismand Civil Aviation.

26. Coordination on technical matters was very good between the consultant, PMO staff,and the contractors. Staffing the PMO was reasonably stable, with only four project coordinatorsover 17 years. During the same period, there were nine airport managers and five DCAdirectors general. PMO and some of its staff have continued in the project management unitwhich oversees the ongoing Tribhuvan International Airport Improvement Project (TIAIP).20

D. Actual Cost and Financing

27. The actual cost of the Project was about $38.2 million, compared with an appraisalestimate of $20 million. The final cost exceeded estimates at appraisal by $18.2 million following(i) budget overruns due to underestimation of costs, implementation delays and price escalation;(ii) additional works; and (iii) exchange rate fluctuations, mainly due to the appreciation of theJapanese yen against the dollar leading up to the building works contract. Details of the costestimates at project appraisal and the final project costs21 are provided in Appendix 2. Total

18The transition of the Department of Civil Aviation (DCA) to Civil Aviation Authority of Nepal (CAAN), was intendedto strengthen Nepals civil aviation sector, and is a covenant to Loan 1512-NEP(SF): Tribhuvan InternationalAirport Improvement Project (TIAIP), for $27.0 million, approved on 23 January 1997. The effort was aided by TA2749-NEP: Institutional Strengthening of the DCA, for $0.5 million, approved on 23 January 1997.

19Loan 26-NEP(SF): Air Transport Development Project, for $6.01 million, approved on 18 December 1969.

20Loan 1512-NEP(SF): Footnote 18.

21PCR:NEP18194: Second Tribhuvan International Airport Project, November 1996.


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disbursements under the Project reached $26.9 million, which is about 150 percent of theoriginal appraisal estimate and 92 percent of the total ADB financing.

1. Competitiveness of Contract Price

28. Civil works for buildings were the largest project component, with a final cost of $17.2million. The impact of the dollar-Japanese yen exchange rate fluctuations when eliminated fromthe bid prices led to a nominal increase of $12.66 million. Building costs under the Project(building works contract) and the current TIAIP (contract package no. 1 of TIAIP for IPTexpansion and an additional OAC building) are compared in Table 1. Both costs include aproportionate amount of ancillary works, such as vehicle parking lots, and are consideredreasonably comparable. The project cost includes the air traffic control tower, for which thehigher unit cost per m2 increases the overall average. The unit costs for construction areremarkably close, which provides assurance that bidding for the TIAIP building works wascompetitive.

Table 1: Comparison of Second Tribhuvan International Airport Project and TribhuvanInternational Airport Improvement Project Building Costs

ItemSecond TIA Project

Final Cost TIAIP Contract 1

Total cost adjusted to 1998 ($ million) 17.2 15.9Gross floor area (m2) 14,190.0 13,000.0Cost per m2 ($) 1,212.0 1,223.0

m2

= square meter

2. Supervision Costs

29. The main portion of the $5.24 million cost overrun was due to increased constructionsupervision costs. This increase, which is mainly associated with lengthy delays in projectimplementation, was $4.78 million and accounts for about 26 percent of the total project costoverrun. Costs of consultant supervision at project appraisal and project completion arecompared in Table 2. At project appraisal, providing 10 percent of construction cost forprequalification, tendering, and supervision services was reasonable considering the buildingworks constituted the largest part of the project cost (a lower percentage would be appropriatefor civil works alone). Throughout project implementation, the consultants services extendedwell beyond tendering and supervision of the original works. The final supervision cost wasabout 22 percent of construction costs, which is relatively high even after considering all theadditional services (20 percent would be a reasonably acceptable upper limit). The higher costsreflect the penalty paid for many unplanned delays during implementation.

Table 2: Supervision Consultants Cost

ItemProject

AppraisalProject

Completion

Total ($ million) 2.04 6.82


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6

Calendar months (no.) 50.00 2.16Cost per month ($) 40,800.00 31,600.00Percent of construction cost 10.00 22.00

E. Implementation Schedule

30. From the start, project implementation experienced delays that persisted through thepreconstruction phases of the two original construction contracts, site preparation, and buildingworks. After the two contracts were awarded, work proceeded generally on schedule. The civil

works were substantially completed only six months late, and the two components of thebuilding works contract (OAC and IPT) were completed within the contracted periods. Overall,completion of these two contracts was on 11 January 1989, about six years later than envisagedin 1978. The new IPT was put into service on 28 May 1989, six years and four months later thanscheduled. The new OAC was commissioned on 18 February 1990, also six years later thanoriginally scheduled.

31. Tender documents for the five contracts prepared under the previous loan22 wererevised to form two contracts. This work and approval from the Government took much longerthan originally scheduled (Appendix 3). The procurement process was also complicated byother factors. It became evident that there was a cost overrun in the building works, and thesecond round requested bidders to submit tenders as supply only and/or supply and finance.This contributed to the complexity of the evaluation and consumed more time. The JapaneseGovernment offered to finance the Project but this was eventually declined in favor of asupplementary loan from ADB.

32. The original schedule for preconstruction tasks (prepared in 1978) at project appraisal

was overly optimistic. Yet this problem was repeated in the apron expansion and associatedworks contract in 1991 when only seven months were allowed for prequalification, tendering,and contract awarding whereas in reality the process required about 23 months. Only the twodomestic contract awards were processed quickly. This scale of delay is common withinfrastructure construction projects in Nepal, especially those requiring international competitivebidding.

F. Compliance with Loan Covenants

33. OEM concurs with the PCR assessment that the Government has complied with themajority of the loan covenants (Appendix 4). The exceptions cover three agreements: (i) theadoption of a commercial type of accounting, (ii) adequate budgets for TIA operations andmaintenance, and (iii) funding through user charges. These agreements are consideredimportant for the sustainability of airport operations.



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III. PROJECT RESULTS

A. Operational Performance

34. At project appraisal, forecast passenger flow at TIA was 233,000 international arrivals in1985 and 413,000 in 1995 (subsequently revised to 462,000 arrivals in 1995 in the 1988reappraisal). IPT was designed to process 500-530 PHP in each direction, corresponding to

traffic levels in 1995, at a good level of service (stable flow, acceptable delays, and good level ofcomfort).23 Records on international passenger traffic show that TIA handled 439,000 arrivals in1995 and about 500,000 in 1998 (Appendix 5).

35. Preproject traffic consisted mainly of narrow-body aircraft (B727s) with occasionalDC10s or A300s. With the start of project operations, the aircraft types have mainly beenB757s, and smaller wide-body A300s and A310s. None of these aircraft strain the IPTscapacity. With more airlines favoring larger capacity aircraft, such as B777s and A340s, IPT willbe under pressure from increasing aircraft passenger loads over the next two years until thecurrent expansion is completed.24 However, the building can handle the increase, providedCAAN continues to implement operational improvements at the terminal, and limits additionalinternational flights during peak periods.25

36. During the tourist season of FY1999, TIA handled three international flights in each ofthe daily peak hours from 1100 to 1400, with a fourth flight in one of these hours on severaldays of the week. With the present aircraft types, IPT is processing about 700 PHP in eachdirection and occasionally 800 PHP, which is about 50 percent more than the design PHP. 26The terminal can handle three aircraft passenger loads within the hour with an adequate level ofservice (unstable passenger flow,27 acceptable delays for short periods, and adequate level ofcomfort) but is strained when a fourth aircraft arrives. Further, some air carriers are introducinglarger capacity aircraft instead of adding more flights. The IPT level of service will definitelydeteriorate with three larger capacity aircraft and will become saturated with a fourth aircraft.Saturation is estimated at about 900 PHP. Passenger volumes are much lower in the remaining12-15 hours during which IPT provides a good level of service.

23The guidelines for airport capacity/demand management published by international airports and air transportassociations defines level of service in terms of space (congestion), time (delays), and comfort. The level of serviceis rated excellent, high, good, adequate, inadequate, or unacceptable. (International Air Transport Association.1990. Guidelines for Airport Capacity/Demand Management, Second Edition. Montreal: IATA).


25The Civil Aviation Authority of Nepal (CAAN) introduced a third shift of operational staff permitting scheduledservices from 0600 to 2400, which provides the opportunity for foreign carriers to schedule evening arrivals andmorning departures, resulting in a better diurnal distribution of traffic.

26The TIAIP planning study reported that TIA was regularly handling more than 500 passengers in one direction in

peak hours by 1995. This condition has continued and, with the introduction of larger aircraft, peak loads of 700-800 passengers are common. The terminal is well used during the peak period in the midday. The numerical

analysis was confirmed by observation during typical peak periods. The terminal is underused during the off-

periods, but most airports faced this problem. The only solution is to spread the peaks, which is difficult for a spoke

airport like TIA whose incoming flights depend on the time slots allowed at busy hub airports such as Bangkok and

Singapore. But TIA is trying, and it is encouraging to see that new services (charters and Gulf Air) are scheduling

their arrivals later in the afternoon.27

Passenger flow is subject to slowdowns and stoppages in making its way through the terminal.


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2

37. Processing of international passengers is adequate to good except in peak operatingconditions. Many simple operational improvements are possible to increase passengerprocessing rates and reduce delays or make waiting more tolerable, such as ensuring that allthe processing counters are staffed and operating. Some measures are within the TIA generalmanagers control, but others require the cooperation of other agencies such as security,immigration, and the air carriers. The deficiencies currently are annoyances, but it will becomeessential to improve passenger processing as peak passenger volumes increase.

38. The international apron can accommodate three wide-body aircraft (A300s) and fournarrow-body aircraft (B757s and A320s) but can park up to five wide-body aircraft. Aproncapacity is not a problem in the foreseeable future provided CAAN exercises prudent flightschedule management. The runway and taxiway system is adequate for aircraft traffic in theforeseeable future. The parallel taxiway does not extend the length of the runway, thus requiringlarge aircraft to taxi along 1,000 m of runway prior to take-off on runway 2. This taxiing does notcause undue delays but it will increase the accumulated aircraft loads in this section ofpavement overtime.

39. Airside operations28 on the international apron appear satisfactory. No obvious unsafepractices stood out. However, some violations of good airside operational practice, such as lackof control of vehicles and pedestrians near maneuvering aircraft, are not being handled andnumerous obstacles in and around the airfield violate ICAO Annex 14 requirements. TIAIP isaddressing these operational issues, but some will remain, such as infrangible objects in therunway strip that need to be removed. 29

40. DPT can handle the present passenger traffic from the seven air carriers now providingscheduled domestic services and accommodate a reasonable increase in passenger volume.

The primary constraint facing both the building and domestic apron is the number of air carriers.If more companies are granted permission to operate, then further interior changes in DPT willbe needed, and it will be necessary to accommodate some air carrier offices in a separatebuilding. The domestic apron is at capacity and aircraft are often parked overnight on theinternational apron. TIA needs to limit the domestic aircraft parked overnight until construction ofadditional domestic apron space is completed under TIAIP.

41. The Project contributed significantly to improved air safety.30 Constructing the IPTcomplex (apron and buildings) removed obstructions, and significantly improved safety. The airtraffic control tower is an essential safety feature, allowing controllers to communicate with anddirect aircraft. The electrical substation and standby generator provides a reliable power supplyeven if the main supply fails. The overlay of the runway pavement and construction of pavedshoulders also helped to improve safety.

28Airside refers to areas where aircraft operations take place (apron, taxiway, runway, and airfield areas).

29

In an airfield, frangibility is a required design property of objects so that they easily collapse if hit by an aircraft.Infrangible objects, such as concrete or cast iron structures need to be removed.30

The omission of a safety objective from the original loan appraisal was an oversight and possibly because the

economic analyses did not try, and could not put, a value on safety. By the time the first reappraisal was carried

out, safety was recognized as an additional objective and (nonquantifiable) benefit of the entire project. But the first

supplementary loan merely provided more funds for completing the original scope and expanding the terminal with

no specific new safety items added. The second supplementary, however, did provide funds for additional safety

works (runway overlay and shoulders, removal of old buildings, and construction of the domestic apron).


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42. Apart from the two aircraft accidents involving fatalities in 1992 (causes not related toTIA), the airports safety record has been very good with no international accidents or incidentson final approach, takeoff, or landing. TIA handles a high volume of domestic flights, but onlytwo domestic fatal accident has been reported since operations began in 1990.31 Comparedwith the accident rate in the region, this is a very good record.32 However, several incidents ofaircraft swinging on landing have been reported. A thick rubber deposit has built up on about1,500 m of the runway 2 touchdown area, which is hazardous when wet. TIAIP contains aprovision to purchase civil maintenance equipment, including a powered sweeper. The removalof the rubber deposit should not wait until the next runway overlay.

B. Institutional Development

43. Despite shortcomings in project implementation, overall effectiveness of DCAsmanagement and staff in airport operations, maintenance, and project management wassignificantly strengthened through the Projects formal training, technical and advisory support,and day-to-day involvement with the project consultants. The PMO was responsible forsupervising the construction of DPT and the domestic apron. The current project managementunit of TIAIP has several trained, competent professional staff members who are capable ofmanaging other airport and civil aviation projects in Nepal.

44. While the staff, organization, and procedures for effective and timely projectmanagement and decision making were in place within the Executing Agency, in practice it wasextremely difficult to obtain timely decisions. A case in point is the difficulty in obtaining data onlocal currency disbursements for the Project, which raises questions about the adequacy of themanagement information system of DCA and PMO. However, some of these implementationproblems are systemic to the Government and not just DCA/CAAN (similar problems with

Government ministries and departments are encountered across sectors).

45. A financial management expert was also provided under the Project. When the expertdeparted, the DCA Revenue Management Section comprised three trained accountants, threetrainees, and additional assistants. The system had been reasonably well established and mighthave continued to be operated. However, staff were redeployed to other departments, and thesystem no longer functioned as effectively as envisaged. This assistance was provided morethan 18 years ago, and was superseded by a recent advisory technical assistance (TA) for theinstitutional strengthening of DCA.33 The newly established CAAN has retained a localaccounting firm to advise and assist in establishing an accounting system that is essential forCAANs financial operations.

46. The most significant change was the establishment of CAAN on 31 December 1998,under the Civil Aviation Authority of Nepal Act of 1996. CAAN has assumed all of DCAsresponsibilities, physical assets, and staff with the mandate to operate Nepals airport system ona financially self-sustaining basis. A board of directors and a new director general have beenappointed. CAAN is in the process of formally adopting new rules relating to its personnel,

financing, tariffs, operations, and organization structure. CAAN has retained a chartered

31Domestic flights in developing countries generally have a much higher accident rate than international flights whichare more closely regulated.

32The only fatal accident at the airport was an aborted takeoff by a Royal Nepal Airlines Corporation DHC6 (TwinOtter), which plunged into the ravine at the north end of runway 2, and a recent crash that took place when a localdomestic carrier accidentally hit a telecommunications tower on approach to the airport.

33TA 2749-NEP: Footnote 18.


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accountant firm to assist in financial planning. It is premature to predict how successful CAANwill be in fulfilling its mandate. There is a risk that CAAN may perpetuate the status quo (interms of delivery of outputs), but at a higher cost. Alternatively, CAAN has the opportunity totransform itself into an effective and financially self-supporting organization.

C. Financial Performance

47. The financial performance of TIA appears very satisfactory based on financialinformation prepared by the DCA. Appendix 6 summarizes the total revenues generated by TIAagainst the actual expenditure flows over the same period. Annual revenue figures are typicallyfive to six times higher than budgeted expenditures for operation and maintenance (O&M).

48. However, until CAAN was created, TIA did not have any financial autonomy over itsrevenues because all income was typically channeled into the central treasury and budgetaryallocations for O&M decided through administrative fiat by the Ministry of Finance. As a result,revenue surpluses were generated that bear little relation to the actual financial effort requiredfor optimal O&M at the airport facility.

49. A recent study by an international consultant under an ADB TA,34 indicated that thecurrent revenue surpluses generated by TIA, owing mainly to minimal maintenancerequirements in the early stages of operating the facilities, will change dramatically in thecoming years. Major increases in maintenance and rehabilitation expenditures will be requiredand may strain the airport authoritys cash flow. The report suggests that passenger servicecharges and aeronautical charges need to be raised substantially to cope with recurrent andperiodic maintenance expenditures and servicing debt retirement payments (Appendix 6, TablesA6.1 and A6.2).35

D. Financial and Economic Reevaluation

50. In the PCR, the FIRR was reevaluated at 6 percent and the EIRR at 10.3 percent. Thepostevaluation analysis recalculated the FIRR and the EIRR using the same methodology as inthe PCR (Appendix 7). The base case assumed that CAAN can provide adequate maintenancefor TIA infrastructure and equipment to keep these assets operating at accepted internationalstandards. The recalculated FIRR was at 4.3 percent and the EIRR was 14.9 percent. The EIRRanalysis indicates that project benefits are in line with expectations at appraisal and projectcompletion. The impact of the Project is a result of significant revenues generated by increasedtourist arrivals and tourist spending by visitors to Nepal.36

51. Sensitivity analysis was also used to test the impact on the base case FIRR and EIRR of(i) changes in the level of airport revenues, (ii) increased operating costs, (iii) decreased tourismbenefits, and (iv) a combination of these effects. Even under the more difficult scenario, TIA

34

Michael Kellaway International Group (Aviation and Tourism Consultancy Services). Institutional Strengthening ofthe DCA. Consultants final report for TA 2749-NEP, Asian Development Bank, Manila.35Airport user charges have not been increased since 1995 except for the passenger departure charge, which was

increased in 1998. The CAAN has indicated that an increase in aeronautical charges will be introduced. The newrates should be adequate in terms of parity with other airports in the region, and should be implementedimmediately. Aeronautical charges should be reviewed at regular intervals and all possible commercial revenuesources from expanded terminal floor space should be aggressively promoted where possible.

36The economic analysis excludes nonquantified benefits such as air safety and second-round income generated byother economic activities from the direct beneficiaries who spend a portion of their tourism-related earnings.


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5

continues to demonstrate substantial economic impact. Financial returns, however, are seen tobe marginal and will deteriorate further with increased operating costs or constraints in airport-generated revenues.

E. Socioeconomic and Sociocultural Results

52. A social benefit from the airport is the creation of direct employment opportunities andincome, primarily in operations and services within the airport facility as well as for relatedservice industries catering to the airport. The Project produced significant positive impacts onexpanding and developing the tourism industry in Nepal (Appendix 8). Since the new IPT was

commissioned, passenger flows have increased by 7.2 percent per annum from 599,000 in1990 to 1,048,000 in 1998. From FY1993 to FY1997, earnings from tourism averaged about 43percent of merchandise exports and accounted for about 17 percent of the countrys totalforeign exchange earnings and 3.7 percent of its gross domestic product. The flow of tourists toNepal allowed for a geographic distribution of foreign exchange earnings by promoting touristaccess across the country.37 The tourism sector has fostered nonagricultural income andemployment opportunities, with an estimated 250,000 jobs in direct and indirect employment in1997.

F. Gender Development

53. No component of the Project was specifically designed to address the issue of women indevelopment. Women did not have any significant role in project implementation. Womencurrently comprise only 10 percent of TIAs work force with most in low-level secretarial,cleaning, or security positions. However, there are some positive signs of progress, with somewomen being employed as air traffic controllers and as air carrier check-in agents. Although theexact share of total employment is not documented, women also benefited from tourism-relatedactivities induced by the Project. Training data from the Hotel Management and TourismTraining Center during FY1973 until December 1996 indicate that women comprise 17.2percent of its trainees. Of the total women trainees, 42.9 percent participated in HotelManagement and Tourism Training Centers outreach training program, which provides on-the-spot training in various tourist areas.

G. Environmental Impact and Control

54. The Projects impact on the environment has been generally minimal. Improvement ofthe surface drainage has reduced flooding, and upgrading of the water supply and sewagedisposal facilities has helped to enhance health conditions in and around the airport. Aircraftnoise levels have not increased. However, environmental problems requiring mitigation stillremain: erosion problems on the east side of the runway strip, airport and aircraft solid wastedisposal, air quality, and proximity of fuel storage tanks to environmentally sensitive zones. Theinstitutional strengthening consultants prepared an environmental management manual that hasyet to be fully implemented.

37Tourism statistics indicate that the nonstar hotels increased from 39 (2,722 beds) in 1985 to 111 (4,742 beds) in1990 to 620 (19,833) in 1997. Likewise, training data from the Hotel Management and Tourism Training Centerduring FY1973 until December 1996, indicate that outreach training (on-the-spot training in various touristdestination areas) participants comprise about 26 percent of trainees. Outreach trainees totaled 1,666 betweenFY1991 and FY1997 compared with 1,225 during FY1962-FY1990.


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H. Gestation and Sustainability

55. The expansion of tourism continues to be an important part of the Governmentsdevelopment strategy in promoting sustainable growth and balanced economic development.The buildup of social and economic benefits from the new airport facilities has been in line withestimates at appraisal as well as reappraisal. Inflows of tourism are robust, if not always evenfrom year-to-year, and the prospects for sustainable tourist flows into the future areencouraging, notwithstanding current tourist concerns over with deteriorating environmentalquality in Kathmandu.38 However, if left unchecked, a worsening of environmental quality inKathmandu valley could adversely affect future tourist flows.

56. To sustain project operations, TIA must continue to meet international standards ofaviation safety for air navigation services, aerodrome standards, airside ground operations, andgroundside39 fire and other safety regulations. In addition, TIA should provide an acceptablelevel of service to the air carriers and passengers if the airport wants to retain the existinginternational services and attract new air carriers. This involves a commitment to maintaininggood standards and proactive management of human and equipment resources, training, andupgrading of equipment and maintenance. CAAN must recognize these requirements andprovide sufficient staff and budget resources to ensure safe airport operations. The followingparagraphs assess the current condition and level of maintenance of TIAs facilities.

1. Condition of Airport Facilities

57. The project facilities generally have not suffered any serious deterioration and havemany years of useful life remaining. Building structures and furnishings are in serviceablecondition, although furnishings are showing signs of wear. Mechanical and electrical systemsare functioning but repairs and replacement of components now have become necessary andwill be an increasing maintenance burden in the coming years. Electronic systems, such as thePrivate Automatic Branch Exchange and security and surveillance equipment, are functional butare becoming obsolete. TIAIP will replace some furnishings and equipment to providecompatibility with the expanded sections of the building. IPT itself needs a thorough cleaning.

58. The aircraft pavements and other airfield civil works are in good condition except for abuildup of rubber on the runway. Some minor cracking and stripping in the asphalt pavementshas occurred, and vegetation has grown through the shoulders, which will eventually create ahazard to aircraft. Proper routine maintenance can easily rectify these conditions.

2. Airport Maintenance

38A 1996 exit survey of departing passengers showed that the issues of air pollution and traffic congestion are majorconcerns among tourists, who are unaware prior to arrival, of the realities of Kathmandus deteriorating urbanenvironment (Marg Nepal Pvt. Ltd. 1997. Report on Nepal Departing Visitors Surveyconducted on behalf of theNepal Tourism Industry and the United Nations Development Program Partnership for Quality Tourism Project).

39Groundside refers to areas of the airport directly accessible from the community (passenger and cargo terminalbuildings, parking, access roads, and airport utilities).


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59. The Government established an airport central maintenance unit40 under the TIA generalmanager. The unit comprises four sections: civil, radio, electrical, and mechanical. However, nocommon maintenance building exists to house offices, workshops, equipment, and stores. Thesituation will be improved under TIAIP.41 Maintenance staff are dispersed in offices throughoutthe IPT, OAC, and temporary buildings. The airport lacks the management system, workshops,and many of the tools and equipment, spares, and trained staff needed to implement aneffective maintenance program. The project facilities are now 15 years old and, while continuingto function as planned, are beginning to show signs of inadequate maintenance. Funding formaintenance has been insufficient, and a backlog of work has been built up. This backlog willonly increase as mechanical equipment nears the end of its service life, failed electrical partsare not replaced, and pavements begin to deteriorate.

60. In 1997, ADB provided a TA for the institutional strengthening of DCA.42 The TAconsultants inspected all the airport facilities and equipment and prepared a maintenanceprogram including annual cost estimates for FY1998-FY2008 (Appendix 9). This program tookaccount of (i) backlog of maintenance work; (ii) routine maintenance of existing facilities;(iii) increased maintenance requirements that will be created by TIAIP; and (iv) expected majorperiodic maintenance items, such as a runway overlay. CAAN has spent NRs30 million-NRs40million annually on maintenance over the past 2-3 years. Based on the consultants estimates, abase of NRs44 million per year is required for routine maintenance plus NRs48 million per yearon average to clear the backlog and meet future special requirements. The consultantsestimated the technical personnel and training requirements and prepared a maintenancemanual covering the principal airport facilities. However, funding to implement this maintenanceprogram has not yet been forthcoming.

40Covenant under Loan Agreement, Schedule 6, para. 5(a).

41The current TIAIP includes construction of a new civil works maintenance building and a provisional sum of$500,000 for purchasing equipment for civil works and building maintenance.

42TA 2749-NEP, Footnote 18.


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IV. KEY ISSUES FOR THE FUTURE

A. Successful Transfer of Commercial and Financial Management Practices to theNew Airport Administration

61. There are concerns about the financial adequacy and viability of TIA in the wake oflagged efforts at institutionalizing the new CAAN administration. The restructuring of Nepalscivil aviation authority under CAAN is full of uncertainty about decisions taken regarding the

extent and magnitude of technical, financial, and managerial skills required to properly operatethe TIA complex. The transition phase is moving more slowly than envisaged, and thecommitment of financial and managerial resources at TIA may be compromised unless vigorousaction is taken to speed up the organizational transition of CAAN. The project team under theongoing TIAIP should monitor developments and ensure that the restructuring exerciseproceeds apace with the recommendations of the international consultants report.43 CAANspolicy should also consider alternatives to government management from a cost savings andeffectiveness viewpoint. Such alternatives could include contracting operations andmanagement functions to companies and individual specialists, or it could include outrightprivatization of some facilities, such as the new air cargo building. CAAN could gain valuableassistance through a twinning arrangement with another airport operator, preferably in theregion.

B. Adequacy of Tribhuvan International Airport Budget

62. The sustainability of TIAs physical assets depends on the adequacy of future

maintenance efforts and the financial management approach considered for TIA as anautonomous operating unit. The management of TIA within CAAN could differ in its approachfrom that of other ADB-funded regional airports projects. Maximum autonomy should be grantedto TIAs management unit, relative to the overall CAAN authority hierarchy, which would enableCAAN to make appropriate decisions affecting maintenance and rehabilitation measures andairport expansion. CAANs policies toward regional airports should not jeopardize TIAs financialhealth.44

C. Level of Airport Maintenance

63. Maintenance is currently underfunded, and a backlog of work has accumulated. Themaintenance burden (major equipment refurbishment and rehabilitation) imposed by the projectfacilities will significantly increase in the coming years. The new maintenance building andequipment being provided under TIAIP will greatly assist TIA but will not suffice to ensureeffective maintenance. An airport asset management system that incorporates the maintenanceprogram prepared by the international consultants is required for long-term sustainability. The

TIA central maintenance unit does not have the technical resources to introduce such an assetmanagement system, and it is recommended that the scope of the second phase of the

43The second phase of advisory consulting services to CAAN is scheduled to begin in the second half of 1999.

44While recognizing the limited financial capabilities of secondary airports, financing of these entities, to the extentpossible, should be carried out on an adequate user pay basis that aims at financial cost recovery, especially forthose ADB-assisted regional airports developed to accommodate increased tourist flows.


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institutional strengthening capacity include a specialist to assist TIA in maintenancemanagement.


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V. CONCLUSIONS

A. Overall Assessment

64. Despite experiencing cost overruns and implementation delays, the second TIA Projecthas achieved its main objectives and provided substantial benefits. The project designcontributed to alleviating constraints on increased tourist traffic and provided the landlockedcountry with a well-run, modern, international airport with good facilities. The principal features

of the Project include (i) a functional airport terminal facility along with related civil worksstructures; (ii) safe and timely aircraft operations and passenger flows through the airportfacilities; (iii) fully functioning airport management and delivery of technical services; and (iv)economic benefits derived from tourism-based expenditures attributable in part to the provisionof improved and expanded international and domestic flight operations at TIA. As the principalpoint of entry for tourists in Nepal, the TIA complex provides adequate aviation services to acommercially important tourist market.

65. Five related issues are crucial in the sustainability of project institutions and benefits:(i) airport operations which ensure aviation safety and provide an acceptable level of service toair carriers and passengers, (ii) adequate maintenance of airport facilities in terms of bothmanagement and budget, (iii) airport user charges that maximize revenues collected at TIA, (iv)allocation of sufficient budget from CAAN for TIA O&M and debt retirement, and (v) effective TIAmanagement in place.45 Viewed overall, the Project is considered generally successful.

B. Lessons Learned

66. In the future, ADB policy toward procurement should be more attentive to the risk factorsthat could negatively impact the cost of contract delivery. Risks associated with hard currencyexchange rate volatility could have been avoided through proper forward hedging contractswhich would have protected the Borrower against large-scale devaluations among hardcurrencies.46 Greater attention should have been focused on currency movements rather thanon the purely technical issues governing the procurement process.

67. Government approval of prequalification listing, proposal or tender evaluation, andcontract signing are subject to significant delays and uncertainty. In light of significant andrepeated delays encountered leading up to and including contract award, greater efforts shouldbe undertaken to significantly curtail needless bureaucratic delays in moving the procurementprocess forward to minimize costly overruns and facilitate a timely implementation period forcompleting the Project.

45The ongoing Loan 1512-NEP(SF), Footnote 18, will address critical capacity, safety, and institutional issues on TIAand the civil aviation sector. The Projects capacity building component aim to assist the Government inestablishing CAAN as an autonomous entity for managing the countrys civil aviation sector and of having TIAoperations to all international safety requirements for facilities of its class.

46It is normally not ADB policy to advise borrower governments on the risks of foreign exchange volatility, but suchhedging practices were common knowledge over the contract adjudication period; the issue was flagged during theBoard discussions on the second supplementary loan.


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C. Follow-up Actions

1. By the Government

68. The Government should ensure that TIA achieves financial and managerial sustainabilityunder the new organization structure.47 CAAN must provide TIA with an adequate budget forO&M in addition to appropriate provisions for capital budgeting and debt service payments toachieve short-term financial and operational sustainability. Inevitable maintenance and

operational problems are now beginning to surface, which require a proactive response in termsof major equipment refurbishment and rehabilitation expenditures. Large increases inmaintenance and debt repayment expenditures are projected for TIA over the next five yearsand beyond. CAAN management will need to be transparent in its allocation of TIA-generatedrevenues for use by the regional airports. As a rule of thumb, cross-subsidies, if necessary,should only occur if net cash surpluses are left over after a full budget allocation for O&M anddebt repayment.

69. The Government should ensure that the environmental management manual is fullyimplemented, especially with regard to the mitigation measures (para. 54).

2. By ADB

70. ADB staff must continue to monitor during their reviews of the current project thecovenants concerning CAAN operations, implementation of the new civil aviation regulations,

and improvement in the commercial accounting procedures at CAAN. ADB should closelymonitor management performance under the new CAAN structure. ADB must continue toprovide advisory and technical support to CAAN because it needs further assistance in theareas of financial, commercial, and maintenance management to achieve its mandate. ADBshould follow-up on the timely implementation of critical provisions in the ADB-financed TAconsultants report in order to ensure the sustainability of the physical assets as well as theupgraded human resource capabilities achieved by the Project.

71. Because CAAN only assumed responsibility for operating TIA in January 1999, theinstitutions performance cannot be evaluated yet. The effects of weak institutions or inadequatebudget for O&M on TIAs physical infrastructure may yet manifest themselves. It would be usefulto reevaluate the Project in a few years to assess medium-term viability. This could be donealong with the performance audit of the ongoing TIAIP.

72. TIA airside operations and safety could benefit from a variety of improvements with theassistance of the TIAIP team, including (i) carrying out an inventory of obstacles on the runwayand preparing a program for CAAN to remove them and (ii) ensuring rubber deposits areremoved from the runway.

47The issues of adequate maintenance, sufficient user charges to cover expenses, and continued safe air operationsare being addressed under ongoing Loan 1512-NEP(SF), Footnote 18.


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APPENDIXES

Number Title PageCited on

(page, para.)

1 Components of the Original 1978 Projectand Items Added to the Project

19 2, 4

2 Cost Estimates in 1978 Project Appraisaland Final Costs

22 6,27

3 Summary of Major Task Durations 23 8,31

4 Loan Covenants Not Complied With 24 8,33

5 International Passenger Arrivals:Forecast versus Actual

25 8,34

6 Tribhuvan International AirportRevenues, and Operation and

Maintenance Expenditures

26 11,47

7 Financial and Economic Analysis 27 12,50

8 Socioeconomic Impacts of Tourism 39 12,52

9 Maintenance Costs 42 14,60


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Appendix 1, page 1

COMPONENTS OF THE ORIGINAL 1978 PROJECT AND ITEMS ADDED TO THE PROJECT

A. Original Components

1. Site Preparation

1. Preparing the site for the terminal facilities involved costly earthworks due to the difficultterrain (the site was originally crisscrossed by gullies up to 20-meters [m] deep). The workentailed bringing in about 700,000 cubic meters (m3) of earthfill compacted in layers of

30 centimeters (cm) under controlled conditions. Because surface rainwater runoff from asubstantial part of the airport flows through the site, special provisions were made to dischargethe water without causing erosion in adjoining areas.

2. International Passenger Terminal

2. The new International Passenger Terminal (IPT) was originally designed as a functional19-bay, four-level building, with two levels for passenger handling, the third for airport officesand a restaurant, and the fourth for mechanical equipment. IPT was to have a total floor area ofabout 7,700 square meters (m2), with provision for longitudinal expansion. The structure is ofreinforced concrete with simple spread footings. Exterior walls and interior partitions are of localfactory-made brick. The building was initially designed to handle the maximum flows forecast for1985 of about 300 passengers per hour enplaining and 300 deplaning. The design incorporatedmanual baggage handling systems. After commissioning the new IPT (an obstruction accordingto International Civil Organization criteria) was to be demolished.

3. Operations and Airlines Complex

3. The complex comprises two buildings, each with a floor area of about 1,920 m2, linked toeither side of the control tower. One wing houses radio and airport operational facilities,including the area control center. The other wing provides rentable space for airlines, airportsecurity office, and medical clinic. Provision has been made for both wings to be extended in thefuture.

4. The control tower is a 29-m high reinforced concrete structure with a total floor area ofabout 290 m2. It houses the air traffic control center and related communications facilities.

4. Roads and Vehicle Park

5. The road works in the original Project included an approach road connecting the newterminal site to the main road to the city, a road leading to the existing domestic terminalbuilding, and circulation and service roads in the terminal area. Vehicle parking for 90 vehiclesis located near the new IPT.

5. Utilities

6. New utilities to be provided under the original Project include electrical power from anearby high voltage line, surface drainage, water supply, sewage disposal facilities, andtelephones.


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Appendix 1, page 2

B. Items Added to the Project

1. 1986 Reappraisal

7. The following items were added in the 1986 reappraisal:

(i) Expansion of the IPT by 4 bays to 23 bays (from 7,700 m2 to 9,650 m2).

(ii) Expansion of the vehicle parking area.

(iii) Transfer and partial replacement of existing underground utilities, services, andcables.

(iv) Construction of maintenance stores building.

(v) Provision of office equipment for the Tribhuvan Intemational Airport (TIA)accounting office.

(vi) Services of an adviser to assist the Department of Civil Aviation (DCA) and theAirport Manager in transferring aircraft operations and passenger handling fromthe old to the new terminal complex.

(vii) Extension of the consultants' services for the additional design work andconstruction supervision.

2. 1988 Reappraisal

8. The following items were added in the 1988 reappraisal:

(i) Extension of final departure lounge in IPT by 510 m2.

(ii) More comprehensive, and up-to-date security and surveillance equipment.

(iii) Air-conditioning and furniture for airline offices.

(iv) Expansion of vehicle parking space.

(v) Provision of 200 additional telephone lines.

(vi) Architectural and other revisions to IPT, and operations/airlines building andcontrol tower.

(vii) Landscaping adjacent to the new terminal area.

(viii) Higher level of maintenance; more spare parts, tools and equipment; andoverseas training in maintenance for DCA staff.

(ix) Extension of consultants' services for additional design work and constructionsupervision.


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Appendix 1, page 3

3. March 1990

9. The following items were added in March 1990:

(i) Expansion of the international aircraft parking apron by 31,000 m2 (including alink road to the airside service road), removal of old buildings, and relocation ofunderground services.

(ii) A new car park for 95 cars and 17 motorcycles in front of the future domesticterminal, including drainage and lighting.

(iii) Removal of rubber deposit from the runway.

(iv) Associated consulting services.

10. The cost estimate in the design review report for the above items revealed the possibilityof adding two further items within the project cost savings, subject to bid prices. These itemswere included in the tender documents as optional. The overall price of the accepted tender,including the optional items, was within the overall project savings, and they were consequentlyincorporated into the works with ADBs approval. The items were:

(i) A 40-millimeter thick asphaltic concrete overlay on the entire runway andselected taxiways.

(ii) Construction of 7.5 m wide shoulders along both sides of the runway, and grassintrusion barriers at the edges of runway and taxiway pavements.

4. Added in December 1990

Augmentation of the airport water supply by constructing a deepwell system,including pumps and connection to the existing storage and distribution system.

5. Added in February 1994

(i) Construction of 37,200 m2 of additional parking for domestic aircraft in twoseparate areas; 29,600 m2 at the west end of the old 16/34 runway and 7,600 m 2on the east side of the existing maintenance apron, including drainage andsecurity fencing.

(ii) Refurbishment of the existing domestic terminal building, including a 1,500 m2expansion, furniture, and security equipment.

6. Added in February 1996

Consulting assistance to the Civil Aviation Authority of Nepal to procure civilworks contractors for the proposed Tribhuvan International Airport ImprovementProject.


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Appendix 2

COST ESTIMATES IN 1978 PROJECT APPRAISAL AND FINAL COSTS($ million)

Item

ProjectAppraisal

1978

FinalProjectCost Overrun

ConstructionCivil Works 5.58 7.62 (2.04)

Building Works 6.83 17.20 (10.37)Maintenance StoresApron Expansion and Associated Works 2.46 (2.46)Domestic Apron Works 0.59 (0.59)Domestic Terminal Refurbishment 0.52 (0.52)

ConsultantsSupervision 2.04 6.82 (4.78)Financial Adviser 0.09 0.05 0.04Facilities Transfer Adviser 0.04 (0.04)Advance Procurement 0.38 (0.38)

Office Equipment 0.03 (0.03)

Land Acquisition 0.23 (0.23)

Contingencies

Physical 1.24 1.24Price Escalation 4.22 4.22

Service ChargesLoan 388-NEP and OSF 1.20 (1.20)Loans 783-NEP and 936-NEP 1.00 (1.00)

Total 20.00 38.14 (18.14)

OSF = Organization of Petroleum Exporting Countries Special Fund.


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Appendix 3

SUMMARY OF MAJOR TASK DURATIONS

Duration (months)Activity Scheduled Actual

1. Civil Works

Preparation of Tender DocumentsPrequalificationTendering and AwardConstructionOverall

4.04.06.0

40.050.0

16.011.522.545.083.5

2. Building Works

Preparation of Tender DocumentsPrequalificationTendering and AwardConstructionOverall

11.06.07.0

29.047.0

63.559.044.032.5

120.5

Original Project Total 50.0 120.5

3. Additional Works

Preparation of Tender DocumentsApron ExpansionDomestic Apron AdditionsDomestic Terminal Improvements

Advance ProcurementOverall

7.012.012.59.5

49.0

23.022.012.518.010.070.5

Revised Project Total 50.0 216.0

= not available.Note: Many activities were concurrent and are not additive.


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Appendix 4

LOAN COVENANTS NOT COMPLIED WITH

Section Status of Compliance

Loan Agreement (LA); Section 4.06(b)(v): Submission to ADB of TIA auditedfinancial statements.

Not carried out. CAAN financial projectionsdo appear in various TA-related reports.

LA; Section 4.10 (a): User charges tocover operating costs and loan repayment.

TIA revenues are sufficient to cover its ownoperation and maintenance expenses anddebt service payments. However, CAANstotal operations are in a deficit, and there isno assurance that TIA revenues will not beused to fund domestic airport operations.

LA; Section 4.10 (c): Maintain usercharges at parity with airports in the region.

The DCA/CAAN increased the internationalpassenger charges in July 1998 but has notincreased aeronautical charges since 1996.CAAN intends to review aeronauticalcharges that take into account chargesmade by other airports in the region.

LA; Schedule 6, para. 5 (c): Allocatefunds necessary for operation andmaintenance of facilities to internationalstandards.

Maintenance is underfunded. Annualmaintenance budgets should be increasedto the levels recommended by the TA forinstitutional strengthening of DCA.a

LA; Section 6, para. 7: Maintain acommercial type of accounting system.

A forthcoming TA (under the currentTribhuvan International Airport ImprovementProject)b will address this issue withinCAANs accounting department.

LA; Schedule 6, para. 9 (b): In the eventthat TIA and project facilities aretransferred to CAAN, it will provideadequate funding, operation andmaintenance of the project facilities.

Responsibility for TIA has transferred fromDCA to CAAN. Although not complied withas of March 1999, CAAN is preparing itsbudget and financial plan.

CAAN = Civil Aviation Authority of Nepal, DCA = Department of Civil Aviation, TIA = Tribhuvan International Airport,TA = technical assistancea

TA 2749-NEP: Institutional Strengthening of the Department of Civil Aviation, for $0.5 million, approved on23 January 1997.

bLoan 1512-NEP(SF): Tribhuvan International Airport Improvement Projec

Second Tribhuvan International Airport Project (Loans 388,783,936-NEP[SF])

Documents

Transcript of Second Tribhuvan International Airport Project (Loans 388,783,936-NEP[SF])