The Civil Aviation Authority of Nepal has submitted its final counterclaim of $130 million for loss of income at the Singapore International Arbitration Centre against Constructora Sanjose, the ousted contractor of the then Tribhuvan International Airport Modernisation Project.

The Spanish company had been awarded a $92 million contract in 2012 to extend the runway by 300 metres, erect a new international terminal, build a parallel taxiway and international apron, and conduct soil filling works at the northern end of the runway. The Civil Aviation Authority subsequently cancelled the deal for non-performance.

Multiple sources at the country’s civil aviation body confirmed that the final counterclaim was filed on July 17. The arbitration proceedings are expected to commence in November. The counterclaim was made against the $28 million claim made by the Spanish contractor.

“We are preparing for the arbitration hearing,” said an anonymous source at the Civil Aviation Authority. There are two teams—national and international—who will present their arguments, he said.

The $130 million counterclaim is for losses incurred from 2016, when the contract was terminated, to 2022, when the project's extended deadline ended. The figure includes price escalation or inflation costs.

Spanish contractor Constructora Sanjose and the Civil Aviation Authority of Nepal had signed a contract for the Tribhuvan International Airport Modernisation Project in December 2012 with the completion deadline set for March 2016. The project has since been renamed the Air Transport Capacity Enhancement Project.

The authority sent the Spanish company off for delays by officially issuing a notice of termination on December 9, 2016. The termination of the contract became effective on December 27, 2016.

The country’s civil aviation body received the notice of arbitration on March 16 last year. The Spanish company had filed around $100 million claim against Nepal’s civil aviation body demanding return of its guarantee money and compensation for losses resulting from the termination of the contract. The company later revised its claim to $28 million.

The civil aviation body submitted its counterclaim in February. It was given a July deadline to review its counterclaim submission, but the amount has not been revised.

According to the civil aviation regulator, a panel of three arbitrators will be selected to hear the dispute. Both parties are required to attend the arbitration hearing called by the arbitration panel. The panel tries to help parties resolve their dispute by agreement during an informal voluntary conciliation.

If no settlement can be reached during the conciliation, the panel proceeds to formal mandatory arbitration. Arbitrators hear arguments and review evidence to decide the merits of a case by issuing a decision. Usually, the arbitrator’s decision comes within 45 days after the closing of proceedings.

In the four years following the project's launch in 2012, the Spanish company recorded a meagre 17 percent physical progress. The civil aviation body reacted by seizing the advance payment guarantee and performance bond after the contractor failed to perform its obligations under the contract.

In December 2016, Constructora Sanjose went to court seeking prohibitory orders after the civil aviation regulator decided to confiscate the advance payment guarantee of Rs1.05 billion and a performance bond of Rs600 million following the cancellation of the contract.

Subsequently, the Patan High Court ruled that Constructora Sanjose had no legal right to prevent the country’s civil aviation body from seizing its security deposit.

In July 2017, the Public Procurement Monitoring Office blacklisted the ousted Spanish contractor for a period of two years due to its failure to complete government projects within the deadline, non-cooperation with authorities and failure to furnish a satisfactory explanation as to why the project was not completed on time.

The civil aviation body invited fresh bids for the project in June 2017 to get the stalled project moving. It also broke up the project undertaken by the Spanish company into four different packages.

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