Valley

Wide-body jet deal cost carrier Rs 4.35b in losses: Sub-committee report

The $209.6-million Airbus deal, the largest ever in Nepal’s aviation history, is turning out to be one the biggest corruption scandals in the country’s history as the Sub-committee under the Parliamentary Public Account Committee has concluded that the procurement of two wide-body Airbus A330 jets by Nepal Airlines Corporation has caused a loss of Rs4.35 billion to the government. Wide-body jet deal cost carrier Rs 4.35b in losses: Sub-committee report

bookmark

Sangam Prasain

Published at : January 3, 2019

Updated at : January 4, 2019 15:21

Kathmandu

The sub-committee led by Nepali Congress lawmaker Rajan KC submitted a 58-page investigation report to PAC on Wednesday, implicating officials at the highest levels who were in charge at the Tourism Ministry during the procurement process. The report, prepared after a 20-day investigation, has charged Tourism Minister Rabindra Adhikari and former ministers—Jivan Bahadur Shahi and Jitendra Dev—with shying away with their responsibilities to stop the deal. The report has categorically termed NAC Managing Director Sugat Ratna Kansakar as the kingpin of the scandal and recommended for his immediate suspension along with two sitting secretaries, Prem Kumar Rai and Krishna Prasad Devkota, and former secretary Shankar Prasad Adhikari who had acted as NAC chairman during their tenure as tourism secretary.

Shahi has been accused of sending the commitment fee to purchase the jet through a ministerial-level decision. In his statement to the investigation panel, he had said he was not directly involved in the NAC jet procurement process.

Dev has been accused of making the first payment to HiFly X Ireland, the supplier of the jets, during his tenure. “But Dev lied to us, saying that he was not involved in any deal,” KC told the lawmakers during the PAC meeting on Wednesday. Minister Adhikari has been charged with negligence as he was found to have sent the final instalment of payment to Portuguese leasing company HiFly. Contrary to his earlier promise of a detailed investigation into the case, he had carried out only a minor in-house investigation.

“The NAC has not given us the bill of sale of the two jets. We suspect that the ‘irregularities’ amount could go further up if the bill of sale is calculated,” KC told the lawmakers. “It needs a further investigation on the amount released to HiFly X by NAC and the amount paid by HiFly to the aircraft manufacturer Airbus.”

There were no details on the discount received by the NAC during the purchase of the jets, KC said, adding, “We have asked PAC to get the payment details from the Airbus through the Foreign Ministry.”

The sub-committee has questioned the motive of the NAC and HiFly Portugal for forming a special purpose vehicle—Hi Fly X Ireland—to specifically look into the procurement process. The committee has termed Hi Fly X as a “fictitious” company and has suspected “massive financial irregularities” in the deal. Stating that Ireland is the biggest tax haven in the world used by multinationals to shelter profits, the lawmakers suspected NAC might have reached the deal with the company to evade the tax.

While advance payment was released to the Portugal-based HiFly Transporte Aeroes, rest of the payment was released to Ireland based company, the report said.

It has also pointed out the mismatch in manufacturer’s serial numbers assigned to NAC jets. Initially, the numbers “1840” and “1842” were issued to NAC. Airbus later assigned “1845” and “1854” after receiving the commitment fee. However, at the Airbus’ manufacturing plant in Toulouse, France, the aircraft serial numbers were “1872” and “1878”. The “1845” and “1854” that NAC had claimed to be its own actually belong to Tibet Airlines and Spain’s Iberia Airline respectively, the report explained.

As per Clause 236(1) of NAC financial bylaw, the national carrier is required to invite proposals only from the aircraft manufacturers to purchase brand new aircraft. However, it went with Clause 236 (2) of the bylaw which allows the NAC to procure an old plane from a leasing agency, banker or airline operator besides manufacturers.

Rs4.35 billion breakdown

The sub-committee report states that NAC had signed a $209.6-million contract for two A330-200 jets with the United States-based AAR Corp in April 2017, ignoring the rate suggested by its sub-committee. The report said that the sub-committee had suggested that each jet would cost $93,047,434 [after adjusting 2.76 percent of price escalation rate] based on the 2016 sales price list. This ignorance has incurred $23.6 million losses in two jets, it said.

Specifications like maximum takeoff weight was revised downward to 230 tonnes from proposed 242 tonnes as specified in the bid documents, the report pointed out. The reduction of 12 tonnes of maximum takeoff weight in each jet has caused $8.4 million in losses.

As per the bid documents of NAC, the minimum age of the proposed aircraft cannot be more than 1,000 flight hours and the date of manufacture should not be before January 2014. It means that the national flag carrier had ordered second-hand or old planes. In this case, there should be price depreciation but the NAC had made price escalation at optimum limit for old planes, causing $6.8 million losses to the national carrier.

A 38-member jumbo team from Nepal visited Toulouse, France to inspect the jets that cost an additional Rs10 million, according to KC report.

Lawmakers on Wednesday said that they would finalise the report by Friday and send it to the Tourism Ministry and the Commission for Investigation of Abuse of Authority (CIAA) for necessary action against more than three dozen people. The CIAA may open a separate investigation into the case.

Sangam Prasain
Sangam Prasain is Business Editor at The Kathmandu Post, covering tourism, agriculture, mountaineering, aviation, infrastructure and other economic affairs. He joined The Kathmandu Post in October 2009.