Nepal | May 27, 2020

Will NAC be able to secure govt guarantee for loan?

Himalayan News Service
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Kathmandu, April 15

Nepal Airlines Corporation (NAC) has started the process to obtain loan worth Rs 22 billion to purchase two wide-body Airbus aircraft.

As per the agreement signed with the supplier AAR Corporation last week, the national flag carrier has to transfer 35 per cent of the total amount by the first week of May.

NAC has held discussions with the government-owned financial institution, namely Employees Provident Fund (EPF), for the credit facility to purchase the aircraft. The EPF has said that it is willing to provide the required loan to the national flag carrier, but the basic condition is government’s guarantee.

Krishna Prasad Acharya, administrator (CEO) of Employees Provident Fund, said that the loan negotiation (for interest rate, payback period, among others) will start only after NAC is able to secure the guarantee from the government.

It may be tough for the national flag carrier to get the guarantee from the government as complaints have been filed at the Ministry of Finance and other concerned ministries questioning the reliability of NAC’s contract with AAR Corp. Hence, NAC has to convince the government that its contract is reliable because the Cabinet will have to decide on whether or not to provide the guarantee for loan.

NAC has signed an agreement with the supplier to send the payment in two instalments. However, the government-owned enterprise has overlooked the provisions of the public procurement rule.

As per the law, it requires bank guarantee from the supplier before sending the payment. As no manufacturing company had taken part in the bids called by NAC to supply the aircraft, the NAC board led by tourism secretary had selected an agent company AAR Corp to supply two wide-body A330-200 aircraft.

A version of this article appears in print on April 16, 2017 of The Himalayan Times.

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