Inception Report Draft_CAAN

7/30/2019 Inception Report Draft_CAAN

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Capacity Development of

Civil Aviation Authority of Nepal

INCEPTION REPORT (DRAFT)

APRIL 2012


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Page intentiona lly b lank


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____________________________________________________________________________________________________Cap ac ity dev elopment of the Civil Aviation of Nepal Pag e 3 of 65Ince pt ion Rep ort - DRAFT

This version

Authored by:

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Reviewed by:

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role:

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signed:

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Revision Status & Approval Log

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CAAN App rova l:

Nam e Role Signa ture Date

Notes on Document Control The Sta tus indica tes whe re a do cume nt is in the life c yc le.

Users of the document are responsible for ensuring that they are working with thecurrent version.

Paper or electronic copies may be taken by appropriate project team members forremo te w orking etc . However, all pa pe r cop ies or elec tronic c op ies not held within theWRP Sha repoint site a re unc ontrolled . Henc e the foo te r DOC UMENT UNCONTROLLEDWHEN PRINTED wh ich must no t b e c hanged .


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Contents

1 EXECUTIVE SUMMARY ............................................................................................................................ 6

2 BACKGROUND OF THE PROJECT ........................................................................................................... 8

3 TIMELINE OF DOCUMENTATION ............................................................................................................. 9

4 ANALYSIS OF CURRENT SITUATION ...................................................................................................... 11

4.1 LEGAL..................................................................................................................................................... 114.2 PLANNING............................................................................................................................................... 14

4.2.1 Nationa l Plan For Civil Avia tion Deve lop ment ..................................................................... 14

4.2.2 Corporate Business Planning .................................................................................................. 214.2.3 Private Sec to r ........................................................................................................................... 214.2.4 Non-Ae rona utica l Revenues.................................................................................................. 22

4.3 RESTRUCTURING ....................................................................................................................................... 22

4.4

HUMAN RESOURCESTRAINING PROGRAM ................................................................................................. 234.5 COMPUTERIZATION................................................................................................................................... 24

4.6 MIS ........................................................................................................................................................ 24

5 METHODOLOGY OF WORK .................................................................................................................. 25

5.1 LEGAL..................................................................................................................................................... 255.2 PLANNING............................................................................................................................................... 29

5.2.1 Nationa l Plan For Civil Avia tion Deve lop ment ..................................................................... 29

5.2.2 Corporate Business Planning .................................................................................................. 48

5.2.3 Private Sec to r ........................................................................................................................... 50

5.2.4 Non-Ae rona utica l Revenues.................................................................................................. 525.3 RESTRUCTURING ....................................................................................................................................... 54

5.4

HUMAN RESOURCESTRAINING PLAN ......................................................................................................... 585.5 COMPUTERIZATION................................................................................................................................... 60

5.6 MANAGEMENTINFORMATIONSYSTEM ............................................................................................ 625.6.1 MIS ............................................................................................................................................. 625.6.2 Financ ial Ma na gem ent System ............................................................................................. 64

6 PROPOSED WORK SCHEDULE ............................................................................................................... 65


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1 EXECUTIVE SUMMARY

Ineco in joint venture with Prointec and ERMC was appointed by the Civil Aviation

autho rity of Nepa l (CAAN) to develop the Cap ac ity Developme nt Plan for the CAAN.

Tec hnica l propo sa ls submitted on 7 th February 2011, needed to modify the proposal inorder to inco rpo rate the latest d evelopment in Nep al in the area of C ivil Aviationl.

The mand ate o f the c ontrac t signed in Janua ry 2012 req uired de veloping a n incep tionrep ort of this p rojec t within 30 days from the c ont rac t sta rt up . The sta rt up of the p rojec twa s on 6th March 2012.

The m ain task in this projec t c onsists on the cap ac ity d evelopment and imp leme ntation o fthe public organizations involved in the civil aviation in the country, regulator andoperators.

The d ifferent c om ponents of this projec t a re:

In develop ing the Cap ac ity Developm ent o f CAAN the Terms of Reference highlighte dsom e ob jectives to b e ta ken into considerat ion. These a re:

To review the entire set of law s, rules and reg ulations ap p lying to the av iationsec tor. Nepa lese leg islation is to be b enc hma rked ac ross the req uirem ents derivingfrom ICAOs Annexes and documents in order to draw attention to elements thatcould b e m issing o r are not ad eq uate ly add ressed .

In order to the new air traffic forecast, to develop the National Plan for the CivilAviat ion develop ment. This doc ume nt will be a 20 yea rs plan inc luding:

o The Nationa l Air Transport Plano The Nat iona l Airports Plano The Na tiona l Airside Plan

To d evelop the Business Plan o f the ne w o rganiza tions

To enhanc e a nd e xpa nd the partic ipa tion of the p riva te sec tor, espe c ially inairport facilities/support services.

To enhance the non-aeronautica l revenues at the airpo rts.

Components

1.

Legal

2.

Planning

3.

Restructuring

4.

HRDevelopment

5.

Computerization

6.Management

InformationSystem

2A.

National

Plan

2B.

Corporate

Business

2C.Private

Sector

Participation

6B.Financial

Management

System

6A.MIS

2D.Enhancing

NonAeronautical

Revenue


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To restructure CAAN into the new Orga nizat ions (reg ulato r and o pe rator/ s) andde velop a transition plan in order to imp leme nt the new organizat ions.

To define and implement a Sta ff Tra ining Prog ram, useful, not only for the transitionperiod , but a lso fo r the future.

To esta blish the systems & ne twork requirem ents arising a s a result o f therestructuring o f the orga niza tions.

To de velop and imp leme nt a Manag ement Informa tion System (MIS) into the neworganizations, including the financial management system.

Prior to this assignment, the ICAO Safet y Aud it (USOAP) done in 2009, has defined c lea rlythe p rincipa l wo rking a rea s of this p rojec t. The informat ion p rovided and c onc lusions

out lined in the Rep ort are going to b e the ba se fo r the first ta sks of this p rojec t.

The regulato ry fram ework will be ana lysed and am ended or changed in orde r to b ecompliant with the new international regulatory framework and ICAO regulations andrecommendations.

The a ir transport system is som ething in a c ont inuous deve lopm ent and the ga theringinformation process has been defined in order to clarify the starting point in all differentareas of the project. CAAN must continue working in defining the future of air transport inNepal.


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2 BACKGROUND OF THE PROJECT

1. Involvem ent o f Asian Deve lopm ent Bank. On May 25th 2010 The Gove rnme nt o f

Nepal signed an agreement has received financing from the Asian DevelopmentBank (ADB) (Loa n N 2581 and Grant 0181-NEP ) to implement the Air TransportCapacity Enhancement Project.

AADB's past involvement in the subsector in Nepal focused mainly on the phaseddeve lopm ent o f Tribhuva n Internat ional Airpo rt (TIA), which include d leng then ingof main runway and taxiways, construction of an international terminal building,and e xpansion of the d om estic te rmina l bu ild ing. These improve ments helpe d toalleviate congestion, sustain traffic growth, and promote tourism, playing asignificant role in supporting the country's economic and social development.ADB's overall strategy in the subsector is to improve domestic and internationalconnectivity in order to support the country's development goal of promoting

broad-ba sed ec onomic growth.

The Projec t is in line w ith continuing ADB assista nc e w ith strateg ic o b jec tives as setout in the co untry strate gy a nd p rog ram

cont inue assista nce in the imp rove ment o f TIA a nd strategic dom estic a irports, continue to supp ort the restruc turing a nd reform of CAAN, and Assist the Government with improving the regulatory framework for private

sector participation in the subsector.

2. the Consultants involvement: the Consultant signed an agreement with the Civil

Aviation Authority of Nepal on January 17th, 2012 to perform the Capacity BuildingServic es esta b lished in the Terms Of Referenc e RFP# ATCEP Co nsulta nt 2/ 2009-10.mo b ilized its consultant te am on 6th March 2012.


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3 TIMELINE OF DOCUMENTATION

Reports Description/ Tec hnica l Ac complishments Timeframe

Inception Report Initial findings and , if a pp rop riate, upd at edap proac h, method ology and work plan

Month 1 from sta rt o fthe p roject

Monthly Progress

Reports

Brief de ta ils of the w ork ca rried o ut d uring theprevious month (all components), theproblems encountered or antic ipa ted ,tog ether with the step s

Monthly (by the 10thday of eac h monthfollowing theincep tion rep ort)

Component 1. Legal

Completion Report

Inte rim Deliverab les:1. Rep ort on the review of the C ivil Avia tionAc t a nd the C AAN Act (Draft 3 weeks afterincep tion rep ort)2. Rep ort on priva tiza tion opt ions andimplica tions for the legislative review (Draft 5

weeks afte r incep tion rep ort)3. Dra ft new leg islat ion (First d raft June 10th2012)4. Deta iled reg ulato ry review (Reg ulations,CARs and guida nce ma terials) (Sep tembe r10th 2012)5. Rev iew the p roposa ls for restruc turingCAAN a s a regulator of c ivil aviation, and forc reat ing a new state authority to o perate thenationa l airpo rts and the air traffic andnaviga tion system (mid Oc tobe r 2012)6. Draft legislation to establish new state

autho rity to op erate the nat iona l airpo rts anda ir traffic a nd air naviga tion system(Novemb er 30th 2012)

Comp onent 2A.

National Plan

Completion Report

Interim deliverables:1. Inception (July 10th 2012)2. Working Paper Air Transport (Sep temb er10th 2012)3. Working Paper Airports (Nove mb er 10th2012)4. Working Paper Airspace (November 10th2012)5. Dra ft Rep ort Nationa l Plan (Janua ry 15th

2013)6. Final Report National Plan (March 6 th 2013)7. Documents ab out Sec ond Internationa lAirpo rt (non sched uled )

Component 2B.

Corporate Business

Planning

Completion Report

Interim deliverables:1.Dra ft Business Plan CAAN (June 10th 2013)2. Dra ft Business Plan Op era to rs (June 10th2013)3. Final Business Plans (September 2013)

Comp onent 2C.

Private Sec tor

Participation

Planning.Completion Report

Interim deliverables:1.Working Pap er Priva te Sec to r Op portunities(Sep tem ber 10th 2012)

2.Finantial Analysis (September 10th 2012)


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Component 2D.

Enhanc ing Non-

Aeronautical

Revenues

Interim deliverables:1.Review of CAANs current non-aeronauticalrevenue ge nerat ing ac tivities and

ide ntification of ad ditional c omme rc ialopportunities (November 10th 2012)

Comp onent 3.

Restructuring Plan.

Completion Report

Interim deliverables:1.Inception Report-Restructuring (May 10th2012)Dra ft Imp lementa tion Plan (Sep tem ber 15th2012)Dra ft Transition Plan (Decem ber 15th 2012)

Comp onent 4.

Human Resources

development

Completion Report

Interim deliverables:1.Sta ff Training Prog ram mes (June 30th 2012)2. Courses Deve lopm ent (non-sc hed uled)

Comp onent 5.Computerization

Completion Report

Interim deliverables:1.Computerization Concept Plan (June 30th2012)2.Tec hnica l Spec ificat ions (Novem be r 15th2012)3. User Ma nua ls (Ma rc h 6th 2013)

Component 6: MIS &

Finantial

Management

System Completion

Report

Inte rim Deliverab les:1.Inc ep tion for MIS (July 15th 2012)2. MIS Concep t Plan (Oc tobe r 15th 2012)3. Func tiona l Spec ifica tions (Feb ruary 2013)4. Deta iled Tec hnica l Spec ifica tions (May2013)

5. User Manua ls. (Novem ber 2013)6. Account ing System Review (June 30th 2012)7. Ac count ing System Proc urementSpec ifica tion (Sep tem ber 15th 2012)

Project Completion

Report

In accordance with ADBs format. Upon FinalProjec t Com plet ion (June 2015)


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4 ANALYSIS OF CURRENT SITUATION

The a na lysis of c urrent situa tion in Air Transport in Nep a l inc lude d in this doc ument is a

general review as provided by the Nepal experts and counterpart staff involved in thisproject.

Following a series of meetings held between the consultants and the Nepal experts andcounterpa rt sta ff from CAAN a nd MOTCA, a nd in order to de fine the sta rting point for thisprojec t, there a re some issues tha t w ill mo d ify the sched ule p rop osed on Feb ruary 2011.

4.1 Legal

The lega l fram ework for civil aviation in Nepal is currently conta ined in the m ost p art in 2ma in Acts and a series of regu lations and rules cove ring mo st o f the func tiona l aspe c ts.

A complete list of civil aviation legislation and guidance materials as compiled by theconsultant includes the following documents (indicating whether they were available ornot to the c onsultant a t the time of p rep aring this rep ort:

Available docume nts

1. Civil Aviat ion Ac t, 2015 (upd ated up to 2066)2. Civil Aviat ion Autho rity of Nep a l Ac t, 20533. Civil Aviat ion Rules, 2052 (1996)4. Civil Aviat ion Rules, 2058 (2002)5. Nep a lese Civil Airworthiness Req uirem ents (NCAR)6. Flight Op erat ions Requirements (FOR)

7. CAR - 2. Rules of the Air, 20088. CAR - 4. Aeronautica l Charts, 20099. CAR - 5. Units of Me asurem ent, 200810. CAR - 10. Ae ronautic a l Telec om munica tions, 200911. CAR - 11. Air Traffic Services, 200812. Ma nua l of Aerod rome Certifica tion Proc ed ures CAAN13. Ma nua l of Aerod rom e Standards, Nepal (MASN) 200814. Exemp tions Proc ed ure for Non-Comp liances a t Aerod rom e15. Aerodrome Inspe c tor Hand bo ok16. Air Flight Tax Ac t 201817. Dangerous Go od s Hand ling Req uirem ents 201118. Disposal of sc rapped parts guide lines 2009

19. Dra ft Air Op erato r Ce rtificate Req uirem ents (AOCR) 201220. Personne l Licensing Requirements 201021. Airport Ce rtifica tion Reg ulat ion 2061 (2004)22. Ad visory Circular 02. Guida nce for SMS for Aerod rom e Op erato r23. Internationa l Air Services Transit Ag reement, 199424. Nep a l Airlines Co rporation Ac t. 2019 (1963)25. Proc ed ure for Rec ording Birds Strike Report (2010)26. Sta te Safety Program me (SSP) Nepal 2011

Doc uments not ava ilab le (at this mom ent)

1. Civil Avia tion (Investiga tion of Ac c ident) Rules, 2024

2. Airport Charges Rules, 2038 (4th Amend me nt, 2061)3. CAAN Financ ial Ad ministrat ion Reg ulat ions, 2057


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4. CAAN Emp loyee's Fac ility, Service and Co nd ition Reg ulations, 2056 (Ame ndment2063)5. Aviat ion Sec urity (Ma nagem ent ) Rules, 20646. The Aviat ion Polic y, 2063 (2006).7. Designated Chec k Pilot (DCP) Ma nua l8. Air Traffic Co ntrol Ma nua l9. Sea rch and Rescue Ma nua l10. Nat iona l Avia tion Sec urity Program11. Airport Eme rgency Plan (AEP)12. Flight Op eration Inspec to r Ma nua l (FOI)13. Airworthiness Inspec to r Ma nua l14. Civil Aviation Med ical Manual15. Ground Hand ling Direc tives16. Airpo rt Cha rges rules 203817. AFIS (Aerodrome Flight Information Services) Ma nua l

This list o f doc uments evidenc es tha t Nep a l has a considerab le set o f reg ulato ryinstruments in the field of civil aviation, but does not evidence where the shortcomings canbe found.

ICAOs USOAP Audit Rep ort

In the final rep ort of ICAO s USOAP Audit the a uthors have p ointed out the a rea s in whic hthey found the current situation to be lacking. Appendix 1 of the Report presents therecommendations starting with a general prescription to revise Nepals basic aviationleg islat ion, summa rized as follows:

Nepal should revise its legislative framew ork and the supporting regulat ions to ensure tha t

they consistently address all the articles of the Chicago Convention as well as legalinstruments ratified by Nepal, for the scope of aviation activities conducted therein andrelated sa fety ove rsight func tions.

To tha t effec t:

i. the Civil Aviat ion Ac t, 2015 (1959) should be a mended to address the Sta te 'sob liga tions with respe c t to the C hicag o C onvention a nd its pe rtinent artic les related

to sa fety ove rsight, as we ll as lega l instruments rat ified by Nep al, including Artic le 83

bis, and give effec t to their prope r imp lementa tion;

ii. the CAAN Ac t should b e a mend ed to ensure its c onsistenc y with the scop e o f safetyoversight ac tivities and the autho rity vested in the Direc tor Gene ral of the CAAN a s

Chief Exec utive of a regulatory ag enc y and should provide for the de leg at ion ofauthority to CAAN inspectorate staff to carry out identified and assigned safety

ove rsight func tions; and

iii. the CAR 2002 should be amended to facilitate the implementation of an effectivesafety oversight system enabling the timely implementation of all ICAO provisions

through a regulato ry fram ework promulgate d b y the Direc tor General of the CAAN.

In subsequent recommendations the Appendix lists a considerable number of regulatorymeasures to b e a do pte d in the fields of:

Primary av iation leg islation a nd c ivil aviation regulations Civil av iation orga niza tion

Personnel licensing a nd training Airc ra ft ope ra tions certifica tion a nd supervision


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Airworthiness of a irc ra ft Airc raft a cc ide nt and inc ide nt investigat ion Air naviga tion services Aerodromes

Meeting the requirements of the Audit Report will necessitate review of all the legal textsnow in effect, as well as those which are being prepared, with the basic aim ofintrod uc ing any c hange s tha t ma y be neede d. The review should , nevertheless, look alsoforward beyond current ICAOs requirements and allow for the future development of amode rn c ivil aviation sec tor in Nepa l.


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____________________________________________________________________________________________________Ca pa city de velopm ent of the Civil Aviation of Nepa l Pag e 14 of 65Incept ion Rep ort - DRAFT

4.2 PlanningNepal has no long term p lans involving the a ir transpo rt sec tor as a who le.

4.2.1 National Plan For Civil Aviation Deve lopm ent4.2.1.1 Air Traffic Dema ndThe last A ir traffic fo rec ast in Nepa l is ta bulated be low:

Aviation sec tor in Nepa l has shown a treme ndous growth in air travel dem and and in the

numb er of flights after the c ount ry adop ted a liberal sky po lic y since 1992. The up surge in

Nepalese immigrant traffic to Malaysia and the Gulf region especially from 2003 also

c ontributed to the high g row th in air trave l demand. Inte rna tiona l a ir traffic ha s c rossed 2,7

million p asseng ers in 2011, and the rec ent grow th t rend has be en mo st imp ressive.

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

International Air passenger Movement in Nepal

0,00

5,00

10,00

15,00

20,00

25,00

2003 2004 2005 2006 2007 2008 2009 2010 2011

AirPax.GrowthRatesin%


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The main ga teways for air travel from Nep al a re still the a irports in Ind ia (Delhi ma inly), Gulfreg ion (Doha, Duba i, Bahrain), and Tha iland . Eme rge nce o f new budge t a irlines from Ind iaand the Gulf reg ion has contribute d to their do minanc e in the ma rket.

On the domestic front, there has been equally significant and consistent growth in airtraffic demand, especially the increased number of flights by small aircrafts. In 2011, theseven fixed wing airlines and five helicopter operators together carried 1.58 millionpassengers from Kathmandu airport and similar number at the 34 operating domestica irports in Nepa l. The lead ing c arriers a re Buddha Air and Yet i Airline a bout 72% ofdom estic a ir passeng er tra ffic.

31,36

11,04

6,88

18,40

5,713,74

5,633,82

1,47

4,34

1,85 1,35 1,12 0,27

3,03

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0Nepal'sMainAirTravelGatewaysin20102011

Buddha

Yeti

Agni

Tara

Guna

NepalAirline

SitaAir

Fishtail

MountainAir

AirDynasty

Buddha

43.6%

Yeti

28.4%

DomesticAirline Sharein2011


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4.2.1.2 Air Transport

Bilateral: Nepa l has signed b ila teral a ir service a greem ents with 36 co untries, the latest o ne

being the agreem ent with Turkey signed on Sep temb er 24, 2010. This provide s for 5.7 millionseats per annum to and from Nepal. However, not even 40% of this capacity is beingutilized by the op erating a irlines so fa r. The signing o f a letter agreement w ith India lastyear that multiplied seat provision five times to 30,000 seats per week and unlimited aircargo flights be twe en India and Nepa l has be n a milestone in Nepalese c ivil aviation.

Airline Operators: Twe nty-nine interna tiona l a irlines a re present ly op erat ing 284 sched uleair services from Kathmandu to some 22 cities in Asia and Europe. Five new internationalairlines started their air services to Kathmandu in 2010 (Kingfisher, Oman Air, Buddha Air,Sp ice Jet a nd Ind igo A ir). Buddha Air sta rted flights to Luc know (Ind ia) from January 2011and to Varanashi (India) from March 1, 2012. RAK Airways is the newest airline operatingservices to Kathmandu from February 15, 2012. Among the other new airlines proposing

services to Nep a l are Turkish Airline from Ista nbul (Oc tober 2012), Air Lankan fromColombo.

Thus, the numb er of internat ional a irlines op erat ing a ir services from Kathmandu ha sreached 29, and the number of flights they operate increased to 284 flights per week,thereby producing some 47,523 seats for passengers and 914 ton capacity for cargomovem ent from Kathma ndu eac h week.

In the last one ye ar, five new a irlines (namely, Buddha Air Inte rnat iona l, Shree A irlinesInternat ional, Akashbha irav A ir Internat ional, Goma Air and Skytec h Heli Services werelicensed to operate air services and Air Operator Certificates (AOC) have been issued.Three of the m a re fixed wing o pe rators and two are helicop ter co mp anies. Unde r thepo lic y to ac cess remote areas, single eng ine fixed wing a irc raft and helic op ter operationshave be en fac ilita ted to ope rate passenger and c argo services in remo te mo untain area sof Nepa l.

Out of the 86 a irc ra fts reg istered in Nepa l, 69 a irc raft s a re in operationa l cond ition. Thisincludes 46 fixed wing aircraft and 18 helicopters. On the aviation sports side, five of theeight companies who have acquired Air Operator Certificate (AOC) are operational. Forthe promotion of tourism through aerial sports and entertainment activities, aviation sportsactivities have been extended beyond Pokhara to Kathmandu, Bandipur and othertouristic area s of Nepa l.


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4.2.1.3 Airports in Nepa l

At p resent there a re 54 airports including six under c onstruct ion. Amo ng these a irports, 34

a irports a re op erationa l with reg ular air servic es:

Inte rna tiona l Aipo rt. Tribhuva n Interna tiona l Airport in Ka thmandu. Dom estic Hub Airports. There a re 4 reg iona l Airports: Biratna gar Airport, Pokha ra

Airport, Bha irawa Airpo rt and Nepalgunj Airport. Other Dom estic Airports. There a re 36 a irports, only 29 in op erat ion.

There is a ne w p rojec t for a sec ond internationa l Airport at Nijga dh.

Nepal is a mountainous country and most of the areas in western side are not linked byroa d, so the a ir transport is the only mean of transpo rta tion. The Gove rnment ha s beende ma nded to b uild new airpo rts be cause of soc ial co nnec tivity.

Maintenance of many domestic airports is problematic and new airports are being builtunder po litica l pressure. Som e stric t c riteria a re need ed for ad ding new a irports.

In this aspe c t, CAAN Boa rd ha s de c ide d ha nding over the operation and m ana gement o fsome 7 remote area airports in western Nepal to the local community (districtdeve lopm ent c omm ittee) a nd the concept is in the p roc ess of go vernment a pp roval.

Tribhuva n Internationa l Airpo rt

Significant p rog ress has been ma de in the a irport rec ently:

Overlay of runwa y and taxiwa y One more parking bay has been added o make a total of 9 parking bays for jet

aircrafts. Additional baggage trolleys have been arranged to facilitate international

passengers. Arrival Walkwa y and sterile zone after inte rnal sec urity have been extend ed for 350

passengers. A sep arate helicop ter pa rking area has be en ope rat iona l for up to 13 helicop ters. Improvements have been made in the floor, wall and the electrical systems,

construc tion o f Visitors Dec k, Dep arture/ Arrival/ Passenge r Enc losure andrec onstruction of main entranc e g ate ha ve be en c omp leted .

Now, under a loan and grant contract between Nepal government and Asian

Develop me nt Bank signed on Ma y 25, 2010, a loan of US$70 million and grant of US $ 10million w ill be ava ilab le for unde rtaking Priority 1A works in the first p hase o f TIA Master Plan2026 in order to imp rove the c apac ity of a ir transpo rt a nd flight sa fety in TIA.

In this context, a supp lementa ry investment a greeme nt has be en signed be twe en CAANand the Ministry of Financ e, government of Nepa l for US$ 70 million loa n for infrastruc turedeve lopm ent and US$ 10 million a s eq uity c ap ita l investment for Deta iled DesignCo nsultant a nd Supervision works. Under this p rog ram:

Runway extension b y 300 meters tow ards the south Insta ll center line light on the runwa y Insta ll new a pp roa c h light of c ate go ry I

Co nstruct a d om estic terminal build ing of 10,000 square mete rs

750 meters long p ara llel taxiwa y for air service o peration a s per ICAO Cod e E,


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Three link taxiwa ys of tota l 797 meters New Ap ron of 515 x 152 m2. A New Hanger site to relocate Nepal Airlines and Army hangers to the east of the

runway. Rec onfigure and refurbish internationa l termina l build ing. Insta ll Simple Ap proa ch Light to the north of the runway Installation of ILS Localizer in the south

Insta lla tion o f VCCS/ VHF Co mm unica tion in Op erations build ing Insta ll wea ther related eq uipm ents Additional foam tender to upgrade Fire Fighting and Rescue services of the 9th

category Esta blish sew age Trea t Plant , esta b lish d rinking water processing c enter

In add ition to the a bo ve, the loa n and grant p rog ram for TIA w ill also c over some wo rks atSimikot airport, Rara airport at Mugu and Lukla airport.

Pokhara Airport

Pokha ra Reg ional Inte rna tiona l airport is one of the na tional high p riority projec ts in Nepa l.34 years ago Nepal Government acquired land of 158 hector for regional InternationalAirport. This site is 4 KM fa r (east) from existing Pokha ra a irport a nd potentia l for 2500 meterlength runwa y and c an b e c onstruc ted to ICAO 4D req uireme nt.

Government of Nepal is willing to construct this airport from Chinese Exim Bank Loan. Forthat CAAN has published a notice for Engineering, procurement and Construction (EPC)c ont rac t Tend er from Chinese e ligib le bidders on Feb rua ry 9, 2011. The last d ate o f tender

submission is extended to April 24, 2012.

Som e o ngo ing projec ts to a llow d irec t flights to Lucknow in Ind ia a t existing Pokha raAirport:

Inte rna tiona l Depa rture/ Arrival halls and a sep arat e Arriva l hall for dom estic flight s. Taxiway Loop Isolated Parking Position

Gauta m Buddha Reg ional International Airport

An agreement has been signed between Nepal Government and Asian DevelopmentBank for US$28 million loa n and US$6.41 million g rant fo r the develop me nt o f Ga uta mBuddha Inte rna tiona l airport und er South Asian Tourism Infrastructure Deve lopm ent p rojec tto help d eve lop tourism in Lumb ini area and t o d iversify cong estion a t TIA.

Currently Gauta m Buddha Airport (GBA) is op erate d a s a d om estic hub a irport. The lengt hof existing runwa y is 1524m and is 30m w ide .

Go vernment o f Nep a l ha s received a US$28 million loa n and US$6.41 million grant fromADB through South Asia Tourism Infrastruc ture Developme nt Projec t (SATIDP) fo r upgrad ingthe GBA to Regional International Airport. Financing agreement between ADB andFinance Ministry was signed on Ap ril 25, 2010.


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Design a nd Supervision c onsultant wa s mo b ilized from Sep tem ber, 2011 and right nowthey a re enga ge d on d esign works. Proc urement p roc ess also ha s sta rted on January 2012for prequa lificat ion of c ontrac tor for civil works. Subm itted prequa lificat ion ap plicat ionsare under the eva luation. Prob ab ly the c ivil works contrac tor will be mobilized on Oc tob er,2012. Projec t Com pletion da te will be 2015. Ma in ac tivities a re:

New 3000 m length runwa y pa ra llel to existing runwa y towards south Newinternational a irc raft pa rking ap ron

New international terminal building in existing unfinished one storied building(vertic al and horizonta l expa nsion)

Expansion and refurbishing of existing domestic terminal building New Co ntrol Tow er Build ing New Customs and Ca rgo building Expansion of CFR building Interior roa ds improvement Diversion of Ghagra Khola Cha inlink fenc ing a round newly ac quired land Water supp ly, storm w ate r drainag e a nd sewerage system imp rovem ent. Co mm unica tion, nav iga tiona l equipme nts insta lla tion inc luding VOR / DME, ILS,

airpo rt lighting a nd others CFR, X ray, sec urity and m ete orologica l eq uipments

National A irpo rts

Civil Eng ineering Division is ma naging 3 mega projec ts and 40 a irport p rojec ts with strengthof o nly 12 eng ineers. So, spec ialized human resources are not suffic ient in this a rea :

For the improvement of Simikot airport, land acquisition and runway black

top ping wo rks are initiated . Similarly, black top ping o f runwa y, taxiwa y and Ap ron a t Tumlingta r airport are

being taken up. Efforts are mad e t o m ake Rajb iaj airport op erational ag ain. Flight operation at Manamayarai Khanidanga airport at Khotang district has

sta rted afte r completion of runwa y. Simp le Ap proac h and Airfield Lighting works have be en c omp leted at

Nepalgunj airport. Land acquisition, security chainlink fencing have been completed at Manang

airport and blac k top ping of runwa y, taxiwa y and Ap ron has be en sta rted . Works on Parking Apron extension at Surkhet airport for Fixed and Rotary Wing

a irc rafts a re prog ressing.

New terminal building, control tower, office building works at Dhangadi airporthave been co ntrac ted out.

Reconstruction works of airport terminal building/ tower, Police residence andstaff residences at 10 domestic airports (Bhojpur, Phaplu, Lamidanda, Dolpa,Rukum (Salle), Rukum (Chourjhari), Bajhang,Jumla, Bajura, Sanfebagar),da ma ged during the period o f conflic t.

Improvements in runway at Tap lejung a irport has sta rted . Construction of terminal and tower buildings at Khanidanda (Khotang),

Tham kharka (Khotang) and Kange ldenda airports. Construction of Parking Apron area and improvement of runway orientation

and gradient have b een started at Rura (Mugu) airport. Construction of Partial parallel runway at Biratnaga r a irport has be en sta rted to

imp rove the runway c ap ac ity of the a irpo rt.


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Sec ond Internationa l Airport

In 2007, Gove rnment of Nep al d ec ide d to build full flag ged Sec ond Internat iona l Airpo rt(SIA) in Bara , Nijga dgh throug h BOOT Sc heme. One Korea n priva te c ompany cond uc teddetail feasibility study and submitted a proposal to Nepal Government through BOOTschem e. This report is und er stud y in the Ministry of Tourism and Civil Aviat ion.

Decisions on this project will affect severely to the Capacity Development Plan of the CivilAviation Authority of Nepa l.

4.2.1.4 Air Navigation

Air Traffic System (ATS)

The mo st imp orta nt fac ilities for ATS in Nepa l are:

Area Control Cente r in Kathma ndu. Control Tower in TIA. Radar in TIA 5 VOR. Kathm andu, Bira tna gar, Simra, Bha irhwa a nd Nepaljung A irports. DME at Pokhara Airport.

The m ost imp ortan t issue to solve is the automa tion o f the systems and the training ,spec ially the refreshing tra ining , every yea r or two years the ATC c ontrollers must havesome refreshing training.

Com munic ation, Naviga tion and Surveillanc e (CNS)

b) Communication. All the facilities and equipment are being renewed. Ending 2012,everything might be finished.

Easter Nepal is going to have new Radar. In a few weeks CAAN will try to look for thelocation.

Western Nep al has some c overage p rob lems, bec ause o f the g eog rap hy.

c ) Navigation. Som e imp rove me nts a re c om ing a lso in this a rea .

d ) Surveillance. There a re tw o d ifferent p lans to rep lac e the radar system.

1. ICAO p rojec t2. Japan Airport Consultant Project.

There a re som e o ther issues according to the a irc ra ft op eration.

Protec tion of the ATS/ CNS insta lla tions In order to operate the airports during the night, some noise maps must be

developed. Improve the obstacle control, improving the process between CAAN and the

municipalities.


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Some ne w airpo rt infrastruc tures are c oming and the m an po wer into thesearea s is not e noug h to a ttend a ll the d ifferent a rea s. The rec ruiting p roc ed ure inCAAN takes longe r tha n construct ing proc ess; new sta ff must be well trained .

Coordination between MO TCA future p lans and CAAN c ap ac ity de velop mentplan.

4.2.2 Corporate Business Planning

There is no corpo ra te business plan nowa days in the C ivil Avia tion Authority o f Nep a l.

There a re Annua l Rep orts including Ca sh-Flow and Ba lanc e Sheet . These rep orts a re no tfor individua l airpo rts, only c onsolida ted da ta for the g lob al CAAN.

Reg ulato r, Airpo rt op erato r and Air Naviga tion System op erato r a re not sep arated into the

Balance Shee t.

Annua lly, the M inistry of Tourism and Civil Aviation p rov ides a budge t fo r CAAN. CAANdoesnt cont rol the reve nues ge nerate d b y the Air transport system .

Ac cording to the a ssigned bud ge t, CAAN must deve lop new infrastruc tures and ma intainthe existing o nes, inc luding operationa l co sts.

There is no c lea r definition ab out the ae ronautical a nd non-aeronautica l revenues.Dep end ing on the d ifferent informers, non-aerona utica l revenues can go from 5% to 25%.

Last year the Net Profit after taxes was close to 27% of the revenues, but this is something

we must analyze in a longer period, in order to know if the air transport system can goalone.

A c ommittee of M inistry of Com merce and Supp lies organized to study prevailing cargorates at Dhaka and New Delhi airports has completed and submitted their report to theMinistry in order to review a ir cargo rat es and c ha rge s as per an agreem ent b etw een TIACivil Aviat ion O ffice a nd Nepa l Transit a nd Warehouse M ana ge ment Comp any Limited forthe op eration and mana gem ent of Air Ca rgo comp lex at TIA.

Ac cording to the current ac countability system, everything is controlled by hand . Theyneed to improve this area using a Financ ial Informa tion System .

They must imp rove Ma n pow er skills in this area:

o IT and Comp uteriza tion skills of the sta ff involved in finance a rea .o VAT leg islat ion.o Financ ial Informa tion System

4.2.3 Private Sec tor

Ac tua lly, the Aviation Policy, 2063 (2006) introduces the participa tion of p rivate sec tor intothe a viation sec tor.


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In d eve loping a ir transport infrastructure structures, the investment of nat ive/ foreign

p riva te sec to r will be op en on the Build -Operate-Transfer (BOT), Op erate -Transfer(OT),

Build-Own-Op erate-Transfer)BOOT) ba sis or any other approp ria te basis .

Private sector participation in aircraft operation, training, repair and maintenance andpasseng er service p rovide r industries:

o Inte rna tiona l airlines. Up to 80 percento Domestic airlines. Up to 49 perce nto Flying School. Up to 95 percento Rep air and ma intenance. Up to 95 pe rcent of the institutions

The Private sec tor is a lso go ing into the a irpo rt sec tor, not only build ing the a irports, butalso ope rat ing them in the future. (Comp any Ac t)

The d ifferent Me thods include d in the Nepa l Leg islation a re:o Build and Hand overo Build, Op erate a nd Hando vero Build, Holding Ownership, Operate and Handovero Build, Hando ver and Op erateo Lea se, Operate a nd Handovero Lease, Build, Operate and Handovero Develop ed, Operate and Hand over

If the private participation goes into the airport operation, it will be necessary to start withsome organizational and regulatory changes in order to avoid competence problemsbetw een CAAN (regulator and o perator) and private comp anies.

Private sec to r pa rticipa tion in managing Lukla , Bira tnagar and Surkhet a irpo rts a re und er

stud y. SIA projec t is looked afte r by the M inistry of Civil Avia tion,

The c onstruc tion and op eration by a private c ompa ny of the Sec ond Internat iona l Airpo rtin Nepal will bring some regulatory and organizational changes into CAAN.

4.2.4 Non-Aeronautical Revenues

There is no c lea r definition ab out the ae ronautical a nd non-aeronautica l revenues.Depending on the different information, non-aeronautical revenues can go from 5% to25% of total revenues.

It is necessary to clearly define the non-aeronautical revenues, explore new areas of non-

ae rona utical revenues so as to fa c ilitate air transpo rt d evelopment.

4.3 Restructuring

Currently, CAAN is taking different roles into the air transport:

o Regulatoro Inspectoro Airpo rt Op eratoro Air Navigat ion Op erator


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In order to be compliant with the international best practices and in order to let theprivate sector go into the airport and/or air navigation operation, CAAN must berestructured.

The restructuring p roc ess will b ring us ma ny regula to ry, and orga nizat ional c hange s.

The new Orga nizat ions must be ec onom ically inde pe ndents and complianc e w ith thesafe ty internationa l reg ulation o f this typ e o f orga niza tions.

A new salary policy must be developed in the different organizations according to theirnew roles and responsibilities. Nowadays, this a rea is not well de fined . In TIA there a resome p eop le w ith a lower orga nizat iona l level than other and a highe r salary.

The c urrent rec ruitment p roc ess is not solving the problems of sta ff in CAA N. It is d ifficult tohave w ell trained pe rsonne l in orde r to substitute p eop le in ret irem ent .

Now w e ha vent go t any informa tion about the restruc turing p lan o f CAAN.

4.4 Human Resourc es Training Prog ram

STAFF STRENGHTH IN CAAN

APPROVED PERMANENT POSTS 1065

EXISTING N OF EMPLOYEES

CAAN Head Office 143

Tribhuva n Intl A irport 429

Civil Aviation Aca dem y/ Other Offices 298

Currently Working Manp ower 870

Currently CAAN is c lose to 200 pe op le unde r their defined orga nizat ion.

The C ivil Avia tion Ac ademy is p roviding basic t ra ining in seve ra l areas to the CAAN sta ff,but fo r Ad vance Training the sta ff are sent ab roa d and this is very expensive fo r CAAN.

There a re only 12 tra iners into the Ac adem y, but somet imes they use external trainers a lso.

The c ourses are not de fined into the Ac ad emy; they contrac t external co nsultants todevelop them.

The Ac ademy is using ICAO Annexes for training ma terial.

The Civil Aviat ion Academ y provides training no t only to CAAN sta ff, but a lso to e xterna lstaff.

The Ac adem y ha s not reve nues from CAAN stud ents neither from Police stud ents. Theyonly ha ve som e reve nues from the external students (airlines, etc .)

The Ac ade my ha s p rob lems with IT, inc luding c om puters and e quipme nt for the c ourses.

The Ac ad emy do esnt have a Plan to d evelop the c ourses that CAAN staff is de ma nding.

The rec ruitment p roc ess, joined to the d ifficulties to have trained sta ff in CAAN is bringing

som e p rob lems in spec ific a rea s as fire and rescue, g round sa fety and IT.


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4.5 Computerization

Actually, CAAN has no Computerization Plan.

The c ompute rs in CAAN are old and pe op le a re no t trained to use them. Mo re than 90% ofCAAN sta ff has p rob lems using c omputers.

4.6 MIS

Ac tua lly, there is no Manag em ent informa tion System in CAAN Head quarters. Mostlyinforma tion is written b y hand and there are not soft c op ies of them.

An a greement w ith SITA ha s been signed to op erate Comm on User Terminal Equipme nt(CUTE) system in the c hec k-in area of TIA. Req uired softw are a nd hardw are a re rea dy forthe ir op eration soon a fter a MOU with a irline operato rs.

There is no Financ ial Informa tion system in CAAN. They only use Exce l Program fromMicrosoft O ffice Softw are.


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5 METHODOLOGY OF WORK

5.1 Legal

As a result of the meet ings held during the days 27/ 03 to 30/03 The initial formulation o f thework program has been revised in order to prioritize certain tasks which were consideredas the most urgent by CAAN. In the meeting held with representatives from the Ministry ofTourism & Civil Avia tion the new p riorities were a lso rat ified as mo st befitt ing the currentsituation in Nepa l reg arding c ivil av iation.

While the fina l aim o f the projec t is to fulfill the requirem ents a rising from USOAP Aud itReport, it was agreed that work should concentrate first in dealing with the issues relatedto the Civil Aviation Act and the CAAN Act. Preliminary interest has shifted from the indep th review of the c urrent reg ulatory instruments to the definition o f key polic y issues.

This implies dete rmining the be st strate gy to ap proa ch the review o f bo th Ac ts ta king intoaccount:

spe c ific problems to b e resolved, need to insure growth beyond ICAOs requirements, need to reorganize the civil aviation administrative setup in order to

accommodate the separation between regulatory functions and serviceproviding functions,

privatization of service provision introd uc tion of p rivate initiat ives.

Given this context, the a greement w as that the priority for the legal c onsultant should b eto prepare a report on the review of the current acts, in order to formulate proposalsreg arding the ava ilab le o pt ions and the most p romising route to follow in view o f c urrentc ircumstances in Nepal a nd ta king into c onside rat ion fo reign expe rienc es on the ma tter.

The Ministry of Tourism a nd Civil Aviation m ent ioned a lso the need to ta ke into acc ountthe w ork that is currently underway on two new ac ts in the field of c ivil aviation, one on a irtranspo rta tion a nd the other on a ir carrier lic ensing. The c ontents of such ac ts will have tobe conside red in order to either integ rate pa rt in the new c ivil aviation ac ts or, at lea st, toguarantee the highest degree of coherence among all the legislation governing civilav iation and related top ics.

The report would foc us on:

Scop e o f the revised legislation: the b aseline is to c ove r all ICAO Conve ntion srequirements, but should provide the framework to go beyond basicrequirements.

Should the tw o e xisting a c ts be c onsolidated into a single text?: alternatives,pros and cons.

How de tailed should the provisions of the ac t o r ac ts be ? Dealing with the requirements derived from the need to separate regulation

and operation. What should be revised in the CAA Act?, what in the CAANAct?

Imp ac t of the introd uc tion of private initiatives

How are a ir transpo rta tion a nd carrier licensing regulated in othe r systems? Prosand cons of including such top ics into the new Civil Aviat ion Ac t.


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After discussion with CAAN, the report would result in the preparation of a presentation toraise awareness of these issues among higher government officials and politicalrepresentatives.

The first report wo uld b e shortly followed by a sec ond pa per on the issue o f p rivatizat ion,exploring available options to introduce privatization before the CA Act and the CAANAct are revised. In these context the term privatization designates not only the process ofentrusting some of the operations currently performed by CAAN, but also the introductionof new operators, as is the case with the proposal for a new private initiative airport whichnow unde r conside rat ion.

The ma in issues to exp lore w ill be:

Ca n p rivat izat ion take plac e w ithout review ing the e xisting ac ts? What legislative/regulatory changes are required in order to introduce

privatization? How fa r can p riva tizat ion go w ithout chang ing the CAA a nd CAAN Acts? What are the probable repercussions of privatization on the current structure

and financ ial system ? Ca n p riva tizat ion ta ke p lace without p rior sep aration of regulato ry a nd service

provision functions? How do these issues apply to the establishment of a new airport under private

operation?

The pap er will analyze these issues in the light of c urrent legislation in Nep a l (bo th av iationlegislation and investment legislation) and taking into account the experience in othercountries.

Once the debate on the review of the current Acts is well under way, the main focus ofthe consultant will shift towards the in depth analysis of the regulatory system, in order tode termine w hat spe c ific elements of the current rules and regulations have to be mod ifiedin order to me et the req uirements of the USOAP Aud it Rep ort as we ll as the futurede velopm ent and imp rovem ent of the c ivil aviation sec tor.

This will req uire the e xamina tion o f a ll the reg ulato ry doc uments (inc luding manuals andother guidance materials) and detailed interviews with the persons responsible for thedifferent areas, in order to pinpoint current shortcomings and possible improvementsbeyond the stric t limits of the Aud it Rep ort.

In this reg ards it is worth mentioning tha t initial meet ings with those responsib le for ATM,CNS and ground sa fety, he ld a t Tribhuva n Internat ional Airpo rt, expressed the ir conc ern forthe lack of effective regulation of implementation in areas like obstacle proliferation,wild life c ontrol or coo rdination with loca l authorities. Som e c onc ern was a lso vo icedreg arding the need to a pp roa ch the no ise issues which m ight ham pe r the full op eration ofthe a irpo rt in the future, espec ially at n ight .

In many of the meetings the consultants attention was drawn also by the participants tothe issues deriving from the current organizational framework and budgeting, staffing andtraining shortcom ings. Such conc erns will be the foc us of the consultant s wo rk whenreview ing the p rop osals for restructuring and p ossible priva tiza tion and will be the ob ject ofspec ific rep orts and prop osa ls.


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SCHEDULE PROPOSAL

Taking into a ccount the priorities a rising from the first set of interviews with CAAN a ndMinistry of Tourism & Aviat ion o ffic ials, the consultant considers tha t the p rojec t tasksconcerning legal and administrative or institutional issues could be organized according tothe follow ing schedule.

Report on the review of the Civil Aviation Ac t and the CAAN Act:

First d raft to be subm itted within 3 weeks from the da te of the incep tion rep ort.The report could b e refined by means of e-ma il d iscussion and wo uld bepersonally debated in interviews which could take place during the week ofMa y the 14th.

Completed report and presentation by May the 18th or 19th at the end of thelega l consultants visit to Kathma ndu.

Report on privatization options and imp lica tions for the leg islative review:

First draft submitted 2 weeks after the report on the review of the Civil Aviationand CAAN Acts.

Discussion and finalization of the report would take place during the legalconsultant visit to Kathm and u d uring the w eek o f Ma y 14th.

Draft new legislation:

At the request of the CAAN the consultant would prepare draft legislationembodying the results of the reports and the discussions sustained in

Kathm and u. Such d raft leg islation would inc lude the d eta iled o utline o f thefuture a c t or ac ts, and a n indica tion of the c ontents of ea ch artic le. Since theactual acts will have to be drafted in Nepalese, the consultant considers thatspecial consideration should be given to concepts rather than to specificwording.

Such draft legislation would b e submitted b y the c onsultant d uring the firstwe ek of June a nd refined via e-mail discussion ove r the fo llow ing we eks.

Deta iled regulatory review (Regulations, CARs and guidanc e m aterials):

The p urpose o f the rev iew is to p inpo int a ll possible d ifferenc es with ICAO s SARPs and to

dec ide the b est way to m eet the req uirements of the USOAP Audit Rep ort, as we ll as thoseimp rovem ents that ma y be conside red nec essary or c onvenient for future d evelopment .

Report on the review and proposal for review of all regulatory documents, tobe c omp leted by the end of August.

The repo rt would b e refined bo th b y c orrespo nding w ith CAAN officials and inthe course of interviews to be held in Kathmandu during the first week inSep tembe r.

Review the proposals for restructuring CAAN as a regulator of civil aviation , and forcreating a new state authority to operate the national airports and the air traffic andnaviga tion system


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Informa tion on such p rop osals wo uld be provided to the c onsultant d uring thevisits to Kathma ndu to take plac e in the months of Ma y and Sep tembe r and byany other means at such time as CAAN considers convenient.

Rep orts on such prop osals will be p rovided a the d em and o f CAAN MOTCAand meeting to discuss them and outline legal requirements for theirimp lementa tion c ould ta ke plac e in mid Oc tobe r.

Draft legislation to establish new state authority to ope rate the na tional airpo rts and airtraffic a nd a ir naviga tion system

To b e subm itted be fore the end of Novem be r and subseq uently refined b eforethe end o f the year.


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5.2 Planning

The Consultant is go ing to ana lyze the c urrent situa tion of a ir transport in Nep a l, we have

to know the existing plans (short term and long term), the working projects (newinternational airport, others), the agreements in this area with any other country, companyor institution and of course the existing infrastructures dedicated to air transport (airports,a ir naviga tion infrastructures and eq uipme nts, airlines, hand ling age nts, industry, etc .)

Based on an Air traffic forecast, including not only international, but also nationalpasseng ers on different a irports, The Consultant is to deve lop the Nat iona l Plan for CivilAviation Development (NCADP), including the air transport, the airports, the airspace andair naviga tion and of c ourse the p ap er of the c ivil aviation adm inistration according to allthese a c to rs.

According to the nature of this project, the Consultant is to develop a Corporate Business

Plan, inc luding ne ar-term op erations of CAAN and a five year initial ope rat ing pe riod forthe new organizat ions (the new Civil Aviat ion Authority o f Nep al a nd the ne w Airpo rts andAir Naviga tion Services Authorities).

On the other hand the Consultant analyses the possibilities of the private sector into theNPCAD, via outsourcing of services, concessions, engineering services, etc, with a cost &benefit analysis of the proposals and risks involved.

Once we finish with the air transport sector, we move to analyze the non-aeronauticalrevenues generating activities to develop a plan that includes additional commercialopportunities.

5.2.1 National Plan For Civil Aviation Deve lopm ent

a) Existing Plans and Regulations.

The Co nsultant rev iews the Civil Aviation Sec to r Stud y (ADB TA 4772-NEP) a nd ana lyses thecurrent legal and regulatory framework international and national governing the marketentry, regulation and operation of the air transport in Nepal, with the aim of verifyingdeficiencies that could eventually jeopardize the development of the air transport inNepal. (tasks 13 &15)

Reviewofexisting

plansandregulation

Reviewofexisting

infrastructures

AirTrafficForecast:

Passengers,

Aircraftmovements

andcargo

International

National

20year

developmentPlan

Reviewofexisting

Airtransportmarket

1.NationalAir

TransportPlan

2.NationalAirports

Plan

3.NationalAir

SpacePlan

AIRTRANSPORT

CURRENT

SITUATION

AIR TRAFFICDEMAND

FUTUREAIR

TRANSPORT

CAPACITY

NATIONALPLANFORCIVILAVIATIONDEVELOPMENT


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This ana lysis inc ludes laws and other leg a l texts governing Air Transport, in order tounderstand the existing rules, and check their suitability for a smooth and plausibledevelopment of air transport, airspace and airports, thus providing the regulatorysignificance the se rules have fo r the Nepa lese econo my. (task 16)

The Consultant takes into account inte rna tiona l reg ulations (ICAO, IATA) applica ble inNepal, as well as the organizational structure of the Civil Aviation Authority, in order tounderstand the scope and enforcement.

b ) Existing Infrastruc tures and Equipments

The Consultant is to identify a ll the infrastruc tures relate d t o a ir transport existing in Nepal,compiling a ll the informa tion ac cording to the c urrent situat ion and a c tions de fined .

The Consultant will include a irport infrastructure a nd air naviga tion infrastructure and

equipments.

c ) Existing Air Transport Ma rket

The Consultant is to ident ify the c urrent situa tion of the ma jor domestic a nd interna tiona la irlines op erat ing in Nepa l: (task 17)

Profile & Ownership Fleet & Route netw ork Financial situation Agreements with other ca rriers. Memb ership of g loba l a llianc e

Business strateg ic & Ma rket positioning Traffic volumes Personnel

The Consultant sha ll also ident ify other agents in a ir transpo rt c ha in as hand ling ag ents,c argo ag ents, supp liers, ma nufac turers, ma intenance a gents, ca tering, etc .

5.2.1.1 Air Traffic Dema nd

The ob jective o f this sec tion is to c rea te a n upd ated traffic forecast b ased on: Nepa lscurrent and estimated air transport market (passenger, passenger and freight), air trafficforec ast fo r Tribhuva n Internat iona l Airport (TIA), the esta b lishment of fu ture infrastructure

requirements, the identification of potentially profitable domestic air service routes in thefuture (task 18), the evaluation of the expansion of international services and the entry ofnew inte rnat iona l carriers in the inte rna tional ma rket. This forec ast will form the b asis forrevenue estima tion in Corpora te Business Plan.

The nec essary hypothe sis to ma ke this forec ast, includ ing historica l traffic and its p rob ab lefuture behavior, is formulated. It is essential to design future traffic scenarios so as not tohave only one fo rec ast, but seve ra l, according to the evolution of the initial hypothesis.

Additionally, the more suitable forecasting tool shall be selected for the conditions of theairport and dep ending on the da ta ava ilab ility.

The Co nsultant ha s extensive experienc e and know how in a ir traffic fo rec asting.Programs as SPSS are com monly used as a tool to imp leme nt a ll the assumptions and


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va riab les which a ffec t the evo lution o f traffic figures. The ve rsa tility a nd strength of thesestatistical tools provide our forecasting experts with the instrument for selecting the mostsuitable methodology for the Airport depending on the characteristics of the data andva riab les that de fine the a irpo rt pe rforma nce. All this knowhow and top notc h tec hniquesshall be ap plied for the d evelopment of the a ir traffic forec ast fo r Tribhuva n Internat iona lAirport (task 14), as well as the other airports included in this study, in which case theme thod ology for national a irpo rts with a few moveme nts pe r yea r is go ing to b e d ifferentand will be a pa rt of a global traffic fo rec ast inside the c ountry.

The m ethod ology to calculate the a ir traffic fo rec ast o f the princ iple Nep alese airpo rts willbe:

Soc io ec onom ic da ta : the Consultant is to a nalyze the ec onom ic and soc ialaspects of the Nepals economy, which sustains the air transport market,including tourism a nd dem ographic d ata (demog rap hics, inco me pe r cap ita,GDP by economic sector that may affect air traffic, emigration, foreign trade,foreign investments, tourist arrivals, price of oil, etc).

Our approach includes data collection to/from meetings with Nepalsautho rities on Civil Avia tion, Tourism, Airline assoc iat ions, and tourismassoc iat ions and ec onom ic stud ies from the World Tourism Organization, IATA,Airbus, Boeing, and Airports Council International- ACI should also beconsidered.

Available forecast assumptions might be used in the development ofec onomic c ontext.

Historical analysis of traffic: the Consultant is to analyze the historical traffic forpassengers, aircraft movements, cargo and mail, through the statistical datacollected.

Analysis of primary data: In this section, the segments of demand are defined,both passenger and cargo operations and taking into account such factors asthe rea son for travel (tourism, business, genera l avia tion e tc .). Thecharac teristics of travel, prac tice costs, imp orts / expo rts, etc .

The fo rec ast of d em and for pa sseng er, a irc raft , ca rgo and ma il. (tasks 17 & 18)


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____________________________________________________________________________________________________Ca pa city de velopm ent of the Civil Aviation of Nepa l Pag e 32 of 65Incept ion Rep ort - DRAFT

5.2.1.2 Strategic AnalysisOnce CAAN approves the air traffic forecast, the Consultant begins to evaluate the

measures that have to be developed for the forthcoming 20 years, which are translated

into the fo llow ing plans:

Nationa l Air Transpo rt Plan Nat iona l Airports Plan Nationa l Airspace Plan

All these plans will be developed in an only aspect, to modernize, adequate and

guarantee the safety and capacity of the air transport in Nepal on a sustainableenvironment (econom ically, tec hnically, environme ntally a nd soc ially).

At this point the Consultant w ill be p rep ared to do a com plete SWOT Ana lysis of the

c urrent situat ion of the Nep a lese Air Transport.

The ob jec tive of the SWOT ana lysis is:

The a ssessment a nd exploitat ion of m arket opportunities The m inimiza tion of imp ac ts from threats affe c ting the a ir transpo rt. Provide a c tions to conve rt w ea knesses into strengths Promote the strengths of the Nep a ls a ir transport system to d ifferentiate it from

other neighboring countries.

We w ill use this part to deve lop no only the Nationa l Air Transport Plan b ut a lso the w hole

NPCAD.


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5.2.1.3 National Air Transpo rt Plan

On the b asis of the p revious phases, the Consultant is to d ra ft a Polic y on the Deve lopm entof Do me stic and Internationa l Air Transport. This policy conta ins the follow ing tasks: (29)

Overview Vision Ob jec tives of the po licy / Open skies po lic y Tariff policy

Soc ial objec tives and m inimum service requirement Com pe tition po lic y and method of entry for priva te op erators Airline license Domestic a nd regional ope rat ions International ope rat ions Market ac cess Promotion / Developm ent o f Aviation Sec tor Aviat ion sec urity & Av iation sa fety regu lation and investiga tion Gove rnment ta xes and duties Com merc ializat ion of airpo rts Imp ort of a irc raft Aviat ion supp ort services

Airport c harge s, Taxes & Dut ies on Imp ort of Aviation Related Equipme nt Air traffic services Human Resource Development Consumer protec tion Aviat ion and susta inab ility Imp lementa tion of Polic y

1. Airlines

In the first place, the Consultant will be carry out a set of interviews with the majordomestic and international airlines operating in Nepal in order to gather information of theair carrier and to discuss business strategies (new routes and frequencies, future fleet, etc),

and air traffic forec ast.

PHASES

III

&

IVPHASE

IIPHASE

I

STRATEGIC

PLAN

NATIONAL

AIR

TRANSPORT

PLAN

DEVELOPMENT

POLICY

SWOT

ANALYSIS

AIRTRANSPORT

INDUSTRY

Strategic

Analysis

Current

Situationof

AirTransport

Strategic

Planning

CONSTRAINTS

CONTROLS

STRATEGYOFAIR

TRANSPORTMARKET

(DEMAND)


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Then, the Consultant de velop s d ifferent scena rios for the future evolution of the dom esticair services transport infrastructure, defining its fleet, route network, and size of the industry,unc onstrained by e xisting a irport c harac teristics. (task 21)

Each scenario is analyzed against agreed upon policy objectives and developmentcriteria, in order to develop a recommended strategic approach to the creation of asustainable national air carrier operation in order to serve domestic and internationaldestina tions where feasible. (ta sk 22)

2. Regulations

The internat ional c harac te r of a ir transport a lso req uires interna tiona l framewo rk, wh ichdefines a minimum set of regulations, common to all countries. Likewise, the defense oftrade interests leads to the realization of private agreements between two or morenations, on the most important aspects of transport, not covered by the general rules.

The reg ulation o f internat ional a ir transport services comp rises both m ultilate ra l andbilateral agreements involving Governments and airline companies.

The internationa l and nat ional c ivil aviation leg islation in Nepa l is derived from theChicago Convention 1944, and the first action is to review the legal instruments applied tothe ma rket entry, regulat ion a nd op eration of the air transpo rt in Nepa l.

Assess the legal and regulatory environment for foreign and domestic private provision ofa ir transpo rt on dom estic route s, and the c onstraints.

3. Air services ag reeme nts

The t ransition from a p rimarily bila teral regime to an increa singly multila teral reg imeraises intricate issues with solutions not always straightforward. For this reason, the task 19 isvery imp ortant. Due to the shap e a nd size o f the air transpo rt the system s can be affec tedby governmental decisions, notably those determining the type and extent of economicregulation of airlines.

The task will be initiate d with the g a thering of the e ntire set of a ir services agreem ents heldbe tween Nep al and other nations, in order to review the lega l authority of these ASA sand the c onditions ap plied .

For that, it will be necessary to review the following issues, among others:

Capacity, double approval of tariffs, traffic rights, and routes of specific citiesbe ing served; and

Carriers operating the agreement traffic rights

Access to the air transport market (entry market): a route is determined by the points(cities) served by an airline and therefore effectively represents the market of that airline.Typically, Governments agree b ilaterally on the routes on which traffic w ill be c arried ,often involving one or more specific gateways in the home country and one or morega tew ays in the foreign c ountry.

Depe nding o n the t ype of ASA, the numb er of routes or po ints can be limited or unlimited.Cha rter rights can be include d. Fifth freedom right (or beyo nd righ ts).


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Designation: ownership and control criteria (a designated airline is to besubsta ntially owne d a nd e ffec tively cont rolled by the Designation Sta te o r itsnationals).

Capacity: a quantitative measure of the supply of an air transport service,usua lly expressed in terms of a irc ra ft, passeng er sea ts and / or units of we ight orspace, and frequency of a particular air service. Controlled capacity andfreq uenc y or not. Rec iproc ity or eq ual and fa ir op po rtunity to c ompe te.

Tariffs: pricing polic ies. Tariff ag reem ents and system of interlining. Doub leapprova l of ta riffs or do ub le d isap prova l of ta riffs. Tariffs refe r to c ost-effec tive.

This p roc ess will be com pleted with a set of mee ting w ith senior government sta ff to d isc ussthe limits and conditions imposed on foreign carriers and Nepalese carriers, like capacity,traffic rights, tariffs, access to the market, designation, etc. In order to determine whereapparent limitations and conditions might inhibit the further development of air transportlinks or the development of services by Nepals carriers (task 19).

And , fina lly, (ta sk (28) advises MOTCA and CAAN on p olic y and strategy fo r internationa lbilateral negotiations, such as maximization of the value of freedom rights, andap propriateness of op en sky agreeme nts, and the po tential for de velopm ent of a dd itionalinternationa l a irport hubs, and their effec t on the financ ial performa nce of TIA.

For that, the Consultant will analyze the latest regional trends concerning the granting ofcommercial air rights, by examining the experience in the European Union (where evengranted eight freed om right), and the o pe n skies trea ty be twe en the United Sta tes andthe Europ ea n Union, which entered effec tive on March 28, 2008.

4. Comp etition and tariff polic y

The liberalizat ion of a ir transport and the grad ua l move towa rds free skies, in the context ofincreasing freedom, makes necessary to safeguard fair competition between carriers, andto avoid practices detrimental to competition. For example, fares below costs, thead dition of excessive c ap ac ity or freq uenc y of service, or the a buse o f do minant p ositionin a route.

For this reason, the Consultant reviews and evaluates existing policies on competition,tariffs, and capacity entitlements, in order to enhance the international services to andfrom Nepa l, and the entry of o ther interna tiona l carriers.

5. Sustaina bility of the Air Transport System

In order to ensure the territorial connectivity and the sustainability of the air transportsystem in Nepal, it is necessary to carry out a set of actions to encourage domestic andforeign investo rs in air transport to p rovide d omestic services and t o financ e p ub lic servic edomestic routes.

The g rant ing o f subsidies is justified on soc ial grounds, suc h as the nee d to ensure minimumlevels of service to remote area s. The argum ent in favo r of such subsidies de pend s on thec riteria app lied and the d efinitions used to justify them.

For tha t, in the first p lac e, the Consultant will review with the MOTCA the Government s:


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Soc ial Ob ject ives. The m inimum service req uirem ents on a ll domestic routesbased on these o b jectives. (task 23)

Tariff policy. the Consultant review s the ta riff policy fo r dom estic route s and willeva luate the c onstraints of these o n p rivate op eration of d omestic a ir transpo rt.After review the ta riff po lic y, the Co nsultant w ill ma ke rec omm end at ions on a nap propriate ta riff po lic y in order to enc ourage private ope rators while meet ingsocial objectives. (task 24)

Subsidies. Eva luate va rious me chanisms for att rac ting dom estic or foreigninvestors in air transport to provide domestic services and identify alternativefinancing mechanisms to subsidize unprofitable but socially necessary routes.(tasks 25 & 26)

There are several forms of sub sidies. The m ost p rominent a re restructuring sub sidies, crosssubsidies and social subsidies.

The restruc turing subsidies have b ec om e inc rea singly importa nt as liberaliza tion evolves inworld markets and airline companies demand support in order to adjust toward lowercosts and greater competitiveness. But the difficulty with restructuring subsidies is thed isto rtions to com pe tition the y c learly introduce. Even in cases whe re the sta ted purpo se isto avoid the distortion of competition, it may still not be easy to determine the extent ofthe effec t of non-co mmercial aid to a pa rticular air c arrier on overall supp ly and de ma ndconditions.

The c ross subsidies consist o f the possibility o f neg ative b ids for unprofita b le routes andc ross-subsidies from profitab le routes.

6. Analysis of Future Fleet

This sec tion a na lyses the flee t m ix expe c ted to op erate a t Nep a ls a irpo rts, taking intoaccount new routes, fleet standardization of policies and the emergence anddisap pe aranc e o f certa in mode ls of a irc raft. Inc luding:

Critical a irc ra ft. To d ete rmine the c ritic al a irc ra ft the Consultant sha ll ana lysenot only aircraft currently operating but also those in the country but thoseem ployed by t he a irlines of the surround ing c ount ries.

A consultation with the major manufacturers of aircraft (Embraer, Boeing and

Airbus) on the p erforma nc es of their new mo de ls. From the responses ob ta ined,the weights are fixed at the maximum allowable takeoff and landing, andcalculate the econom ic feasibility of the routes listed ab ove.

A380: As an imp rove ment t o the te rms of reference we will d iscuss the possibilityof the A380 in the Nepa l market.

7. Prospec t new air service routes

And finally, in order to promote new routes from and to Nepal, assess the potential of theNepal air transport market, through the identification of planned or likely routes and

freq uenc y g rowth b y d ome stic and internat iona l airlines.


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The scope o f work for this sub assignment inc lude s:

a . Analysis of Nepal air transport market.b . Ma in c harac teristics of Nep al domestic m arket.c . Estimate the extent of the future international air transport market that will be

necessary to be served by the international airports of Nepal (new routesand/ or freq uenc ies). (ta sk 20)

d . Evaluate the po tential for the e xpa nsion o f international scheduled and short-and long -haul cha rte r services to a nd from Nepa l. (task 27)

e. Eva luate the viab ility of the ent ry of o ther interna tiona l ca rriers.

The a pp roa ch for ca rrying o ut these a c tivities and ob ta ining the expe c ted outp ut is thefollowing:

1. Review all available documentation on market studies and route development

from Nep al2. Meet with a irport op erato rs, pa rticula rly TIA. Airpo rts a re a n important source o n

route development, as their marketing teams have a good grasp on future routeprospects

3. Meet with international carriers in Nepal (see Airlines section)4. Meet with p rofessional a ssoc iation s bo d ies.

The out come w ill be a 20 yea r passeng er, a irc ra ft, and freight a ir traffic fo rec ast.

Additionally, the Consultant will identify costs associated with the development of airtransport (task 30) to appoint all the necessary investments in order to enhance the air

transport system according to Nat ional Air Transport Plan. For tha t, the Consultant will ca rryout the following tasks:

Desc ription o f investment Period required (phasing of investment): Identify the best moment to perform

the investments. Imp lementa tion schedule: to scale in time the different investment p rog ram s.


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5.2.1.4 National Airports Plan

Nowadays in Nepal there are 54 airports, including six under construction, one

internationa l airpo rt (Tribhuva n Interna tiona l Airport), four reg ional hub airports (Nepa lgunj,Bira tna ga r, Bha irawa and Pokha ra) and 43 loca l airports, but only 34 have op erations.

Some imp ortant p rojec ts are b een de veloped now: the Sec ond Internat iona l Airpo rt inKatmandu, the new international airport in Pokhara, the possibility of upgrading Bhairawaairport as a regional international airport and the construction of five more local airports.

The Consultant w ill ana lyze a ll this p rojec ts and will inc lude them in the stud y. (task 34)

The Consultant then stud ies the current situa tion a nd will de velop an airports strategy fo rthe future and will express this strategy in a National Airports Plan.

Sec ond Internationa l Airport

Ac cording to the impo rtance o f this new Airpo rt, the Co nsultant w ill help to CAAN in orde rto ana lyze som e issues in this ma tte r. Ac tua lly the Ministry of Tourism and Civil Aviat ion(MOTCA) is going to ask for som e issues to CAAN. The Co nsultant w ill provide e xpertsupport in the areas that CAAN will require in this issue, explaining clearly how this airportc an affec t to the ca pa c ity Development Plan of CAAN.

This ta sk will be sched uled in the Plan, and the time w ill be c om pletely open.


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Inventory and diagnostic

The Consultant is to deve lop, in the first step , an invento ry and d iagnostic o f the c urrentinfrastructure o f Nep a ls airport op erative ne twork inc luding: (task 31)

Existing a irport infrastruc tures. Airside , Landside and accessibility. Rea l sta te of the airport infrastructure Comp lianc e w ith ICAO safe ty standa rds Airport role. Identification of the airport current users: tourism, local transport,

emergencies, security, etc. Developing possibilities Soc ial and environme ntal imp ac t.

For this purpose the Consultant shall visit the airports with the CAAN staff. At the beginningof the project will prep are tog ether a schedule a nd a planning of the visits to d o.

Strategic Analysis and Airport Classification

With the information, not only about airports but also about air transport (airlines, privatecom panies, traffic fo rec ast) we are g oing t o d eve lop a SWOT ana lysis; with this ana lysisthe Consultant classifies the airports in several categories.

We will begin with the c urrent c lassificat ion:

International Airports. Reg ional Hub Airports Loc a l Airports with roa d transport Acc ess Loc a l Airports in remote Area

But the Consultant gives the future airports classification (several categories) according todifferent level of imp ortance to the Nep alese ec onom y, indicat ing the c urrent situat ion ofthe a irports and the ir future po sition, includ ing of c ourse, the ana lyze o f the SIA p rojec t, thenew Pokhara airport and the possibilities of Bhairawa Airport, new local airports needed,etc. the Consultant will propose new infrastructures for the development of tourism, social,sec urity or any othe r c onsiderat ion.

The Consultant d eve lops an airport standard fo r eve ry ca teg ory, indica ting minimuminfrastruc tures necessaries on e very ca tegory. These sta ndards g ive us the minimum

AirportsInventory

AirportDiagnostic

20year

Airports

InvestmentProgram

InternationalAirports

Regional HubAirports

LocalAirports

SWOTAnalysis

AirportClassification

AirportStandardDefinition

Inventoryand

DiagnosticStrategicAnalysis Capacity/Demand NationalAirportPlan


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requirements not only for the airport infrastructures, but also for equipments, staff,ma intenance and protecting areas.

We also, study in this part the economical situation of the airports, and we will associatedifferent strategies for the different category of airports. Local airports are very difficult tobe financially self-sufficient, and we have to work thinking in a global air tr

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