C O N F I D E N T I A L SECTION 01 OF 02 KATHMANDU 001153

SENSITIVE
SIPDIS

E.O. 12958: DECL: 12/21/2019
TAGS: EAIR ETRD PREL PTEP NP
SUBJECT: NEPAL'S FINANCE CHIEF 'COMMITTED' TO JET DEAL
TRANSPARENCY -- SOMEWHAT

REF: A. KATHMANDU 1046

B. KATHMANDU 979

C. KATHMANDU 529

D. KATHMANDU 431

E. KATHMANDU 202

Classified By: Charge d'Affaires a.i. Randy W. Berry Reasons 1.4 (b/d)

Summary
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1. (SBU) Finance Minister Surendra Pandey says he is
"completely committed" to making sure the Nepal Airlines
Corporation's (NAC's) decision to purchase aircraft from
Airbus, instead of Boeing, was fully transparent before
determining whether the government should provide the loan
guarantee the national airline needs to complete the
purchase. Pandey expressed his commitment to transparency
during a December 17 meeting with the Charge, but it appears
to be limited to ensuring that no illegal payments were
involved. The meeting occurred three days after a government
watchdog agency harshly criticized the NAC for flouting
public procurement laws.

Minister Underscores Commitment to Transparency
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2. (SBU) During a December 17 meeting with the Charge,
Finance Minister Pandey said he is "completely committed" to
ensuring the NAC's decision to purchase two aircraft -- one
wide-body jet and one narrow-body jet -- from Airbus was made
in a fully transparent manner. He expressed his commitment
to transparency several times after the Charge raised
concerns about whether the NAC Board of Directors had been
fully informed about the details of the competing bids before
choosing the European aircraft manufacturer over Boeing.
Pandey did not respond to these concerns, and instead focused
on rumors illegal payments may have influenced the decision.


3. (C) Pandey noted he recently met with several European
Union ambassadors and asked them to provide assurances that
no independent agent has been involved in the USD 137-million
deal. Minutes of the December 8 meeting sent to Emboff,
apparently by mistake, indicate Pandey is concerned about
reports that a local agent "received money without real
services or added-value work" and this "extra money could be
a way of giving bribes to decision-makers."


4. (SBU) The NAC has signed a memorandum of understanding
(MOU) with Airbus and provided USD 750,000 to lock in the
deal, but the purchase cannot be finalized until the
government provides a loan guarantee demanded by the
Employees' Provident Fund, which was agreed to provide
financing to the NAC. The Ministry of Finance must submit
its recommendation before the full Cabinet votes on the loan
guarantee. Pandey assured the Charge his Ministry will not
makes its recommendation until he is satisfied the NAC has
acted transparently.

Government Watchdog Criticizes NAC's Decision
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5. (U) On December 14, the Public Procurement Monitoring
Office (PPMO) harshly criticized the NAC for flouting the
procurement laws governing public entities. The government's
watchdog said its ongoing investigation showed the NAC's bid
evaluation procedures were "ambiguous" and failed to adjust
the bidding prices for fuel consumption, repairs,
maintenance, and other costs over the life cycle of the
aircraft. Boeing has argued that, while the initial cost of
its narrow-body aircraft is higher, the NAC would actually
save money because it is a newer generation aircraft that is
more fuel efficient and requires less maintenance.


6. (U) Boeing declined to bid on the wide-body plane because
it believed it would be financially imprudent for the NAC to
purchase one. PPMO officials said the NAC's decision to
purchase a wide-body plane violated public procurement law
because it was made on the basis of a single bid. They have
asked the NAC to provide additional information needed to
complete their probe.

Media Intensifies Scrutiny of Deal

KATHMANDU 00001153 002 OF 002


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7. (C) In mid-November, Post provided a background briefing
on the deal to a senior economic reporter with Kantipur
Publications, which publishes the largest Nepali-language
newspaper and an English-language sister publication. On
November 18, the day after the NAC and Airbus announced their
MOU, both newspapers ran front-page articles detailing the
controversy surrounding the purchase. Since then, the
reporter has written several follow-up pieces. The signing
of the MOU and provision of lock-in money sparked both the
print and electronic media to take a more aggressive approach
in reporting on the deal, with prominent play being given to
every new development.
BERRY