China Eximbank provides RMB 218.8 million government concessional loan for Acquisition of 1 MA60 and 3 Y12E Aircrafts Project (Linked to Record ID#34442, 104308)

Project narrative

On January 28, 2013, representatives of the Chinese Government and Nepal Ministry of Finance signed multiple financing agreements for the procurement and purchase of six China-made airplanes. According to the deal, the Government of Nepal agreed to acquire two aircrafts — one 19-seater Harbin Y-12E and one 58-seater Modern Ark 60 (MA60) — with the proceeds from an RMB 180 million Chinese Government grant agreement (captured via Record ID#34442) and acquire three Harbin Y12E and one MA60 with the proceeds from a RMB 218.8 million China Eximbank government concessional loan (GCL) agreement (captured via Record ID#34441). The GCL agreement [CHINA EXIMBANK GCL NO. (2013) 49 TOTAL NO. (1463)] for the Acquisition of 1 MA60 and 3 Y12E Aircrafts Project specifies the following borrowing terms: a 1.5% interest rate, a 20-year maturity, and a 7-year grace period. The Government of Nepal used the proceeds of the China Eximbank loan to on-lend to Nepal Airlines Corporation (NAC) at an 8% interest rate through a subsidiary loan agreement (SLA). The loan's amount outstanding was RMB 196,916,265 ($30,432,812) as of July 15, 2021. NAC aims to deploy the MA60 aircraft for mountain flights and other reachable places such as Pokhara, Bhairahawa, Biratnagar, Dhangadhi, Nepalgunj and Simara. It also announced that it may operate the Harbin Y-12e for mountain flights and other destinations in far-flung areas. On April 28, 2014, the delivery ceremony of the Chinese MA60 aircraft was held in Kathmandu. Chairman of AVIC International [中国航空技术国际控股有限公司] and Nepal Airlines General Manager signed the MA60 aircraft technical transfer documents. In November 2014, Harbin Aircraft Manufacturing Corporation (now called the Harbin Aircraft Industry Group Co. Ltd.) officially handed over the first of the Y12-Es, 9N-AKS, to NAC at a ceremony held in Kathmandu. According to a 2018 report from the Government of Nepal’s Auditor General, these aircrafts were operating domestic flights, but the NAC was incurring financial losses from the operation of the aircrafts. In 2019, the International Relations Committee of the Federal House of Representatives issued a directive to the Government of Nepal to sell the loss-making aircrafts. All of the Chinese aircraft were retired in June 2020 due to their high operational costs and poor reliability, Then, in December 2022, Nepal Airlines began the process of selling all of its Chinese-made turboprops -- including its MA-60s and Y12Es -- after it attempted to lease the aircraft twice (in September and November 2022) but received no expressions of interest. There are indications that the China Eximbank loan for the Acquisition of 1 MA60 and 3 Y12E Aircrafts Project has financially underperformed vis-a-vis the original expectations of the lender. In 2021, China Eximbank temporarily suspended the Government of Nepal's principal and interest repayment obligations under the loan agreement for the Acquisition of 1 MA60 and 3 Y12E Aircrafts Project as part of the DSSI (as captured via Record ID#104308).