Report and Recommendation of the President to the Board of Directors

Project Number: 38349-031 October 2020

Proposed Loan : South Asia Subregional Economic Cooperation Airport Capacity Enhancement Project

Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB's Access to Information Policy.

CURRENCY EQUIVALENTS (as of 7 October 2020)

Currency unit – Nepalese rupee/s (NRe/NRs) NRe1.00 = $0.008527 $1.00 = NRs117.27

ABBREVIATIONS

ADB – Asian Development Bank CAAN – Civil Aviation Authority of Nepal COVID-19 – coronavirus disease EMP – environmental management plan EMR – environmental monitoring report GASP – Global Aviation Safety Plan GBA – GESI – gender equality and social inclusion ha – hectare ICAO – International Civil Aviation Organization MOCTCA – Ministry of Culture, Tourism and Civil Aviation O&M – operation and maintenance PAM – project administration manual SASEC – South Asia Subregional Economic Cooperation TIA – Tribhuvan International Airport

NOTES

(i) The fiscal year (FY) of the Government of Nepal and its agencies ends on 15 July. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2020 ends on 15 July 2020.

(ii) In this report, "$" refers to United States dollars.

Vice-President Shixin Chen, Operations 1 Director General Kenichi Yokoyama, South Asia Department (SARD) Director Ravi Peri, Transport and Communications Division (SATC), SARD

Team leader Kai Wei Yeo, Senior Transport Specialist, SATC, SARD Co-Team leader Naresh Pradhan, Senior Project Officer (Transport), Nepal Resident Mission, SARD Team members Arlene Ayson, Senior Operations Assistant, SATC, SARD Sin Wai Chong, Transport Specialist, SATC, SARD Sajid Raza Zaffar Khan, Financial Management Specialist, Portfolio, Results, and Quality Control Unit; Office of the Director General, SARD Vergel M. Medina, Senior Social Development Specialist, SATC, SARD Taisuke Miyao, Senior Procurement Specialist, Procurement Division 1; Procurement, Portfolio, and Financial Management Department (PPFD) Kanzo Nakai, Principal Transport Specialist, SATC, SARD Lyailya Nazarbekova, Principal Counsel, Office of the General Counsel Joanne G. Pabis, Associate Project Analyst, SATC, SARD Ma. Theresa D. Prado, Project Officer, SATC, SARDa Dinesh Shiwakoti, Procurement Specialist, Procurement Division 1, PPFD Karma Yangzom, Principal Environment Specialist, Safeguards Division, Sustainable Development and Climate Change Department Peer reviewer Witoon Tawisook, Principal Transport Specialist, Transport and Communications Division, Southeast Asia Department a. Transferred to Pacific Department on 19 September 2020.

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page PROJECT AT A GLANCE MAP I. THE PROPOSAL 1 II. THE PROJECT 1 A. Rationale 1 B. Project Description 4 C. Value Added by ADB 5 D. Summary Cost Estimates and Financing Plan 6 E. Implementation Arrangements 7 III. DUE DILIGENCE 8 A. Technical 8 B. Economic and Financial Viability 8 C. Sustainability 8 D. Governance 9 E. Poverty, Social, and Gender 10 F. Safeguards 11 G. Summary of Risk Assessment and Risk Management Plan 12 IV. ASSURANCES 13 V. RECOMMENDATION 13

APPENDIXES 1. Design and Monitoring Framework 14 2. List of Linked Documents 16

Project Classification Information Status: Complete

PROJECT AT A GLANCE

1. Basic Data Project Number: 38349-031 Project Name South Asia Subregional Economic Department/Division SARD/SATC Cooperation Airport Capacity Enhancement Project Country Nepal Executing Agency Ministry of Culture, Borrower Goverment of Nepal Tourism and Civil Aviation Country Economic https://www.adb.org/Documents/LinkedDocs/ Indicators ?id=38349-031-CEI Portfolio at a Glance https://www.adb.org/Documents/LinkedDocs/ ?id=38349-031-PortAtaGlance

2. Sector Subsector(s) ADB Financing ($ million) Transport Air transport 150.00 Total 150.00 3. Operational Priorities Climate Change Information Accelerating progress in gender equality GHG reductions (tons per annum) 451 Strengthening governance and institutional capacity Climate Change impact on the Medium Fostering regional cooperation and integration Project ADB Financing Adaptation ($ million) 0.26 Mitigation ($ million) 0.94

Cofinancing Adaptation ($ million) 0.00 Mitigation ($ million) 0.00 Sustainable Development Goals Gender Equity and Mainstreaming SDG 9.1 Some gender elements (SGE) SDG 13.a Poverty Targeting General Intervention on Poverty 4. Risk Categorization: Low . 5. Safeguard Categorization Environment: B Involuntary Resettlement: C Indigenous Peoples: C

. 6. Financing Modality and Sources Amount ($ million) ADB 150.00 Sovereign Project (Concessional Loan): Ordinary capital resources 150.00 Cofinancing 0.00 None 0.00 Counterpart 48.00 Government 48.00 Total 198.00

Currency of ADB Financing: US Dollar

Source: Asian Development Bank This document must only be generated in eOps. 20082020095844301840 Generated Date: 28-Oct-2020 11:08:41 AM 82o 00'E 88o 00'E

30 o 00'N 30 o 00'N

HUMLA

Simikot

DARCHULA KARNALI Darchula

MUGU BAJHANG BAJURA Kimri Chainpur BAITADI Baitadi Kolti Gamgadhi

Mahakali R. Patan Dadeldhura Martadi

Jumla Silgarhi Bhatkanda ACHHAM KALIKOT DADELDHURA Dipayal o o DOLPA 83 05'E 85 15'E Karnali R. Manma MUSTANG NEPAL DOTI Mangalsen Dunai GANDAKI SASEC AIRPORT CAPACITY ENHANCEMENT PROJECT Banbasa Bheemdatt Dailekh JAJARKOT Jomsom KANCHANPUR GGodawariodawari DAILEKH N RUKUM MANANG Jajarkot RUKUM PURWA Babiyachour PASCHIM 0 20 40 Chame 80 Musikot MYAGDI Kilometers BBirendranagarirendranagar KAILALI Beni o o SALYAN 28 00'N KASKI 28 00'N SURKHET LAMJUNG ROLPA BAGLUNG PARBAT RASUWA Salyan GORKHA BAGMATI Sittalpat Baglung PPokharaokhara Dhunche BARDIYA Besisahar SUDURPASHCHIM Liwang Kusma Gulariya PYUTHAN GULMI PROVINCE 1 Pyuthan SINDHUPALCHOK BANKE Tamghas SYANGJA TANAHU Gorkha DHADING Bidur Chautara Syangja NUWAKOT Sandhikharka Damauli Nepalganj Ghorahi Waling TTRIBHUVANRIBHUVAN INTERNATIONALINTERNATIONAL AAIRPORTIRPORT DOLAKHA Mugling Lamahi ARGHAKHANCHI Tansen PALPA Dhadingbesi NAWALPARASI Kathmandu Charikot SANKHUWASABHA PURWA BHAKTAPUR TAPLEJUNG DANG Thankot Jiri BButwalutwal Bharatpur SOLUKHUMBU KAPILBASTU Bhaktapur NAWALPARASI Lalitpur PASCHIM Dakshinkali Salleri RUPANDEHI Meghauli CHITWAN LALITPUR Taplejung Taulihawa Narayani R. Bhimphedi RAMECHHAP Khandbari KABREPALANCHOK Bhairahawa Baruwa OKHALDHUNGA Bhojpur Parasi HHetaudaetauda Ramecchap Okhaldhunga Krishnanagar MAKWANPUR Bhimeshwar Diktel TERHATHUM Lohathar GGAUTAMAUTAM BUDDHABUDDHA Phidim PARSA BHOJPUR AIRPORTAIRPORT Sindhulimadi KHOTANG PROVINCE 5 BARA SINDHULI Basantpur Terhanthum o PANCHTHAR Ilam o 27 00'N Pathlaiya Dhankuta 27 00'N Project Airport RAUTAHAT DHANKUTA National Capital Dhalkebar SARLAHI UDAYAPUR ILAM o Provincial Capital o 26 50'N 26 50'N District Headquarters Kakarbhitta Gaighat Koshi R. Town/Market Center Malangawa DHANUSHA Maikhola National Highway SIRAHA SUNSARI Lahan Feeder/District Road Gaur MAHOTTARI JJanakpuranakpur SAPTARI MORANG JHAPA 200748A 20NEP ABV River Siraha Chandragadhi District Boundary Jaleswar PROVINCE 2 Rajbiraj Rangeli Provincial Boundary This map was produced by the cartography unit of the Asian Development Bank. SASEC South Asia Subregional Economic Cooperation The boundaries, colors, denominations, and any other information shown on this BBiratnagariratnagar Boundaries are not necessarily authoritative. map do not imply, on the part of the Asian Development Bank, any judgment on the o o legal status of any territory, or any endorsement or acceptance of such boundaries, 85 15'E 85 15'E colors, denominations, or information.

82o 00'E 88o 00'E

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to Nepal for the South Asia Subregional Economic Cooperation (SASEC) Airport Capacity Enhancement Project.

2. The project will improve airport capacity at Tribhuvan International Airport (TIA) in Kathmandu and at Gautam Buddha Airport (GBA) in Lumbini by constructing a parallel taxiway extension and hangar apron areas at TIA and a new international terminal building at GBA.

II. THE PROJECT

A. Rationale

3. Macroeconomic context. Nepal’s economy grew by 7% in fiscal year (FY) 2019, compared to an average rate of 4.3% during FY2009–FY2018. Before the outbreak of the coronavirus disease (COVID-19) pandemic—despite some balance-of-payment pressure, financial stability risk, slower growth in neighboring countries, and sluggish remittance inflows— the near-term outlook for growth was moderate (about 6%), attributed to a stable political environment, a robust tourism industry, and ongoing reconstruction from the earthquake in 2015. Public debt is estimated at 30.1% of gross domestic product as of mid-2019, which is lower than in other low-income countries. Debt sustainability analysis indicates that none of the debt burden indicators breach the indicative threshold values although Nepal’s public debt is projected to gradually increase over the medium term. The COVID-19 shock, however, is expected to severely impact economic activities and lower growth to 2.3% in FY2020 through a significant reduction in remittances and tourism, and broader disruptions brought by the pandemic.1

4. Importance of air connectivity to the economy. Nepal is a landlocked country of tremendous geographic diversity, with the northern rim of the Gangetic Plain in the south, the Himalaya Mountains in the north, and rugged and hilly terrain in between. Civil aviation is crucial to transport, trade, and tourism, and provides indispensable links to hilly and mountainous areas inaccessible by other transport modes. Tourism is one of the major economic activities in Nepal and a top government priority. It is estimated that tourism brought in $651 million in foreign exchange in FY2019, equivalent to 65% of goods exports.2 Travel and tourism generated an estimated $2.05 billion (6.7% of gross domestic product) in FY2019, including indirect and induced contributions.3 Since more than 80% of international tourists come to Nepal by air, improvement of the civil aviation sector is essential for tourism to support the country’s economic development.

5. Challenges of the civil aviation sector. Nepal has a large airport network, albeit with low capacity, comprising one international airport, TIA, and 53 domestic airports.4 TIA presently serves as the sole gateway airport to Nepal. It handled 4.1 million international passengers in 2019, up from 1.8 million passengers in 2008. It is also the country’s largest domestic airport,

1 Asian Development Bank (ADB). 2020. Asian Development Outlook 2020 Supplement: Lockdown, Loosening, and Asia’s Growth Prospects. Manila. 2 International Monetary Fund (IMF). 2020. Nepal: Staff Report for the 2020 Article IV Consultation. IMF Country Report. No. 20/96. Washington, DC. 3 World Travel & Tourism Council. 2018. Travel & Tourism Economic Impact 2018 Nepal. London. 4 Of these 53 domestic airports, 22 have no scheduled flights. Four airports—, GBA, , and —are regional hubs that receive passengers transiting to smaller domestic airports. GBA will operate as a second international airport in 2021.

2

handling 3.2 million domestic passengers in 2019—accounting for about half of the country’s domestic air traffic.5 TIA handled 32,439 international flights and 91,816 domestic flights in 2019. With the continued growth of tourism, air traffic is expected to steadily increase at an average of 3%–5% annually.6

6. Although TIA plays a critical role as an international gateway and domestic air hub, its proximity to Kathmandu’s city center restrains expansion beyond the current airport boundary. Aircrafts need to occupy the runway for 2–3 additional minutes for takeoff and landing because the inefficient taxiway caps aircraft movements, particularly during peak hours. Furthermore, the number of parking spots at aprons (9 international and 17 domestic) are not sufficient to handle peak-hour parking demand, causing unnecessary waiting time for spot allocation. It also restricts the number of domestic operating aircrafts based in TIA for nighttime parking. Combined with the problem of limited airspace in Kathmandu Valley, the insufficient capacity of airside facilities forces airplanes to remain on hold in the sky, leading to frequent flight delays and safety risks. For landside facilities, the international terminal building handled 4.1 million passengers in 2019, beyond its annual capacity of 3.2 million. Heavy congestion and lower quality of services are observed during peak hours; the international terminal building handles more than 2,200 passengers per hour, about 70% more than its per-hour capacity of 1,350. The number of international passengers is projected to increase to 6.1 million by 2028. TIA will have to use its existing space more efficiently, while more flights must be routed through other airports.

7. In addition, the Civil Aviation Authority of Nepal (CAAN) has been working to improve aviation safety. The Universal Safety Oversight Audit Programme under the International Civil Aviation Organization (ICAO), a United Nations specialized agency, is responsible for conducting aviation safety oversight audits to identify deficiencies of its member states. CAAN has achieved significant progress in improving its safety oversight capability. In its 2017 audit of CAAN, the Universal Safety Oversight Audit Programme raised the rate of effective implementation of CAAN from 46.96% in 2009 to 66.76% in 2017, above the Global Aviation Safety Plan (GASP) benchmark of 60%. CAAN has prepared the Nepal Aviation Safety Plan, 2018–2022 in congruence with the ICAO’s GASP, to continually enhance aviation safety performance by reducing fatalities and the risk of fatalities through the development and implementation of a harmonized aviation safety strategy.7

8. The longer-term plan to improve international aviation capacity and safety in Nepal is twofold: (i) more efficient use of the available areas within the existing TIA premises, and (ii) distribution of the concentrated international air traffic to other airports—GBA and . To that end, the Asian Development Bank (ADB) is also supporting the upgrade of GBA into an international airport through the South Asia Tourism Infrastructure Development Project.8

9. Government reform agenda in civil aviation sector. Nepal has maintained a traditional civil aviation sector structure whereby the functions of regulation, safety oversight, and service provision are carried out by one entity: CAAN. The roles of regulator and service provider lodged in a single organization create a conflict of interest. The regulatory function may not provide

5 Government of Nepal; Ministry of Culture, Tourism and Civil Aviation (MOCTCA). 2020. Nepal Tourism Statistics 2019. Kathmandu. 6 Government of Nepal, Civil Aviation Authority of Nepal (CAAN). 2013. National Airports Plan Air Traffic Demand. Kathmandu. 7 Government of Nepal, CAAN. 2018. Nepal Aviation Safety Plan, 2018–2022. Kathmandu. 8 ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Loan for Additional Financing and Administration of Grant for Additional Financing to Nepal for the South Asia Tourism Infrastructure Development Project. Manila.

3 adequate oversight on service provision, and may raise operating costs and result in suboptimal performance as a service provider. There are also repercussions on aviation safety, which have been noted and highlighted by international aviation agencies. ICAO’s GASP, 2020–2022 states that an independent regulatory authority should be established and maintained, which includes separation of oversight functions from service provision functions where these exist within the authority.9 To remedy this situation, the Nepal Aviation Safety Plan (footnote 7) has named the bifurcation of CAAN as a priority measure to comply with international standards. ADB is supporting the bifurcation of CAAN through the Civil Aviation Sector Improvement Program.10

10. Tribhuvan International Airport master plan. To address the issues of inefficient airside facilities and overcrowded terminal buildings with poor service standards, CAAN prepared the TIA master plan for infrastructure improvement up to 2028 under ADB assistance.11 The master plan aims at enhancing the safety and efficiency of aircraft operations while also contributing to increasing the capacity of airside infrastructure. The master plan also proposes a new international terminal building to be constructed to accommodate the increasing number of international passengers.12

11. Tribhuvan International Airport. ADB had supported the initial phase of TIA development in accordance with the master plan through the Air Transport Capacity Enhancement Project, the scope of which included (i) extension of the northern part of the parallel taxiway to reduce the use of its single runway for taxiing; (ii) expansion of the international apron areas to accommodate more aircraft in TIA; (iii) extension of the runway by 300 meters south to make it a 3,350-meter-long runway; and (iv) provision of air navigation equipment, including an approach lighting system, to comply with international safety standards.13 Because of poor performance of the selected civil works contractor and subsequent delay in re-tenders following repackaging and redesign of the terminated contract, the loan was closed in December 2018 without fully completing the original scope of work.14 The remaining scope is being implemented with government funds and is expected to be completed by 2023. However, further development of airside facilities is required to complete the TIA master plan to meet international safety standards as well as the forecast demand in 2028.

12. Gautam Buddha Airport. ADB also supports upgrading GBA to a full international airport by (i) constructing (a) a 3,000-meter runway, (b) a 1,900-meter taxiway, (c) international and domestic aprons, (d) control towers, and (e) an international and domestic passenger terminal building (phase 1) with floor space of 15,000 square meters; and (ii) supplying navigation and safety equipment (footnote 8). The project is scheduled to be completed in December 2020. The terminal building needs to be expanded further (phase 2) to handle future international travel

9 International Civil Aviation Organization (ICAO). 2019. Global Aviation Safety Plan, 2020–2022. Montreal (Appendix A). 10 ADB. 2020. Report and Recommendation of the President to the Board of Directors: Proposed Policy-Based Loan and Technical Assistance Grant to Nepal for the Civil Aviation Sector Improvement Program. Manila. 11 ADB. 2007. Technical Assistance to Nepal for Preparing the Civil Aviation Airport Project. Manila. 12 The construction of a new international terminal building at TIA is not included in the proposed project because (i) the construction requires relocation of the existing hangars and domestic aprons to clear the planned construction site in advance; and (ii) it requires a large amount (about $500 million) of finance. The construction of domestic aprons will be implemented instead. Financing for the international terminal building will be considered in a separate loan with due attention to implementation and progress of the project. 13 ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Asian Development Fund Grant to Nepal for the Air Transport Capacity Enhancement Project. Manila. 14 The main reason for the termination of the contract was the contractor’s failure to secure sufficient material for required landfill works. The project will incorporate the lessons learned by providing (i) bidders of relevant contracts with a subsequent study of quarries and their estimated supply volume around Kathmandu, and (ii) CAAN with the necessary support and trainings for procurement and contract management activities.

4 demand, especially to the Lumbini World Heritage Site, which has strategic importance as an international gateway for the development of Buddhist pilgrimage tours.15 GBA phase 2 expansion is output 2 of this project.

13. Regional cooperation and integration. The project is aligned with objectives of the SASEC program to facilitate trade, enhance accessibility to national and transnational markets, and improve connectivity through the development of multimodal transport systems. The improvement of TIA, which is currently Nepal’s only international airport, and the upgrading of GBA will improve Nepal’s connectivity with neighboring countries. The project is included in the SASEC Operational Plan 2016–2025 Update.16

14. Alignment with ADB’s Strategy 2030. The project is aligned with the following operational priorities of ADB’s Strategy 2030: (i) operational priority 6 (strengthening governance and institutional capacity) by strengthening CAAN’s institutional capacity in project, contract management, and procurement through training programs; (ii) operational priority 7 (fostering regional cooperation and integration) by enhancing connectivity and tourism through international gateway development in a landlocked economy; and (iii) operational priority 2 (accelerating progress in gender equality) by improving women’s access to basic services, such as facilities in the passenger terminal building at GBA.17 The project is aligned with the country partnership strategy for Nepal 2020–2024 and is listed in ADB’s country operations business plan for Nepal, 2020–2022.18

15. Effects of COVID-19 on tourism. The COVID-19 outbreak has had serious negative impacts on Nepal’s aviation and tourism sectors. All international flights were temporarily suspended in March 2020, and the government had to cancel the Visit Nepal 2020 campaign, which was launched in January 2020 to attract 2 million visitors. The depth and duration of the shock are still uncertain. There are several scenarios on how soon international connectivity will be restored, depending partly on the length of containment measures adopted by Nepal and other major economies. Nonetheless, the tourism industry will remain a key pillar of Nepal’s economy over the medium term, although its business model may have to be adjusted under the “new normal.” Therefore, directing well-targeted investments into key airports and creating an enabling environment for the improvement of the civil aviation sector are still critical to support Nepal’s long-term economic development (footnote 18). The investments and performance improvement of the civil aviation sector will underpin tourism to prepare for accommodating the future bounce- back of international travelers and kick-starting the economy after the pandemic.

B. Project Description

16. The project is aligned with the following impact: tourism-led economic development in Nepal enhanced.19 The project will have the following outcome: safety, capacity, and efficiency of

15 The terminal building currently being constructed will be converted to and used as a domestic terminal building after the proposed international terminal building under the project is completed. 16 ADB. 2020. South Asia Subregional Economic Cooperation Operational Plan 2016–2025 Update. Manila. 17 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific. Manila. 18 ADB. 2019. Country Operations Business Plan: Nepal 2020–2022. Manila. The project was originally in the pipeline as the Tribhuvan International Airport Capacity Expansion Sector Development Program. The sector loan was split into a policy-based loan (footnote 10) and an investment loan after the concept clearance because of differences in loan processing timelines; ADB. 2019. Country Partnership Strategy for Nepal 2020–2024: Promoting Connectivity, Devolved Services, and Resilience Distribution. Manila. 19 Government of Nepal, MOCTCA. 2016. National Tourism Strategic Plan, 2016–2025. Kathmandu.

5 air travel to and/or from Nepal improved.20

17. Output 1: The Tribhuvan International Airport airside facilities completed in accordance with the Tribhuvan International Airport master plan. The loan will finance the construction of TIA airside facilities such as a parallel taxiway extension and hangar aprons. The extension of the parallel taxiway will allow aircrafts to reach the end of the southern runway with minimal encroachment onto the main runway at TIA, improving efficiency and safety. The hangar area development will facilitate relocation of existing hangars and construction of new hangars to cater for large aircrafts (up to the Airbus A330) on the east side of the runway, which will expedite implementation of the TIA master plan and enhance aviation safety.

18. Output 2: International terminal building at Gautam Buddha Airport constructed (Terminal 2). The new international terminal building at GBA will (i) use solar panels and energy- efficient lighting for energy self-sufficiency, and (ii) incorporate the use of local materials and include gender equality and social inclusion (GESI) elements to make the terminal a model to emulate for airports in Nepal.21 The new terminal building will greatly increase international capacity at GBA, and could also serve to alleviate pressure on TIA by diverting some international flights from TIA to GBA.

19. Output 3: Next phase of the Tribhuvan International Airport works design completed. The loan will finance (i) the design of (a) a new international terminal building with special GESI facilities and features, located between the existing international and domestic terminal buildings, and (b) a new flight control tower; (ii) the redesign of the existing international terminal building to be converted into the domestic terminal building; and (iii) the exploration of options for public–private partnership participation in TIA and GBA. The next phase of works would further expand the capacity and efficiency of TIA.

20. Lessons learned. Review missions of ADB-funded projects observed that CAAN’s capacity for (i) contract management and procurement, and (ii) investment preparation needs to be strengthened to improve implementation performance. Lessons from the review missions are incorporated in this project. Detailed design for output 1 has already been completed while that for output 2 started in February 2020 and is expected to be completed by January 2021. CAAN’s procurement capacity will be strengthened through recruitment of individual consultants.

21. Institutional strengthening. The project will strengthen CAAN’s contract, project management, and procurement capabilities through procurement orientation and training organized by ADB, secondment of additional experienced CAAN staff to the implementation team, as well as recruitment of individual consultants for project and contract management. The attached technical assistance for the Civil Aviation Sector Improvement Program will further strengthen CAAN’s capabilities in developing institutional management strategies, gender equality, social inclusion initiatives, and enhancement of communication strategies.22

C. Value Added by ADB

22. ADB has been Nepal’s key partner in the development of its civil aviation sector. Since

20 The design and monitoring framework is in Appendix 1. 21 GESI elements include the following: (i) user-friendly stairs, ramps, and elevators for people with disabilities, children, and the elderly; (ii) universal access to drinking water taps; (iii) an adequate number of separate restrooms for women and men, including restrooms with disabled-friendly toilets; and (iv) spacious nursing rooms with an attached bathroom and restroom (which can be used for nursing or by pregnant women). 22 ADB. 2020. Technical Assistance to Nepal: Supporting the Civil Aviation Sector Improvement Program. Manila.

6

2009, ADB has had 5 completed and ongoing projects totaling $198.50 million in loans and grants. These projects have supported Nepal in planning for future investments on air transport, improving the facilities of airports, and implementing reforms to strengthen institutions, which aim to enhance the capacity and safety of airports and further develop the tourism sector of the country. The proposed project will create synergy as it complements these earlier interventions, particularly the recently-approved policy-based loan (footnote 10) that will reorganize and strengthen the oversight and service functions for civil aviation. Apart from fostering regional cooperation and integration through improved connectivity and tourism development, the project also incorporates climate change and gender features in the construction and design of the airport facilities. It will likewise promote public-private partnerships and will explore opportunities for collaboration in the next phases of works for TIA.

D. Summary Cost Estimates and Financing Plan

23. The project is estimated to cost $198 million (Table 1).

Table 1: Summary Cost Estimates ($ million) Item Amounta A. Base Costb 1. TIA airside facilities completed in accordance with the TIA master plan 98.9 2. International terminal building at GBA constructed 63.1 3. Next phase of the TIA works design completed 2.7 Subtotal (A) 164.7 B. Contingenciesc 28.6 C. Financial Charges During Implementationd 4.7 Total (A+B+C) 198.0 GBA = Gautam Buddha Airport, TIA = Tribhuvan International Airport. Note: Numbers may not sum precisely because of rounding. a Includes taxes and duties of $25 million. Such amount does not represent an excessive share of the project cost. The government will finance taxes and duties for works, equipment, consulting services, and project implementation support. b In mid-2020 prices as of 6 July 2020. c Physical and price contingencies, and a provision for exchange rate fluctuation are included. d Includes interest on all sources of financing. Source: Asian Development Bank estimates.

24. The government has requested a concessional loan of $150 million from ADB’s ordinary capital resources to help finance the project. The loan will have a 32-year term, including a grace period of 8 years; an interest rate of 1.0% per year during the grace period and 1.5% per year thereafter; and such other terms and conditions set forth in the draft loan and project agreements. The government will relend the proceeds of the loan to CAAN on the same terms as those applied to the ADB loan.

25. The summary financing plan is in Table 2. ADB will finance the expenditures in relation to works, including costs of construction, fit out and architectural works, consulting services, contingencies, and financing charges during implementation, totaling 76% of the project cost. The government will finance 24% of the project cost, including equipment, aprons, and associated airside infrastructure of the GBA terminal 2; operation and maintenance (O&M) costs; and project management costs.

7

Table 2: Summary Financing Plan Amount Share of Total Source ($ million) (%) Asian Development Bank Ordinary capital resources (concessional loan) 150.0 76.0 Government of Nepal 48.0 24.0 Total 198.0 100.0 Source: Asian Development Bank estimates.

26. Climate mitigation is estimated to cost $1.21 million and climate adaptation is estimated to cost $0.33 million. ADB will finance 78% of mitigation and adaptation costs.23

E. Implementation Arrangements

27. CAAN will implement the project through two project implementation units under its project directorate, which CAAN set up to handle all ongoing ADB projects. The implementation arrangements are summarized in Table 3 and described in detail in the project administration manual (PAM).24

Table 3: Implementation Arrangements Aspects Arrangements Implementation period January 2021–December 2026 Estimated completion date 31 December 2026 Estimated loan closing date 30 June 2027 Management (ii) Executing agency MOCTCA (iii) Implementing agency CAAN (iv) Implementation unit Two implementation units under CAAN, 32 staff Procurement Open competitive bidding 3 contracts $145 million (internationally advertised) Consulting services (CSC) QCBS 90:10 715 person-months $5.5 million (Next phase works) QCBS 90:10 97 person-months $2.7 million Individual consultants 42 person-months $0.7 million Retroactive financing and/or ADB will provide retroactive financing for expenditures incurred for the recruitment advance contracting of consultants and preconstruction activities before loan effectiveness, but not earlier than 12 months before the date of signing of the loan agreement and not exceeding 20% of the loan amount. Disbursement Disbursement of the loan proceeds will follow ADB’s Loan Disbursement Handbook (2017, as amended from time to time) and detailed arrangements agreed between the government and ADB. ADB = Asian Development Bank; CAAN = Civil Aviation Authority of Nepal; CSC = construction supervision consultant; MOCTCA = Ministry of Culture, Tourism and Civil Aviation; QCBS = quality- and cost-based selection. Source: Asian Development Bank estimates.

28. COVID-19’s impact on project implementation. The impact of the COVID-19 pandemic on the project has been reviewed by ADB and CAAN. Because the project has an implementation period of 6 years with physical works not expected to commence until June 2021, COVID-19 is not expected to cause any significant delays or cost increases. No changes to implementation arrangements are considered necessary at this stage. CAAN continues to work effectively and efficiently within the constraints imposed by the government’s response to the pandemic. However, given the evolving trend and severity of the COVID-19 emergency, its potential impact will be regularly reviewed by CAAN and ADB.

23 Climate Change Assessment (accessible from the list of linked documents in Appendix 2). 24 Project Administration Manual (accessible from the list of linked documents in Appendix 2).

8

29. As per the agreed policy reform in the Civil Aviation Sector Improvement Program (footnote 10), CAAN is expected to be bifurcated into a regulator and a service provider. The service provider, Air Service Authority of Nepal, is expected to be established and functional before 2024. The implementing agency responsibilities will be transferred to the Air Service Authority of Nepal once it is established.

III. DUE DILIGENCE

A. Technical

30. The project will use proven technology that is technically viable and sound. The engineering design is based on site condition surveys and field investigations, and targets optimal economy and construction efficiency in accordance with international design standards. The new terminal building at GBA will include the use of solar panels and energy-efficient lighting, and it will also incorporate the use of local materials. To enhance resilience against severe natural hazards, climatic events, and threats, earthquake-resistant standards and hydrological hazards have been considered. A climate risk and vulnerability assessment was prepared to assess the potential impacts of climate change, extreme weather events, earthquake, and other hazards on the project components.25

B. Economic and Financial Viability

31. The economic analysis was carried out in accordance with ADB's Guidelines for the 26 Economic Analysis of Projects. The construction of a parallel taxiway extension and hangar apron areas at TIA will support potential continued aircraft and passenger traffic growth, while the construction of a new international terminal building at GBA will support the additional capacity required to facilitate new international aircraft and passenger traffic targeted from 2021 onwards. The economic benefits from both improvements will result from induced new aircraft and passenger traffic movements. This induced new traffic will generate several types of economic benefits, including an increase in tourist spending, and additional aeronautical and commercial revenues received by the airports. The economic internal rate of return for the investments at TIA is estimated at 15.5%, 12.1% for the investments at GBA, and 14.7% in total. Sensitivity analysis, tested with possible unfavorable scenarios for the project’s economic viability, indicates that both investments independently or combined remain viable under all adverse scenarios tested.27

C. Sustainability

32. The financial evaluation of the project was conducted in accordance with ADB guidelines.28 It assessed the costs and earnings that would accrue using the discounted cash flow method, and it calculated the financial internal rate of return. The evaluation assumes incremental revenues generated by CAAN through additional aeronautical and commercial services along with additional O&M costs for continued operations. All financial calculations were made in 2020 prices with no adjustment for inflation. The base value of financial internal rate of return was found to be 7.7%, which is higher than the weighted average cost of capital of 2.01%. Various adverse scenarios were tested under sensitivity analysis, and the project is likely to be viable under all such adverse scenarios. In case project revenues are not sufficient to service O&M obligations,

25 Climate Change Assessment (accessible from the list of linked documents in Appendix 2). The document reflects the highlights of the climate risk and vulnerability assessment. 26 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila. 27 Economic and Financial Analysis (accessible from the list of linked documents in Appendix 2). 28 ADB. 2019. Financial Analysis and Evaluation: Technical Guidance Note. Manila.

9 these will be borne by the government and CAAN from their own sources. CAAN has a strong financial position; its annual profit for FY2018 was NRs4.3 billion and it has sufficient accumulated reserves to provide for O&M requirements of the project. To enhance the use and benefits of the airport, output 3 will support the design of the next phase of TIA works. Extension of a parallel taxiway and hangar area development at TIA are pivotal for the airport’s further enhancement and development.

D. Governance

33. The financial management assessment considered the capacity of CAAN on fund flow arrangements; budgeting; staffing; accounting and financial reporting systems; financial information systems; and internal and external auditing arrangements. Based on the assessment, CAAN has reasonable capacity to handle the project from a financial management perspective. CAAN (i) has experience in implementing ADB-funded projects; (ii) has accounting and finance functions at the entity and project levels that are adequately staffed; (iii) prepares entity-level financial statements in accordance with the Nepal Financial Reporting Standards; and (iv) submits project financial statements generally on time. The assessed pre-mitigation financial management risk of CAAN is moderate mainly because: (i) the internal audit function is weak, (ii) project quarterly reports need to be strengthened by incorporating financial and disbursement reports, (iii) there are qualified audit opinions on entity-level financial statements of CAAN and delays in finalization of audited entity financial statements for FY2018 and FY2019, and (iv) human resource capacity needs to be supplemented through training on ADB financial management requirements and disbursement procedures. An action plan has been prepared to address the financial management risk.

34. Procurement. Procurement and consultant recruitment will follow the ADB Procurement Policy (2017, as amended from time to time) and Procurement Regulations for ADB Borrowers (2017, as amended from time to time). The amended Public Procurement Act (2017) and Public Procurement Regulations (2017) of Nepal are generally acceptable to ADB and encompass best international procurement practices. CAAN has significant experience with ADB’s procurement requirements, and to enhance CAAN project staff’s knowledge, ADB will provide orientation and procurement training during implementation. Advance actions to recruit construction supervision consultants and invite bids for the two civil works packages at TIA will start in October 2020. Value for money considerations have been incorporated during strategic procurement planning.

35. Value for money. Through strategic procurement planning and a risk-managed approach, optimization of value for money for the project has been sought as summarized in this paragraph and as detailed in the PAM (footnote 24). To ensure high-quality design and construction supervision consulting services, international advertisement with a quality–cost ratio of 90:10 has been applied. For works contracts, the following has been applied: (i) competitive bidding using multiple-contract bidding, (ii) making contract sizes attractive to international bidders, (iii) domestic preference, (iv) prior review procedure, (v) seeking higher performance securities for abnormally low and/or unbalanced bids, (vi) applying a 14-day standstill period to ensure transparency of the procurement process, (vii) requiring the lead partner of a joint venture contractor to take a leadership role, and (viii) providing high percentage of mobilization advance but paid in stages to ensure a smooth cash flow under each contract. Furthermore, to address the issue of construction delays, incentive (bonus) clauses are being introduced in the construction contracts for early completion.

36. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and the Ministry of Culture, Tourism and Civil Aviation (MOCTCA). The

10 specific policy requirements and supplementary measures are described in the PAM (footnote 24). Integrity due diligence was conducted and no significant integrity risks were identified.29

E. Poverty, Social, and Gender

37. Poverty. The overall headcount poverty in Nepal fell from 41.8% in 1996 to 25.2% in 2011 and is estimated to have further declined to 18.7% in 2018, but a large percentage of the population remains vulnerable. Poverty rates also differ by gender and social groups, by ecological belt, and by province. For instance, in 2011, the incidence of poverty among Dalits was 43.6% in the hill areas and 38.2% in the low-lying Terai region, compared with Newars (10.3%) and hill Brahmins (10.3%). Similarly, 15% of hill Dalits and 44% of Terai Dalits were landless. With limited economic opportunities at home, many youths are migrating for employment. The main challenge for Nepal is to ensure employment-centric economic growth to reap the benefits of its demographic dividend. On a larger scale, better aviation facilities, such as those at TIA and GBA, will have a positive ripple effect on other sectors such as agriculture, industry, energy, and transport. Local communities that depend on tourism will have more opportunities and access to employment, as well as improved basic services delivery. Overall, the economic impact of improved civil aviation facilities in these two airports will have tremendous impact on the country’s poverty alleviation programs and local employment.

38. Gender. The project will benefit from the ICAO’s commitment to enhance gender equality by 2030 at all professional and higher levels of employment in the global aviation sector, as well as its support for the ICAO resolution on Gender Equality Programme Promoting the Participation of Women in the Global Aviation Sector. The ICAO’s commitment will be realized by incorporating GESI elements across existing and new civil aviation infrastructure at TIA and GBA, and making such infrastructures responsive to the needs of the elderly, women, children, and the differently abled; universally accessible; and safe. Likewise, GESI elements will include appropriate conduct of GESI capacity building and sensitization among CAAN officers, staff, contractors, and service providers. CAAN, having a dedicated project directorate, will carry out the operationalization of these design elements. The project is categorized some gender elements.

39. Public health and safety. The project aims to promote public health and safety through the prevention of non-safeguards-related risks, such as sexually transmitted infections (including HIV/AIDS), COVID-19, human trafficking, sexual harassment, exploitation, and abuse, during the construction and operation of the project. Labor camps during project construction will have regular orientations on these issues. CAAN staff and contractors will also undergo orientation so that prevention and management of all social risks are adequately handled.

40. Labor standards. CAAN and its contractors shall ensure that the works contracts under the project (i) follow all applicable labor laws of the Government of Nepal; and (ii) include provisions to the effect that contractors will follow and implement all statutory provisions on labor, including national core labor standards (not employing or using children as labor, providing equal pay for equal work, and providing a respectful workplace); health; safety; welfare; sanitation; working conditions; and compliance with national requirements for COVID-19 prevention. Strict compliance by contractors will be monitored. Contracts will also include clauses for termination in case of breach of the stated provisions by the contractors. There will be routine orientation for all contractors, including laborers, on national core labor standards with a special focus on gender equality in wages, health, safety, and hygiene issues on the work site.

29 ADB. 2003. Enhancing the Asian Development Bank’s Role in Combating Money Laundering and the Financing of Terrorism. Manila.

11

F. Safeguards

41. In compliance with ADB’s Safeguard Policy Statement (2009), the project’s safeguard categories are as follows.30

42. Environment (category B). The potential environmental impacts are site-specific and mitigation measures can be readily designed. No critical habitats or cultural heritage sites at TIA and GBA will be directly affected.

43. An initial environmental examination was prepared for each site.31 Major anticipated impacts for both sites include (i) increased levels of air and water pollution and noise during construction, (ii) occupational health and safety risks for workers, (iii) potential alteration of the drainage system from surface runoff, (iv) traffic congestion, and (v) COVID-19 pandemic risks. The environmental management plan (EMP) identifies mitigating measures for major environmental impacts in all phases of the project; the responsible entities to implement and monitor the mitigating measures; and the cost of implementing proposed measures. Likewise, the EMP outlines the institutional arrangements on the responsibilities of different parties with regard to environmental management and monitoring. The MOCTCA, as the executing agency, will have the overall responsibility for environmental safeguards, whereas CAAN, as the implementing agency and with prior experience implementing ADB-funded projects, will be responsible for compliance monitoring. A separate environmental management unit will be established to (i) monitor EMP implementation; (ii) coordinate with the safeguards and technical implementation team on safeguards compliance; and (iii) undertake corrective measures, document environment monitoring details, and report progress. In addition, an environmental monitoring plan was prepared for each project site to monitor various environmental parameters (such as air and water quality, noise and vibration, community and occupational health and safety issues, flora and fauna). The approved initial environmental examinations are disclosed in ADB website on 3 September 2020, in compliance with ADB’s information disclosure requirements. CAAN will prepare and submit to ADB semiannual environmental monitoring reports (EMRs) during the construction phase, and annual EMRs during the operation phase.

44. The baseline environmental study and public consultations have not yet been undertaken because of the COVID-19 pandemic, but CAAN has assured ADB that these will be done prior to construction activities.

45. Involuntary resettlement (category C). The project will have two locations: TIA and GBA. At TIA, all project activities will be within the confines of existing airport premises and therefore do not necessitate land acquisition. At GBA, CAAN acquired 25.76 hectares (ha) of land adjoining GBA’s existing premises using CAAN’s own resources. This land will be used for the development of the new terminal 2 building and associated facilities (such as apron, car park, and utilities) and other future facilities as per the GBA master plan. The land acquired consists of 482 parcels of land belonging to 284 landowner households and three business entities. Of these, CAAN has already compensated all landowner households and two of the three business entities for 22.98 ha of land (89.2% of the total 25.76 ha of land), and ownership has already been transferred to CAAN. The remaining 2.78 ha of land belong to Lumbini Distillery. Compensation for this land is the only pending action to complete the acquisition and transfer of all land required for terminal 2. Due diligence has been undertaken to assess the consistency in land valuation

30 ADB. Safeguard Categories. 31 The detailed design for output 1 has already been completed and the design for output 2 started in February 2020, with a final report expected by January 2021.

12 and compensation methods with the applicable national laws and standards. The due diligence report summarizes project activities, land acquisition impacts, compensation standards, and corrective actions to ensure that all pending activities, including those related to previous land acquisition, are fully implemented.

46. Indigenous peoples (category C). The project activities at TIA and GBA are not expected to have impacts on indigenous peoples’ groups, as defined under ADB’s Safeguard Policy Statement. Adequate consultations and disclosure were undertaken to ensure relevant project information was properly communicated to households and broader communities of various ethnicities around the project areas.

47. CAAN will establish a safeguards desk in each project implementation unit, composed of one environment specialist, one sociologist (who will also cover gender), and other safeguards- related staff to (i) monitor safeguards implementation, (ii) coordinate with the safeguards and technical implementation team on safeguards compliance, and (iii) undertake corrective actions. The intended capacity within the safeguards desk will be adequate to address the existing safeguards activities and risks around the project. ADB will provide oversight to build the capacity of CAAN on safeguards implementation. During implementation, CAAN, through its construction supervision consultant, will prepare semiannual EMRs and submit them to ADB for disclosure.

G. Summary of Risk Assessment and Risk Management Plan

48. Significant risks and mitigating measures are summarized in Table 4 and described in detail in the risk assessment and risk management plan.32 The integrated benefits and impacts are expected to outweigh the costs.

Table 4: Summary of Risks and Mitigating Measures Risks Mitigation Measures Weak governance and limited The government has initiated procurement and financial management and absorption capacity of public procurement reforms nationally and locally. ADB will assist with these Government of Nepal agencies for in conjunction with other development partners, including measures to capital expenditure and adequacy mitigate fiduciary risks while promoting accountability and transparency. ADB of operation and maintenance will collaborate with other development partners to strengthen the capacity of budget integrity institutions, such as the Commission for the Investigation of Abuse of Authority and the National Vigilance Centre. Close monitoring by ADB of activities will reduce the country-specific risk in the project. Procurement: Inability of bidders CAAN has prepared a quarry and borrow area study of available quarries and to obtain sufficient landfill volume borrow areas around Kathmandu and the estimated volume that each quarry can supply. The study will be made available to bidders with substantial landfill volumes so that they are informed and can arrange commercial contracts with suppliers. CAAN’s internal audit function is There is an internal audit section in CAAN that conducts internal audits on a generally weak need basis. CAAN will carry out internal audits for the project semiannually. Organization and staff capacity: ADB will provide increased procurement oversight through its Nepal Resident PIUs have insufficient Mission. CAAN will deputize two additional senior engineers in the TIA PIU experienced staff to efficiently who have experience in procurement through other projects implemented at undertake the procurement TIA through CAAN internal funding. The procurement capacity of staff at both required to implement the project, PIUs will also be developed through training and orientation provided by ADB and some staff in the PIUs may and consultants. Consultants will also support CAAN on procurement (bid be new to ADB’s procurement evaluation process). policies and regulations Change of government policy on Strong incentive exists in the government to complete the civil aviation sector the civil aviation sector regulatory reforms to comply with international practices and recommendations. ADB framework hampers project will closely monitor the progress of related legislation and continue policy

32 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

13

Risks Mitigation Measures implementation dialogues with the government involving, if necessary, international organizations and other development partners, including European Union member states. ADB = Asian Development Bank, CAAN = Civil Aviation Authority of Nepal, PIU = project implementation unit, TIA = Tribhuvan International Airport. Source: Asian Development Bank.

IV. ASSURANCES

49. The government, MOCTCA and CAAN have assured ADB that implementation of the project shall conform to all applicable ADB requirements, including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, financial management, and disbursement as described in detail in the PAM and loan documents.

50. The government and CAAN have agreed with ADB on certain covenants for the project, which are set forth in the draft loan and project agreements.

V. RECOMMENDATION

51. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the loan of $150,000,000 to Nepal for the South Asia Subregional Economic Cooperation Airport Capacity Enhancement Project, from ADB’s ordinary capital resources, in concessional terms, with an interest charge at the rate of 1.0% per year during the grace period and 1.5% per year thereafter; for a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan and project agreements presented to the Board.

Masatsugu Asakawa President 28 October 2020

14 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Impact the Program is Aligned with Tourism-led economic development in Nepal enhanced (National Tourism Strategic Plan 2016–2025)a

Data Sources Performance Indicators with and Reporting Risks and Results Chain Targets and Baselines Mechanisms Critical Assumptions Outcome By 2027 Safety, capacity, and a. Effective implementation a. ICAO safety Disasters triggered by efficiency of air travel score in organization category audit result natural hazards may to and from Nepal improved to at least 70% reportc adversely affect the improved (2020 baseline: 50%) number of tourists.

b. Average daily international b.–e. CAAN Prolonged effects of aircraft movements at TIA annual report COVID-19 may increased to at least 52 (two- adversely affect the way) number of tourists. (2019 baseline: 13, two-way)b Ban of Nepalese flights c. Average daily international to other countries will aircraft movements at GBA be lifted. reached at least 7 (two-way) (2020 baseline: Not applicable)

d. Number of international passengers increased to at least 5.4 million annually at TIA (2019 baseline: 4.1 million)

e. Number of international passengers increased to at least 695,191 annually at GBA (2020 baseline: Not applicable)

Outputs By 2026

1. TIA airside facilities 1a. Southern parallel taxiway 1a.–1b. CAAN Change of the completed in extended by 1,150 meters progress reports government policy on accordance with the (2020 baseline: Not applicable) the civil aviation sector TIA master plan (OP 7.1.1) regulatory framework 1. hampers project 1b. Two remote domestic implementation. aprons constructed (2020 baseline: Not applicable) (OP 7.1.1)

2. International 2a. A new international 2a. CAAN terminal building at terminal building constructed progress reports GBA constructed with GESI and climate change (Terminal 2) specific facilities and featuresd (2020 baseline: Not applicable) (OP 2.4.1, OP 2.5.2, OP 3.2.5)

Appendix 1 15

Data Sources Performance Indicators with and Reporting Risks and Results Chain Targets and Baselines Mechanisms Critical Assumptions 3. Next phase of TIA 3a. Design of new international 3a. CAAN works design terminal building in TIA progress reports completed completed with GESI and climate change facilities and featuresd (2020 baseline: Not applicable) Key Activities with Milestones 1. TIA airside facilities completed in accordance with the TIA master plan 1.1 Award civil works contract for the airside facilities at TIA (July 2021) 1.2 Complete construction of all works (December 2026)

2. International terminal building constructed at the GBA (Terminal 2) 2.1 Award civil works contract for the international terminal building at GBA (December 2021) 2.2 Complete construction of all works (December 2026)

3. Next phase of TIA works design completed 3.1 Award design consultant (Dec 2021)

Project Management Activities Award TIA and GBA CSC contracts (June 2021) Ensure counterpart fund availability (Q4 2020) Establish PIU under CAAN (Q3 2020) Inputs ADB: $150 million Government: $48 million ADB = Asian Development Bank, CAAN = Civil Aviation Authority of Nepal, COVID-19 = coronavirus disease, CSC = construction supervision consultant, GBA = Gautam Buddha Airport, GESI = gender equality and social inclusion, ICAO = International Civil Aviation Organization, OP = operational priority, PIU = project implementation units, TIA = Tribhuvan International Airport. a Ministry of Culture, Tourism and Civil Aviation. 2016. National Tourism Strategic Plan 2016–2025. Kathmandu. b The 2020 baseline was not used for this indicator as the COVID-19 pandemic decreased air traffic and passenger numbers significantly. c ICAO safety audits focus on validating a state’s capability of performing safety oversight of its industry. The eight audit areas are assessed individually to ensure whether the state has effectively and consistently implemented the critical elements of a safety oversight system: (i) primary aviation legislation and associated civil aviation regulations, (ii) civil aviation organizational structure, (iii) personnel licensing activities, (iv) aircraft operations, (v) airworthiness of civil aircraft, (vi) aerodromes, (vii) air navigation services, and (viii) accident and serious incident investigations. d GESI and climate change features such as walking stairs, ramps and elevators, access to drinking water taps for all, separate and adequate number of restrooms for women and men restrooms include disabled-friendly toilets, spacious nursing rooms with attached bathroom, and use of solar panels and energy-efficient lighting. GESI action will include appropriate conduct of GESI capacity building and sensitization among staff, contractors, and facility users. Likewise, climate change features include the use of solar panels and energy-efficient lighting, and also incorporate the use of local materials. To enhance resilience in severe natural hazards, climatic events, and threats, earthquake resistant standards and hydrological hazards have been given consideration. Contribution to Strategy 2030 Operational Priorities Expected values and methodological details for all OP indicators to which this operation will contribute results are detailed in Contribution to Strategy 2030 Operational Priorities (accessible from the list of linked documents in Appendix 2). Source: Asian Development Bank.

16 Appendix 2

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=38349-031-3

1. Loan Agreement 2. Project Agreement 3. Sector Assessment (Summary): Transport (Air Transport) 4. Project Administration Manual 5. Economic and Financial Analysis 6. Summary Poverty Reduction and Social Strategy 7. Risk Assessment and Risk Management Plan 8. Contribution to Strategy 2030 Operational Priorities 9. Climate Change Assessment 10. Initial Environmental Examination: Tribhuvan International Airport 11. Initial Environmental Examination: Gautam Buddha Airport 12. Due Diligence Report

Supplementary Document 13. Climate Risk and Vulnerability Assessment