Infrastructure and Real Estate

The three-month review period from June 2022 to August 2022 witnessed delays in several important infrastructure projects in aviation, railways, and road transportation. The global rise in fuel prices, along with supply chain issues has increased inflation in Nepal and affected the aviation industry across the world. The contractionary monetary policy for the fiscal year 2022/23, which was introduced to reduce inflation, has implications for real estate prices. Further, regulations have also been introduced for proper land management.

Factsheet

FY 2021/22 up to March 2022

Total Length of Road 33,871 km 222

New road constructed 155 km 223

Road maintenance 7500 km 224

Total number of bridges constructed 80 225

Construction of railway 56 km 226

Nepal Formally Asked by ICAO to Split CAAN

In a preliminary report prepared by International Civil Aviation Organization (ICAO), Nepal’s score on the organizational structure needed to meet safety standards has decreased from 50% to 45.45%.227 ICAO has formally asked the Civil Aviation Authority of Nepal (CAAN) to split into regulator and service provider. The separation of CAAN into regulator and service provider is required for proper and unbiased oversight of the airline services. The proposal to split CAAN into two bodies has been on Nepal’s agenda since the Three-Year Interim Plan 2007/08 including the budget for the current fiscal year 2022/23.228 The bill regarding the split was finally passed by the upper house in August 2021229 but the proposal is yet to be implemented.

France Commits to Remove Nepali Airlines from the EU Blacklist

The French Civil Aviation Authority has committed to removing Nepali Airlines from the European Union’s (EU) blacklist. The EU blacklisted Nepal’s airlines in 2013 following the International Civil Aviation Organization (ICAO)’s ban on Nepali airlines for being unsafe. Assessing various progress made by Nepal in civil aviation since 2013, the French Civil Aviation Authority committed to the 57th Conference of the Directors General of Civil Aviation, Asia, and Pacific regions.230

Opening of Pokhara International Airport Delayed

Despite the physical infrastructure being 98% complete, the operation of the international airport in Pokhara has been delayed until December 2022, citing delays in conducting flight and equipment tests. The project failed to conduct flight inspections of the new airport due to delayed approval of the Environmental Impact Assessment (EIA) report. The EIA report on the flattening of an 817-meter hill on the eastern side of the airport has been approved recently. A landfill site located 1.5 km from the airport also needs to be relocated as it attracts birds and poses risks to aircraft. The relocation has faced delays and discussions are ongoing with the local government regarding the relocation.231

The Rise in Fuel Prices Increases Domestic Airfare

Nepal Oil Corporation (NOC) increased the price of Aviation Turbine Fuel (ATF) by NPR 19 (USD 0.15) per litre. Citing

the hike in ATF, airfare across different routes has been increased by NPR 170 (USD 1.34) up to NPR 840 (USD 6.66). The airfare of the longest route i.e., the Kathmandu to Dhangadhi has reached NPR 16,805 (USD 133.28) and the airfare of the shortest route i.e., Kathmandu to Simara has reached NPR 4,195 (USD 33.27). 232

Only 18% Progress in ButwalNarayanghat Road

The Butwal-Narayanghat road upgradation project is only 18% complete since it started in March 2019. The project was supposed to be completed within 42 months, i.e., by August 2022.233 Along with the COVID-19 pandemic, the work was delayed due to issues with felling trees along the road and shifting electricity poles from the roadside.234 The contractor, China State Construction Corporation, had requested an extension of the deadline by 2 years. The Department of Roads is preparing to extend the project deadline by 1 year after conducting the necessary study on the contractor’s proposal.235

Preparations Underway for Operating Bathnaha-Biratnagar Railway

The Bathnaha-Biratnagar Railway track, which runs from Bathnaha in India to Buddhanagar in Biratnagar, is planned to start operations by October 2022. There are plans to operate freight trains from the Integrated Check Post (ICP) in Buddhanagar to Bathnaha. Preparations are underway to start constructing a road from the station in Buddhanagar to the ICP. The railway was supposed to be constructed from Bathnaha in India to Katahari in Nepal, but the railway track in Kalahari has not been completed due to a dispute over land compensation. Nevertheless, India is interested in operating the freight trains by handing over the completed parts to Buddhanagar by October 2022.236

Few Traders at Chobhar Dry Port

The Chobhar Dry Port has only received two dozen container trucks since it opened in April 2022. Despite the dry port providing cheaper clearance for goods compared to border checkpoints, it has failed to attract many traders. The lack of an expressway linking the port to the border has created a hassle for transporting goods to the port. Nepal Intermodal Transport Development Board, which currently runs the port, expects more activity in the dry port in the next few months as goods take 3 months to arrive after opening a Letter of Credit (LC). 237

Monetary Policy Decreases LTV Ratio

The Loan to Value (LTV) ratio for mortgaging houses or land for new loans and property loans has been tightened by the monetary policy for the fiscal year 2022/23. The LTV ratio should be a maximum of 30% within the Kathmandu Valley and a maximum of 40% in other places.238 This is a decrease from an LTV ratio of up to 40% within Kathmandu Valley and up to 50% outside the Kathmandu Valley.239 The contractionary monetary policy introduced for the fiscal year 2022/23 reduced the LTV ratio to decrease lending to non-productive sectors such as real estate.

Zoning Introduced by Land Use Regulation

The Ministry of Land Management, Cooperatives and Poverty Alleviation has endorsed the Land Use Regulation 2022. This new regulation divides land into 10 categories based on its features and geographic situations. Some of the categories are agriculture, residential, commercial, industrial, forest, and public use. Land classified into one category cannot be used for other purposes, but land classifications are changeable.240 The regulation has also allowed for land-pooling to promote agriculture mechanization and control land fragmentation. Agricultural land cannot be fragmented if the smallest piece of resulting land would be less than 500 sq m for lands inside the Kathmandu Valley and 675 sq m for lands in Terai and inner Madhesh. Furthermore, residential land plotting inside Kathmandu Valley is prohibited for lands with an area less than 130 sq m or 4 aana 1 daam. 241

Figure 14 Revenue from Land transactions and number of land transactions

Source: Department of Land Management and Archive

OUTLOOK

The splitting of CAAN into regulator and service provider will lead to unbiased oversight of the service provider and might improve accident and incident investigation. This might also improve the perception of the safety of Nepali airlines and remove Nepal from the EU’s blacklist. Moreover, Industrialists in the Sunsari-Morang Industrial Corridor have claimed that the transportation fare by rail is about half cheaper than by road.242 This is because the operation of a freight train from Bathnaha in India to Biratnagar in Nepal will make the import of raw materials cheaper and make the industries in the SunsariMorang Industrial Corridor more competitive. The delay in construction of the ButwalNarayanghat road has resulted in several unrepaired potholes leading to an increased risk of accidents. The delay in construction of the Butwal-Narayanghat road, which receives heavy traffic, has resulted in hours-long traffic jams. The reduction in the LTV ratio mandated by the monetary policy is expected to stagnate the real estate prices as people will not have easy access to finance from BFIs. The newly introduced zoning regulations are a step in the right direction towards promoting the proper use of land in the long run and increasing agricultural productivity. However, proper monitoring and implementation of the zoning regulation are required to bring the desired results.