The recent increase in tourist arrivals may have been good news for travel trade in general, but it raised hackles between hoteliers and their bankers.

The banks who loaned hotels money say the industry is not sick anymore and now have to start paying back. Hoteliers are playing down the tourism boom and argue that their earnings are still at an all-time low.

When the government declared hotels a 'sick industry' it allowed them to pay banks only 12.5 percent of loan interests and stretch repayment schedules. The banks now want the hotels to pay the full 25 percent of loan interests and say they will not agree to any rescheduling.

There was a 23 percent jump in tourist arrivals in 2003 compared to the previous year. The first two months of 2004 saw a whopping 40 percent growth compared to the same months last year. Hoteliers argue that a visitor head count doesn't mean anything since it doesn't translate into revenue. A majority of tourists are visiting Nepal under heavily rebated packages that leave no profit margin, they say.

"We are getting guests who are paying $200 for seven nights and six days inclusive of full board, meals, sightseeing and even free transport to and from the airport," Hotel Association Nepal (HAN) president Narendra Bajaracharya told us. "How can people expect us to earn profit?" He said five star hotels were selling rooms for $10 per night, which is why the rate of return even for crowded hotels is much below average.

Bankers say they understand that hotel earnings may not be as high as the pre-1999 period, but they are not convinced by the hoteliers' sob stories on earnings. "We know that they have slashed their rates and that they are not getting quality tourists," says Nepal Bankers' Association(NBA) President Narendra Bhattarai. "But the fact that occupancy has gone up must mean that the income has gone up too."

Around 16 percent of banks' overall loans are to the tourism industry and hoteliers have taken 80 percent of that amount. NBA would not reveal the actual loan figure, nor would hoteliers. There is no breakdown of which sector of the tourism industry earns what proportion. Asian Development Bank data shows that the country earned $151 million through tourism last year, up from $106 million in 2002.

What share of that pie went to the hotels may only be known when Nepal Rastra Bank brings out its annual revenue figure. But hotel operators claim that an increase in what they call non-revenue-generating tourists will only brand Nepal as a 'cheap' destination. Other tourism experts, however, believe that the growth in arrivals, even though they may be discounted, will help Nepal maintain its tourist destination image and keep doors open for future growth.

Says Nepal Tourism Board CEO Tek Bahadur Dangi. "If they say that they have not been able to earn despite the increased arrivals, they must blame their own cheap prices."

Sightseeing tours, trekking and accommodation suffered a similar fate. Even when tourist arrivals had reached the peak (500,000) in 199, hoteliers still complained that only between 35-40 percent of their beds were occupied.

Admits former HAN president Yogendra Shakya: "We must fix the price ourselves and stick to it to make our clients feel that they have had a fair deal." The government has withheld the idea of standardisation of services in the tourism industry considering the downturn of the travel trade in recent years. That slump is exactly what hoteliers point at when they ask their banks to agree to 12.5 percent of interest payment right now and for the rescheduling of the loan repayment. Some hotels have already begun to convince their bankers on their own, while others are waiting for their association to take up the cause.