Under growing pressure from all sides and with the opposition Maoist party having announced a general strike on Monday in protest, Nepal's cornered government on Sunday said it was scrapping a controversial deal with India to print "smart" Nepali passports.
Prime Minister Madhav Kumar Nepal, who has been rapped by the Public Accounts Committee of parliament thrice and censured by his own party, called an emergency meeting of the cabinet that late Sunday agreed to jettison the deal.
Information and Communications Minister Shankar Pokhrel, who is also the government spokesman, told the media after the late-night meet that the contract given to Security Printing and Minting Corporation of India to print nearly three million machine-readable Nepali passports for the next five years, would be revoked.
Instead, the government would now call a fresh tender, obeying the directive of the parliamentary committee.
The late night decision is likely to affect the Nepal strike the Maoists have called for Monday to protest the deal with India.
The former guerrillas are also calling for the resignation of the prime minister over the imbroglio.
The controversy began in January after the foreign ministry cancelled a bidding process started in 2004.
Nepal had floated a global tender to print three million modern machine-readable passports that are to replace the current handwritten ones to meet the norms of the International Civil Aviation Organisation (ICAO).
Four foreign companies were shortlisted but the process was delayed due to protracted political crises in Nepal and the fall of at least four governments.
In January, Foreign Minister Sujata Koirala persuaded the government to cancel the bidding process, saying it would take too long and Nepal would fail to meet the April 1 deadline for the new passports.
She said the Indian company would execute the job quickly due to the close diplomatic ties between India and Nepal.
The controversy snowballed last week with a lawyer and a law student filing two separate public interest suits against the government in Supreme Court and the court asking the government to halt the deal.
The prime minister and the foreign minister were to have appeared in court Monday.
The government spokesman said old passports would be validated for four years to tide over the crisis.