Hydropower IPO Deadlock Threatens Private Sector Investment

Article By : Dipesh Ghimire

Kathmandu – Hydropower projects in Nepal, once considered secure for private investors, are now facing an unprecedented financial bottleneck. For years, promoters, banks, and the general public all contributed to project financing: promoters injected equity, banks provided loans, and locals participated through IPOs. Projects generally raised funds, though delays and construction risks were common.

But recently, policy hurdles and regulatory indecision have made IPO approval—the final step of financing—far more uncertain. The Securities Board of Nepal (SEBON) has withheld IPO clearance for dozens of hydropower companies, leaving project developers stuck and local investors frustrated.

IPO Approval Bottleneck

Currently, 34 hydropower companies with IPO applications worth NPR 16.96 billion (166 million shares) are waiting for SEBON approval—some for over two years. SEBON cites a parliamentary Public Accounts Committee (PAC) directive barring companies with a net worth below NPR 90 per share from issuing IPOs. Acting on this, SEBON recently rejected IPOs of six hydropower firms, including Unique Hydropower, Puwakhola-1, Richet, Sanima, Laughing Buddha, and Beni Hydropower.

However, the Finance Committee later directed SEBON to not use net worth as the sole criterion. Despite this, approvals remain stalled, and media reports even suggest middlemen are seeking commissions from promoters for IPO clearance—raising suspicions of corruption.

Mandatory Local Shareholding Creates Tension

Government policy mandates that hydropower companies allocate 10% of shares to project-affected locals, only possible through IPOs. Promoters argue that if IPOs are compulsory, then regulators must facilitate them. Without approval, locals cannot access promised shares, leading to resentment and potential obstruction of construction.

Developers also stress that IPOs are typically issued once a project reaches 60–65% physical progress, ensuring public investment is safer. But financial indicators of under-construction projects naturally look weak—since they generate no revenue yet. Using such indicators as strict criteria for IPO eligibility, developers argue, is unfair.

Financial Impact on Project Cycle

Hydropower financing follows a sequenced model: promoters’ equity first, then supplementary equity from IPOs, and finally large-scale bank loans. If IPO funds don’t arrive on time, companies are forced to rely on loans earlier than planned, increasing their interest burden. Some banks even refuse loans unless IPOs are approved first.

While IPO contributions are a smaller share of total financing compared to loans, they remain vital to balance project debt and reduce cost of capital. Without them, developers face rising financial stress, while construction timelines get disrupted.

Risk of Policy Contradiction

Developers criticize the government for sending “mixed signals”:

• On one hand, policies require hydropower companies to issue IPOs, sell shares to locals, employees, and mutual funds, and eventually list in the secondary market.

• On the other hand, SEBON blocks IPO approvals, effectively halting financing.

Industry insiders warn that this contradiction not only discourages private investment but could also jeopardize Nepal’s ambitious hydropower expansion targets.

PPA Uncertainty Adds Another Layer

Beyond IPO hurdles, developers are worried about Power Purchase Agreements (PPA). Nepal Electricity Authority (NEA), the sole buyer, initially proposed limiting PPAs for run-of-river projects to a “take-and-pay” model—meaning it would only buy electricity when needed. Developers strongly opposed, arguing that without guaranteed sales, banks would never approve loans.

The government later reversed the policy, reinstating the “take-or-pay” model, which guarantees NEA will buy all generated power. This rollback gave temporary relief, but investors remain wary of such abrupt policy shifts.

Growing Market for Nepali Power

Ironically, while local policy uncertainty discourages developers, the demand for Nepali hydropower is expanding:

• India already imports 1,000 MW and has committed to buying 10,000 MW over the next decade.

• Bangladesh has begun importing 40 MW, with plans to scale up to 5,000 MW in ten years.

• Domestic demand is rising, but poor infrastructure (limited distribution lines, weak supply to industries, and rural electrification gaps) prevents consumption from catching up.

Thus, while markets exist, Nepal risks losing momentum if financial and regulatory barriers remain unresolved.

Interpretation: A Policy-Execution Gap

This situation illustrates a broader governance issue in Nepal’s hydropower sector: policy versus execution gap.

• The government mandates IPO issuance but blocks approvals.

• It licenses projects but delays PPAs.

• It emphasizes local participation but risks frustrating locals by withholding share allotments.

Promoters argue they are willing to take project risk, while shareholders take relatively safer positions. Yet, by creating procedural delays, authorities are undermining both investor confidence and Nepal’s long-term hydropower potential.

The sector now faces a critical question: will the government resolve these contradictions and allow IPO flows to resume, or will the financing bottleneck slow Nepal’s hydropower dream?

About the Author : Dipesh Ghimire, a journalist focused on Nepal’s economy, has over 15 years of experience in the share market.