Nepal's Hydropower IPO Rules: A Web of Overlapping Laws That Companies Must Navigate

When a hydropower company in Nepal wants to sell shares to the public, it does not simply walk into the Securities Board and file paperwork. It enters a maze of overlapping legal frameworks — energy policy, regulatory commission rules, securities law, and listing requirements — each with its own conditions, timelines, and approval authorities. Understanding how these layers interact is essential to grasping why hydropower IPOs in Nepal remain complicated, contentious, and often delayed.

The foundation of the entire framework was laid by the Hydropower Development Policy of 2058, which declared that capital markets would be mobilized to encourage domestic investment in electricity generation. This was a forward-looking statement for its time, signaling that hydropower would not remain the exclusive domain of government financing and foreign debt. The same policy also guaranteed that privately operated projects would not be nationalized during their license period — a provision designed to give investors confidence that their assets were protected. At the end of a project's license term, however, the facility transfers to the government, with the original operator given first priority to continue running it under a new agreement.

The Electricity Regulatory Commission, established under the Electricity Regulatory Commission Act of 2074, added another layer of oversight. Under Rule 45 of the Electricity Regulatory Commission Regulations of 2075, any licensed company wishing to issue shares publicly, or to alter its shareholding structure by more than five percent, must first obtain the commission's approval. The one significant exception to this rule is that shares already listed on the Nepal Stock Exchange can be freely bought and sold without seeking prior clearance — a distinction that creates a meaningful incentive for companies to complete the listing process as quickly as possible.

To give practical shape to Rule 45, the commission issued a dedicated directive in 2078 governing prior approval for public share issuance by electricity companies. The directive's requirements are detailed and demanding. A company seeking approval must present a clear financial plan endorsed by both its board of directors and its general assembly, spelling out precisely how it intends to use the funds raised. For an initial public offering, the company must submit three years of audited financial statements, the current year's unaudited figures, and a five-year financial projection prepared and certified by a licensed accounting professional. This projection must show where the money will go and on what assumptions the forecasts are based.

The directive also addresses rights share issuances specifically. A licensed company can issue rights shares to fund project construction, provided it holds at least fifty-one percent in the subsidiary or project entity concerned. Companies that hold less than fifty percent in a project under construction can still issue rights shares for that specific investment, but only after physical construction progress has crossed the twenty-five percent threshold. In either case, the ratio of rights shares to existing shares cannot exceed one to two. This ceiling prevents excessive dilution of existing shareholders' stakes during construction.

Where a project remains incomplete after an initial public offering has already been conducted, the directive permits a further rights share issuance to fund the remaining construction work. This provision acknowledges the reality that hydropower projects in Nepal frequently face cost overruns and delays, and that companies should not be forced into financial distress simply because their original capital raise proved insufficient.

Institutional shareholders among the founding members of listed companies face their own disclosure obligations. Under the directive, any institutional founding shareholder wishing to buy or sell its stake must publicly announce the details at least fifteen days in advance and simultaneously notify the commission. This requirement is designed to prevent large block transactions from moving the market without warning to ordinary investors.

Nepal's securities law adds a further dimension to the picture. The Securities Act of 2063 makes clear that only public limited companies can list on the stock exchange — private limited companies and cooperatives are explicitly excluded from the definition of entities eligible for public issuance. The Securities Registration and Issuance Regulations of 2073 specify that an IPO must represent between ten and forty-nine percent of a company's issued capital, leaving the founding shareholders with a controlling majority while still opening meaningful participation to the public.

For non-banking companies — which includes hydropower firms — the regulations impose an additional prerequisite before an IPO can proceed. The company must have completed at least one full fiscal year of operations consistent with its stated objectives, must have conducted a statutory audit and annual general meeting, must have received a clean going-concern opinion from its auditors, and must have achieved financial closure for the project. For hydropower companies specifically, a signed power purchase agreement is also required before shares can be offered to the public.

This last condition deserves particular attention. Requiring a power purchase agreement before an IPO means that companies building projects on purely speculative terms — without a committed buyer for the electricity they plan to generate — cannot access public capital until that commercial foundation is in place. The intention is clearly protective: ordinary investors should not be exposed to projects that have no guaranteed revenue stream. But critics argue this condition, combined with the commission's prior approval requirement, creates bottlenecks that slow down capital formation precisely when the sector needs it most.

One provision that stands out for its social dimension is the allowance for up to ten percent of issued capital to be reserved for residents of project-affected areas. This mechanism attempts to distribute some of the economic benefit of a hydropower project to the communities that bear its environmental and social costs — a recognition that local populations should have a stake in the infrastructure built in their midst.

Taken together, what this legal framework reveals is a system that is simultaneously protective and cumbersome. The multiple layers of approval — from the Electricity Regulatory Commission, through securities regulators, and ultimately to the stock exchange — were each designed with legitimate goals in mind. But the cumulative effect is a process that demands extraordinary patience, documentation, and institutional capacity from hydropower companies. Whether Nepal can streamline this framework without abandoning investor protection will be one of the defining regulatory challenges as the country pushes toward its ambitious electricity generation targets in the years ahead.