Kathmandu – A proposed amendment to the Companies Act has sparked mixed reactions in Nepal’s hydropower sector after introducing a provision that would allow public shareholders to recover their investments when infrastructure projects are handed over to the Government of Nepal.
While some stakeholders have welcomed the proposal as a measure to protect public investors, others have expressed concern that it could create new legal uncertainty regarding the status and ownership rights of promoter (founder) shares.
According to Clause (gh) of Sub-section (2) of Section 41 in the draft bill, if an infrastructure project developed and operated by a company that has issued shares to the public is later transferred to the Government of Nepal or a government entity, ordinary (public) shareholders will have the legal right to receive a refund of their invested capital.
However, the proposed provision does not extend the same right to promoter or institutional shareholders. The Independent Power Producers’ Association, Nepal (IPPAN) has objected to the proposal, arguing that it could create legal and practical complications, particularly in the hydropower sector.
Promoter and Public Shares Become Identical After the Lock-in Period
According to IPPAN, once the mandatory lock-in period for promoter shares expires, those shares can be freely traded on the secondary market like ordinary public shares. At that point, there is no legal distinction between promoter shares and public shares.
Although promoters generally do not sell their shares immediately after the lock-in period ends, the reason is financial rather than legal. Most promoter shares are pledged as collateral against bank loans. Once those loans are repaid, the shares can be traded freely in the market like any other public share.
IPPAN argues that this raises a key legal question: when a project is transferred to the government, how will authorities distinguish between shares that were originally promoter shares and those held by public investors? Unlike banks and financial institutions, hydropower companies do not permanently classify shares into separate promoter and public categories after the lock-in period, making implementation of the proposed provision difficult.
According to former IPPAN President Ganesh Karki, the provision allowing public shareholders to recover their investments is positive, but it also creates fresh uncertainty regarding the ownership rights and legal status of promoter shares.
Under Nepal’s hydropower licensing framework, most privately developed hydropower projects must be transferred to the Government of Nepal free of cost after operating for a specified concession period. Older projects typically receive operating licenses for 25 years, while newer projects are generally granted licenses for 30 to 35 years.
Older projects such as the 60 MW Khimti-I Hydropower Project and the 45 MW Bhote Koshi Hydropower Project fall under this transfer arrangement, although concession periods for some projects have been revised in recent years.
Until now, Nepal’s laws have not clearly defined what happens to company ownership, corporate existence, or shareholder rights once a project is handed over to the government.
Greater Protection for Public Investors
On the other hand, some capital market investors and legal experts have welcomed the proposed amendment, describing it as an important safeguard for public investors participating in infrastructure projects.
Previously, there was no clear legal provision specifying what would happen to shares purchased by public investors once a hydropower company’s 30–35-year license period expired. The proposed amendment would eliminate this uncertainty by establishing a legal basis for protecting public investment even after project ownership is transferred to the government.
According to supporters of the proposal, companies would be legally obligated to return the investment made by public shareholders, strengthening investor confidence in Nepal’s capital market.
Applies to All Infrastructure Projects
The proposed provision broadly defines “infrastructure projects.” As a result, it would apply not only to hydropower projects but also to transmission lines, cable cars, roads, and projects operating on government-owned land under lease agreements, among other infrastructure developments.
The measure is expected to reduce investment risk across long-term infrastructure sectors that rely on public investment.
However, the proposal does not provide similar protection for promoter or institutional investors. While public shareholders would be entitled to recover their investments when a project is transferred to the government, it remains unclear how promoter investments would be treated.
As a result, although the amendment appears to strengthen protections for public investors, it has also triggered a broader legal debate over share ownership structures in hydropower companies, promoter rights, and corporate ownership after infrastructure projects are handed over to the government.
During parliamentary deliberations, key issues are expected to include the legal status of promoter shares after the expiration of the lock-in period, the legal existence of project companies after project transfer, and how the rights of all categories of shareholders should be protected.
Biznessnews
