Creating collateral security packages

Types of collateral

What types of collateral and security interests are available?

The Muluki Civil Code 2017 recognises three categories of security interest in real estate and immovable property in Nepal: a mortgage of land, a mortgage-in-possession of land and a re-mortgage. The most common form of security interest over immovable property is a mortgage where the ownership and possession stay with the debtor while the creditor has the right to auction the property upon the failure of the debtor to make payments of the debt and interest.

Common forms of security interest over tangible movable property are hypothecation and pledge. A hypothecation is created in favour of working capital banks and lenders over book debts, receivables, stocks, raw materials and work in progress. A pledge is the most common form of security interest available over financial instruments, shares and cash deposits.

Contractual and intangible rights such as leases, receivables and bank accounts require the consent of the counterparty to be assigned. A common form of security over receivables and cash flow of a Nepalese company is to pledge a trust and retention account; this is a common practice in the financing of infrastructure projects. In general, banks and financial institutions do not take intellectual property (eg, trademarks, copyrights, patents, designs) as collateral for projects. However, security interests can be granted over intellectual property through assignment.

Once acquired, movables and intangibles are available as collateral but are not available for immovable property, as registration is required. Security over a licence depends on the licence concerned, as this requires the prior permission of the granting authority. 

Collateral perfecting

How is a security interest in each type of collateral perfected and how is its priority established? Are any fees, taxes or other charges payable to perfect a security interest and, if so, are there lawful techniques to minimise them? May a corporate entity, in the capacity of agent or trustee, hold collateral on behalf of the project lenders as the secured party? Is it necessary for the security agent and trustee to hold any licences to hold or enforce such security?

Mortgages over land should be registered at the relevant Land Revenue Office (LRO) of the place where the land is situated to be valid and enforceable. Pursuant to Section 451 of Civil Code, all foreign creditors must seek approval of the Council of Ministers in order to create security interests over land and immovable assets. However, such approval may not be required if a local bank provides an agency service to foreign creditors or acts in the capacity of lead bank under the consortium lending structure. The creditor must pay an average registration fee of 1% of the loan amount as prescribed in the Finance Act of the concerning state where the registration is to be made.

Creating a pledge over shares by foreign lenders and obtaining corporate guarantees or personal guarantees from shareholders also require separate approval from the Nepal Rastra Bank, the central bank of Nepal, pursuant to a notice of the Nepal Rastra Bank. The registration fee for corporate security ranges from $100 to $1,000 as per the applicable Finance Act. 

Contracts or deeds for security over tangible movable property must be in writing and are perfected by obtaining possession of the collateral or by registering information at the Secured Transaction Registry Office (STR). A pledge of shares in a private project company requires approval from the company and recordal in the shareholder registry. A pledge of shares in a public company must be recorded in the shareholder registry or dematerialised.

Security over intellectual property is perfected through a valid written agreement and registration of the information at the STR. In addition, approvals are needed from the Department of Industry or the Copyright Registrar Office.

A security agent may hold security on behalf of the lending consortium. The consortium lending directive imposes responsibility on the lead bank which is arranging the financing to arrange for security. The lead bank also acts as the agent or trustee, and holds collateral on behalf of the project lenders. Use of agents other than a licensed bank or financial institution would not be efficient as they are not allowed to use out-of-court security enforcement procedures.

The security interests of the creditors in consortium lending are settled proportionally without preference and a parallel debt clause is also usually is incorporated in the facility agreement and security agreement. 

Assuring absence of liens

How can a creditor assure itself as to the absence of liens with priority to the creditor’s lien?

Security interests over immovable assets (ie, land and buildings) are indicated on the land title certificate for such assets and recorded in the local LRO. A review of the land title certificate and cross-verification with the LRO should provide assurance to a creditor as to the absence of the competing liens.

Currently, the Credit Information Bureau Limited operates as the STR and security interests over movables and intangibles are registered in the STR. Creditors can obtain information from the STR as to whether security interest already exists in movables and intangibles.

Enforcing collateral rights

Outside the context of a bankruptcy proceeding, what steps should a project lender take to enforce its rights as a secured party over the collateral?

Outside the context of bankruptcy proceedings, project lenders generally have three ways of enforcing their rights as secured parties over the collateral:

  • The non-judicial enforcement procedure under the Secured Transaction Act 2006 allows for the private sale of movable and intangible assets secured by the registration of information of security interest in such movables and intangibles in the STR.
  • Where the creditor is a licensed bank or financial institution, non-judicial enforcement can be availed of by taking possession of the secured assets and transferring those assets by sale, assignment or lease, managing the secured assets and requiring third parties which have acquired the secured assets from the debtor to pay such moneys to the secured creditor in satisfaction of the secured debt.
  • The judicial auction procedure can be started pursuant to the Civil Procedure Code and the Civil Procedure Regulation 2018. Generally, two sets of 35-day notice should be given to the debtors before making a public sale of the assets. There are no restrictions on the lenders participating in the auction. Ownership of the collateral can be transferred to the lender if the bids are not sufficient to pay the lenders in full. The auctions take place in local currency. Nevertheless, there are no restrictions on the use of the foreign currency equivalents.
Enforcing collateral rights following bankruptcy

How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the collateral? Are there any preference periods, clawback rights or other preferential creditors’ rights with respect to the collateral? What entities are excluded from bankruptcy proceedings and what legislation applies to them? What processes other than court proceedings are available to seize the assets of the project company in an enforcement?

The Insolvency Act 2006 provides that bankruptcy proceedings, including restructuring plans, will not affect the right of a secured creditor to enforce the security interest or deal with the security unless the secured creditor votes or agrees in favour of restructuring plan or there is a binding court order. The court might issue a binding order restricting the secured creditor from exercising the right if it is satisfied that failure to grant the order would adversely affect the restructuring and the rights of the secured creditor over the secured assets are sufficiently protected.  

Preferential transactions and undervalued transactions undertaken six months before filing for insolvency may be declared void. Likewise, fraudulent transactions undertaken two years prior to filing for insolvency may be declared void and the value of the asset or the assets used in preferential transactions, undervalued transactions and fraudulent transactions can be recovered. All private and public companies are subject to bankruptcy proceedings and bankruptcy law does not apply to partnerships and firms with no limited liability.

The lenders may undertake a public auction of the assets if the restructuring plan is not binding on them. Claims by foreign creditors and local creditors are treated in the same way. 

Foreign exchange and withholding tax issues

Restrictions, controls, fees and taxes

What are the restrictions, controls, fees, taxes or other charges on foreign currency exchange?

Foreign exchange transactions in Nepal are governed by the Foreign Exchange (Regulation) Act 1962. The foreign exchange control regime is restrictive in that only permitted payments can be made. Payments that are not specifically permitted are illegal.

Approvals are generally not required for payments relating to the import and export of goods and the export of services. For the import of services, only payment up to $10,000 can be made without the permission of the Nepal Rastra Bank. For payments over $10,000, approval from the Nepal Rastra Bank and a recommendation from a regulatory authority or government agency are required.

Approval from the Nepal Rastra Bank is also required to make equity and loan investments, advance payments and dividend payments, and to repatriate proceeds from the sale of shares, principal, interests and fees related to financing the transaction. Government fees, taxes or other charges are not applicable to foreign exchange approvals other than those charged by banks providing the exchange facility.

Investment returns

What are the restrictions, controls, fees and taxes on remittances of investment returns (dividends and capital) or payments of principal, interest or premiums on loans or bonds to parties in other jurisdictions?

Unless otherwise specified in the company’s memorandum of association, payment of dividends must be authorised by a general meeting of the shareholders of the company. Dividends can only be paid from the net profits. Any gain on capital is taxed.

Remittance of investment returns (dividends and capital included) and payments of principal, interest or premiums on loans or bonds to parties in other jurisdictions require approval from the Nepal Rastra Bank. This approval is required every time a payment is made. However, no quotas or controls exist in respect of the amount and  additional charges other than applicable taxes are levied by Nepal Rastra Bank.

Unless otherwise agreed in relevant tax treaties between Nepal and various jurisdictions, the withholding tax on payment of interests or premiums on loans or bonds is 15%. Gains made on the sale of securities by foreign persons are taxed at the rate of 25%, and a tax of 5% applies to dividends for foreign nationals.

Foreign earnings

Must project companies repatriate foreign earnings? If so, must they be converted to local currency and what further restrictions exist over their use?

Unless permitted otherwise by the Nepal Rastra Bank, project companies must repatriate foreign earnings. It is not mandatory for foreign earnings to be converted to local currency. 

May project companies establish and maintain foreign currency accounts in other jurisdictions and locally?

Project companies may establish and maintain both a local currency account and a foreign currency account in Nepal. Companies are permitted to open a foreign currency account if foreign investors are investing in the project or if they are earning in foreign currency. Companies may open and operate a foreign currency account in other jurisdictions, subject to strict regulation by the Nepal Rastra Bank. Approval to operate offshore accounts is granted when companies meet the conditions laid down in the Nepal Rastra Bank unified directives.

Foreign investment issues

Investment restrictions

What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?

Very few restrictions apply in case of foreign investment in or ownership of a project and related companies in Nepal. All foreign investments in equity, debt or convertibles require prior approval. The Department of Industry grants approval for any investment up to NRs6 billion (approximately $54.45 million). Any approval above this amount is granted by the Investment Board of Nepal. Approval from the Nepal Rastra Bank is also required. The minimum investment for foreign investment has been fixed at NRs50 million (approximately $450,000). Investors cannot invest less than this amount.

Certain sectors such as aviation, consulting and telecommunications require local participation. Foreign investment is restricted to 49% in domestic aviation, 50% in consulting and 80% in telecommunications. Foreign investment of 100% is allowed in major project sectors including construction (both residential and commercial real estate), infrastructure and power.

Although foreign entities and persons cannot directly buy and own land in Nepal, these restrictions do not extend to joint ventures or subsidiary companies, which can buy or lease without prior approval under the same terms as Nepalese nationals.

Nepal has entered into bilateral investment treaties with six jurisdictions: Finland, France, Germany, India, Mauritius and the United Kingdom.

The agreements provide for non-discrimination and most-favoured-nation treatment, and restriction of nationalisation or expropriation, except for public purposes with compensation. Since Nepal adheres to these principles regardless, generally investors from countries with bilateral investment treaties may not be better off in any case.

Insurance restrictions

What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

Foreign insurers cannot directly insure in Nepal. Accordingly, Nepalese project companies must insure with local insurers with back-to-back reinsurance with foreign insurers. The Non-Life Reinsurance Directive 2008 provides guidelines on this matter. Risk must be reinsured with at least three reinsurers where AAA equivalent or higher rated entities can reinsure a maximum of 60% of the risk, while BBB-rated entities can reinsure only 40% of the risk. Nepalese insurers can reinsure only with reinsurers with credit ratings equivalent to or higher than BBB. Cut-through clauses are recognised and are usually required for foreign creditors. Assignments are also required for foreign creditors. Reinsurance proceeds can be assigned and policies can be payable to foreign secured creditors.

Worker restrictions

What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?

The Labour Act 2017 states that non-Nepalese citizens cannot be engaged in work without obtaining a work permit from the Department of Labour. Work permits are granted only if Nepalese citizens are either unavailable or unqualified for any skilled technical roles, even after publishing advertisements in national daily newspapers and extensive documentary requirements are met. A work permit is granted for a period of five years in case of highly skilled foreign workers and for a period of three years in the case of other foreign workers. However, in the case of enterprises with foreign investment, the Department of Labour may issue work permits to the chief executive and up to three employees by maintaining a record on a fast-track basis. The number of foreign employees cannot exceed 5% of the total number of workers in an enterprise.  

Equipment restrictions

What restrictions exist on the importation of project equipment?

Generally, there are no restrictions on the import of project equipment under Nepalese law other than on the import of explosives and certain radio equipment. The import of explosives and certain radio equipment requires special permits from the relevant government departments. Custom duties and value added tax exemptions are granted to various projects, such as solar, hydropower, wind energy, biogas and hotels. Certain special exemptions are also provided on imports to industries established in special economic zones and to star hotels and resorts. A recommendation from a government authority is required to avail of such exemptions.

Nationalisation laws

What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?

The Constitution of Nepal 2015 allows for the expropriation of property only in accordance with the law and public interest after due compensation has been paid. The Foreign Investment and Technology Transfer Act 2019 prohibits the nationalisation of an industry with foreign investment. Direct or indirect expropriation can be undertaken only for public use. The Industrial Enterprises Act 2016 does not allow the nationalisation of any registered industry. The Public-Private Partnership and Investment Act 2019 protects the project from being nationalised for the period of project approval, while expropriation is allowed only for public purposes.

Fiscal treatment of foreign investment


What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?

Generally, no special tax incentives or other incentives are provided to foreign investors or creditors. The Foreign Investment and Technology Transfer Act 2019 provides certain service facilities to foreign investors, which include foreign exchange facilities, industrial security, identity cards and business visas. Industries with foreign investment can obtain project loans or project financing from the foreign lender following the recommendation of the Ministry of Industries, Commerce and Supplies and approval of the Nepal Rastra Bank. In general, the facilities and incentives provided to the domestic investor also extend to the foreign investor consistent with the national treatment provisions in the Foreign Investment and Technology Transfer Act and the Public Private Partnership and Investment Act 2019. 

Further, limited income tax holidays, exemptions from import duties and taxes on equipment and vehicles, exemptions from import duties on raw materials and exemptions from export duties on export products are provided to energy and hotel industries. A recommendation from the relevant government authority is required to claim such exemptions.

No tax is imposed on foreign investment and loans. A registration fee must be paid to the Land Revenue Office for the registration of mortgage deeds. Although the registration fee varies across states, currently the fee is 1% of the loan amount for the registration of a mortgage deed in the name of foreign person or entity.

Government authorities

Relevant authorities

What are the relevant government agencies or departments with authority over projects in the typical project sectors? What is the nature and extent of their authority? What is the history of state ownership in these sectors?

The Investment Board of Nepal is the overall supervisory and regulatory authority for large public-private partnership projects. In addition, the government agencies with authority over the concerned sectors are:

  • the Department of Industry – industry, refining and manufacturing;
  • the Department of Mines and Geology – mining and petroleum;
  • the Department of Electricity Development, the Nepal Electricity Authority and the Ministry of Energy, Water Resources and Irrigation – power;
  • the Ministry of Physical Infrastructure and Transportation – transportation and ports;
  • the Civil Aviation Authority of Nepal – airline industry; and
  • the Nepal Telecommunications Authority – telecommunications.

As well as regulating the sectors, these authorities also grant licences and sign concessions. 

State-owned companies (the Nepal Electricity Authority and the Nepal Telecommunications Authority) have predominant market shares in electricity production and transmission, as well as the telecommunications sector. However, no restriction exists that would keep private companies from competing with state-owned companies.

Regulation of natural resources


Who has title to natural resources? What rights may private parties acquire to these resources and what obligations does the holder have? May foreign parties acquire such rights?

The government of Nepal has ownership over natural resources such as oil and gas, minerals, water resources and national forests. Private parties may obtain licences under various laws or through concession agreements to exercise rights over the natural resources. Licensees need to comply with the law and the terms of licences and concession agreements. Licensees are also required to pay licensing fees and royalties to the government. Once a licence is granted, the royalties paid by companies for the exercise of such rights are divided between the federal, state and local governments in accordance with the Intergovernmental Finance Arrangement Act 2017. Such rights may be acquired by foreign parties; however, usually such rights must be acquired by a local subsidiary of the foreign investors. The presence of specific indigenous groups does not usually affect the acquisition or exercise of such rights. 

Royalties and taxes

What royalties and taxes are payable on the extraction of natural resources, and are they revenue- or profit-based?

The Constitution of Nepal provides for an equitable distribution of benefits derived from the use of natural resources among the federal, state and local governments. Schedule 9 of the Constitution provides the three governments with a concurrent right over natural resources, including the royalties collected. The Intergovernmental Fiscal Arrangement Act 2017 provides for a mechanism to distribute the royalty among the three tiers of government. The royalties collected under the heading of electricity, forest, mines and minerals, water and other mineral resources are distributed among the federal, state and local governments in a ratio of 2:1:1.

Different royalties and taxes apply to the extraction of natural resources, payable on the basis of production, type and quality. The minerals are grouped into metallic and non-metallic on the basis of nature, and into very important, important and valuable, and general on the basis of importance. The royalty rates for metallic minerals range from NRs40 (approximately $0.35) per ton for iron to NRs100 (approximately $0.90) per gram for gold. The rate for non-metallic minerals includes rates such as NRs60 (approximately $0.55) per ton for magnesite, NRs50 (approximately $0.45) per ton for dolomite, NRs25 (approximately $0.23) per cubic metre for general construction stone and NRs25,000 (approximately $225) per kilogram for ruby gems. The licensee is also required to pay a further 10% of the royalty as the local development fee. Owners of petroleum operations are exempt from all taxes, charges, duties and fees levied under prevailing law except for royalties. The royalty for petroleum products is fixed at 12.5% of revenue.

Excise duty is applicable on the extraction of granite at 15% and marble at 5% of value. Excise duty is not currently applicable to other natural resources. 


Export restrictions

What restrictions, fees or taxes exist on the export of natural resources?

The export of minerals, petroleum and wood is only possible after obtaining either a permit or a recommendation from the government. Customs duty is applicable on only a few natural resources. Customs duty of NRs1,200 (approximately $11) per cubic metre is levied on sands and silica and slate. Customs duty from NRs600 (approximately $5.50) to NRs1,200 (approximately $11) per cubic metre is levied on granite, porphyry, basalt, sandstone and building stone, pebbles, gravel, broken or crushed stone. NRs600 (approximately $5.50) per cubic metre is levied on magnesite, fused magnesia and dead burned (sintered) magnesia. Customs duty on natural steatite and talc ranges from NRs1.50 (approximately $0.01) to NRs2 (approximately $0.02) per kg. Custom duty for wood is set at 200% of the value.

Legal issues of general application

Government permission

What government approvals are required for typical project finance transactions? What fees and other charges apply?

A project finance transaction requires government approvals and registrations from various government authorities and departments. Administrative fees are charged for the grant of such approvals and registrations. Approvals are generally required for foreign investment, environment clearances, foreign exchange, construction, import and licences. These depend on the relevant project sector. Industry registration, tax registration and registration with the local authority must also be undertaken.

Approval is also required for foreign loan financing. Industries with foreign investment can obtain project loans or project financing from foreign financial institutions. This requires a recommendation from the Ministry of Industries, Commerce and Supplies and approval of the Nepal Rastra Bank.

All foreign creditors should seek approval of the Council of Ministers to create security interests over land and immovable assets. However, such approval may not be required if local banks provide security agency service to foreign creditors or act in the capacity of lead bank under the consortium lending structure.

Registration of financing

Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable?

Financing documents and project documents relating to foreign debt, equity or foreign management must be filed and approved by relevant authorities. Financing documents may include loan, intercreditor and security agreements. Project documents may include joint venture, shareholders, international franchise and management, and trademark and patent licensing agreements. The documents are filed at and approved by the Department of Industry or the Investment Board of Nepal and the Nepal Rastra Bank. Security interests over movables and intangibles are registered in the Secured Transaction Registry Office.

Other project documents do not usually require registration or approval for validity. Such documents include offtake agreements and concession agreements. A deed of mortgage creating security interests over immovable assets must be registered at the Land Revenue Office in the place where the assets are located. Generally, financing and project documents need to be in English or Nepali. Additional formalities such as stamping or notarisation are not required to ensure validity.

Arbitration awards

How are international arbitration contractual provisions and awards recognised by local courts? Is the jurisdiction a member of the ICSID Convention or other prominent dispute resolution conventions? Are any types of disputes not arbitrable? Are any types of disputes subject to automatic domestic arbitration?

For enforcement, an application must be filed at the High Court, along with translated certified copies of the foreign award and arbitration agreement within 90 days of the award. If satisfied with the application, the High Court will send the award to the relevant district court for enforcement. Foreign arbitration awards are not enforceable in Nepal if the subject matter is not capable of being subject to arbitration proceedings in Nepal or if the enforcement of the award is contrary to public policy.

Nepalese law does not prohibit awards made in relation to financing documentation or project documentation, and the public policy exception is unlikely to apply. Foreign investment disputes are first settled through mutual discussions facilitated by the Department of Industry, and next settled according to the joint investment or dispute resolution agreement, if any. If no such agreement exists, the dispute should be settled through arbitration held in Nepal as per the United Nations Commission on International Trade Law Rules and the laws of Nepal.

Law governing agreements

Which jurisdiction’s law typically governs project agreements? Which jurisdiction’s law typically governs financing agreements? Which matters are governed by domestic law?

Depending on the type of agreement, typically Nepalese law or English law governs a project agreement. Nepalese law governs project documents such as concession agreements, domestic power purchase agreements and land lease agreements, as well as the articles of association of the project company. English law is generally used in finance documents (using common terms, such as agreement, intercreditor agreement, sponsor support agreements and offshore security agreements) for large projects involving foreign investors and creditors. Nevertheless, it is advisable that local security documents be governed by Nepalese law while foreign laws often govern other documents such as engineering procurement construction agreements, operation and maintenance agreements, and consulting agreements.

Submission to foreign jurisdiction

Is a submission to a foreign jurisdiction and a waiver of immunity effective and enforceable?

The Nepalese rules on private international law recognise and enforce foreign judgments and submission to foreign jurisdiction, subject to fulfilment of the legal requirements. However, Nepal is not a party to the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters (1971). Waivers of immunity governed by foreign laws are effective and enforceable.

Environmental, health and safety laws

Applicable regulations

What laws or regulations apply to typical project sectors? What regulatory bodies administer those laws?

The Environment Protection Act 1997 establishes the framework for the preservation and sustainable management of environmental resources in Nepal. Small projects with authorised industrial capital (ie, project costs) below NRs50 million (approximately $450,005) do not require an initial environmental evaluation (IEE) or an environmental impact assessment (EIA). Projects with an authorised industrial capital between NRs50 million (approximately $450,005) and NRs200 million (approximately $1.8 million) will generally require an IEE and projects with more authorised industrial capital will require an EIA. The IEE and EIA requirements are also different for various projects. Environmental management plans under the approved IEE and EIA must be complied with by project companies. Generally, an IEE is approved by the respective ministry for the project (eg, the Ministry of Energy for power, the Ministry of Infrastructure for roads and the Department of Industry for industrial projects). An EIA is approved by the Ministry of Environment. The Labour Act sets out the health and safety obligations applicable to all construction and other project companies and is administered by the Department of Labour within the Ministry of Labour and Employment.

Project companies

Principal business structures

What are the principal business structures of project companies? What are the principal sources of financing available to project companies?

The available business structures under Nepalese law are sole trader, partnership firm, private limited company and public limited company. Almost all project companies are incorporated as a private limited company or a public limited company. Debt capital is available to project companies operating in Nepal in the form of non-recourse project loans, conventional bank loans, government pension funds and loans from international financial institutions. Projects also frequently raise funds by issuing shares on a public stock exchange. However, project debt securities have not yet been issued in Nepal.

Public-private partnership legislation

Applicable legislation

Has PPP-enabling legislation been enacted and, if so, at what level of government and is the legislation industry-specific?

The Public-Private Partnership and Investment Act 2019, which took effect on 27 March 2019, is the legislation enabling public-private partnerships in Nepal. The act is applicable at all levels of government in Nepal and targets infrastructure development, its operation and reconstruction. The act has defined infrastructure to include roads, bridges, cable cars, railways, sky railways, airports, hospitals, energy generation, processing plants, parks, special economic and industrial areas, agriculture, tourism, financial market infrastructure, stadiums, hydropower plants, cold storage, stock houses and renewable energy production, including solar energy. However, projects operated to receive work or service without transfer of financial, technical or operational risk to the private sector and projects related to the national security are not subject to public-private partnership under the act. Projects developed under the act are implemented at local, state and federal levels, respectively, as provided for in the federal law. 

Approval must be sought from the Investment Board of Nepal to make an investment of more NRs6 billion (approximately $54.45 million). The relevant ministry or department is the implementing authority for all projects under the Public-Private Partnership and Investment Act except for:

  • hydropower generation projects with an estimated cost of up to NRs6 billion (approximately $54.45 million);
  • energy projects that fall under the jurisdiction of the federal government under the prevailing federal law; or
  • hydropower energy projects with capacity up to 200 megawatts (MW).

However, the board is the implementing authority for energy projects except for:

  • projects including hydropower generation projects with an estimated cost of NRs6 billion (approximately $54.45 million); or
  • energy projects including hydropower energy projects with capacity of more than 200MW.

PPP - limitations

Legal limitations

What, if any, are the practical and legal limitations on PPP transactions?

The Public-Private Partnership and Investment Act 2019 defines a ‘public-private partnership’ as an arrangement between the government entity and private investors to distribute resources, proceeds and risk bearing in order to implement the infrastructure development projects, their operation, reconstruction or flow of public services. However, the act prohibits three types of project implemented through private-public partnership:

  • projects operating with an aim to obtain work or service without transferring risks related to finance, technology or operation to the private sector;
  • projects related to national security; and
  • any projects prohibited by the Investment Board of Nepal.

The board has the power to provide recommendations to the government and concerned departments to provide financial or non-financial incentives to the project companies. The time limit for the validity of an approved project has not been fixed and is subject to arrangement in the project agreement. However, projects implemented under the act must be transferred to the concerned body as provided in the project agreement. 

PPP - transactions

Significant transactions

What have been the most significant PPP transactions completed to date in your jurisdiction?

Significant public-private procurement projects currently in operation are the Khimti hydropower project (60MW), the Bhotekoshi hydropower project (45MW) and the Manakamana cable car project (2.7 kilometres (KM)), and the Lower Solu Hydropower Project (82MW) and the Chandragiri cable car project (2.4KM). The Investment Board of Nepal has signed project development agreements for two export hydropower projects that are under construction: Upper Karnali (900MW) and Arun-III (900MW).


Recent developments

In addition to the above, are there any emerging trends or ‘hot topics’ in project finance in your jurisdiction?

The Nepal Infrastructure Bank has recently been established with government and private sector entities as shareholders and a capital of NRs20 billion. The bank is expected to help address the financing deficit for large infrastructure projects.