Nepal’s hydropower sector has expanded rapidly in the capital market over the past two decades. What began with a single listed hydropower company in fiscal year 2060/61 has now grown to 103 listed hydropower companies, accounting for more than 35% of all listed companies in the market.

While this growth reflects investor interest and the country’s focus on energy development, it has also exposed deeper legal and structural questions that could carry long-term implications for public investors.

A Unique Business Model Unlike Other Listed Companies

Hydropower companies operate under Nepal’s Build–Operate–Transfer (BOOT) model.

Under this framework:

Developers build and operate the project for a fixed concession period.
After the license period expires, ownership of the project is transferred to the Government of Nepal.

Most hydropower projects currently receive:

Around 5 years for construction
Around 30 years for operation
Total concession period: 35 years

This creates a fundamental issue: once the operating license expires and the project is transferred, the company’s main income-generating asset no longer remains under its control.

However, Nepal’s existing legal framework provides limited clarity on:

How these listed companies will continue operating afterward,
What happens to shareholders’ ownership value,
Whether investors retain economic rights after transfer.

Rising Exposure of Public Investors

According to capital market figures cited in the discussion:

Hydropower companies have received approval to issue approximately Rs. 50.86 billion worth of public shares from FY 2060/61 through Baisakh 2083.
Hydropower sector market capitalization reached approximately Rs. 8.14 trillion.
The sector represents around 17.48% of total market capitalization.
Nearly 45.2% of total trading activity comes from hydropower stocks.

These figures show the sector’s increasing influence on Nepal’s stock market—and why any structural weakness could affect a broad investor base.

The Core Debate: Perpetual Shares vs. Time-Limited Projects

One of the biggest concerns raised by experts is theoretical in nature.

Ordinary shares are traditionally considered perpetual instruments, meaning ownership generally does not expire.

Hydropower projects under BOOT, however, are time-bound assets.

This raises a critical question:

If the underlying project must eventually transfer to the government, should the financing instrument remain an ordinary share—or should it be designed differently?

In many international infrastructure markets, similar projects are often financed through:

Project-based structures,
Infrastructure funds,
Project bonds,
Special Purpose Vehicles (SPVs),

rather than perpetual public equity.

Concerns Raised by the Economic Reform Commission

Nepal’s High-Level Economic Reform Recommendation Commission 2081 reportedly highlighted this issue as a significant policy concern.

The commission noted uncertainty surrounding:

The future of public and local shareholders after project transfer,
High market valuations despite weak company fundamentals in some cases,
Risks that could emerge if regulatory gaps remain unresolved.

The report also raised concerns that unchecked practices could create broader financial instability in the future.

Additional Concerns Emerging in the Sector

Other issues highlighted include:

More than half of companies applying for rights offerings belong to hydropower.
Concerns that some firms use public capital and rights issues primarily to manage existing debt burdens.
Multiple companies promoted by the same groups creating concentration risk.
Founders reducing ownership after listing, raising governance questions.

What Experts Suggest

Policy discussions increasingly point toward coordinated action among:

Government of Nepal
Ministry of Energy, Water Resources and Irrigation
Ministry of Finance
Electricity Regulatory Commission
Securities Board of Nepal

Suggested reforms include:

Developing project bonds and infrastructure financing tools,
Creating clear legal provisions for post-license company operations,
Tightening rules on repeated capital raising for similar purposes,
Strengthening governance and disclosure standards.

As hydropower becomes increasingly central to Nepal’s capital market, the discussion is shifting from growth alone toward whether the market structure itself is prepared for the sector’s long-term realities.