Nepal's Parliamentary Committee Directs Hydropower Companies to Issue Shares to Locals at Face Value, Paving Way for Billions in IPOs

The Nepali Parliament's Finance Committee has issued a landmark directive, instructing the government and regulatory bodies to ensure that local residents affected by hydropower projects receive shares at their अंकित मूल्य (face value) of NPR 100 per share, rather than at a premium. This significant decision aims to resolve long-standing disputes and address the dissatisfaction among local communities that arose from some hydropower companies attempting to issue shares at premium prices.

The directive, which has been forwarded to the government, the Ministry of Finance, the Ministry of Energy, Water Resources and Irrigation, and the Nepal Securities Board (SEBON), mandates immediate implementation. This move is expected to clear the path for the issuance of primary shares (IPOs) from 34 hydropower projects currently in SEBON's pipeline, collectively valued at approximately NPR 17.71 billion. These projects have been stalled due to the ambiguity surrounding premium pricing for local allocations.

According to Mr. Laxman Aryal, Secretary of the Finance Committee, the legal intent behind the provision for allocating 10% of shares to directly affected local residents has always been for these shares to be offered at face value. He emphasized the seriousness of the directive, stating, "This directive cannot be disregarded under any pretext. If implementation faces any hurdles, the committee must be informed within 30 days." This firm stance underscores the committee's commitment to ensuring equitable participation and addressing the concerns of project-affected communities.

The issue of premium share issuance to locals had previously created a significant trust deficit between project developers and local communities. Critics argued that premium pricing limited access for locals and diminished their sense of ownership in projects that directly impacted their lives and environment. The Independent Power Producers' Association, Nepal (IPPAN), had also been a vocal advocate for issuing shares to locals at face value, recognizing the importance of community buy-in for the successful execution and long-term sustainability of hydropower projects.

Mr. Mohan Kumar Dangi, Chairman of IPPAN, lauded the committee's directive as a welcome development. He highlighted the previous dilemma: "On one hand, regulations mandated share allocation to locals, and on the other, delays in issuance due to premium pricing created significant uncertainty. This decision will now facilitate the progression of stalled IPO processes and ensure the active participation of local communities in these vital national projects." This sentiment reflects a broader industry consensus that clarity and fairness in local share allocation are crucial for the sector's growth.

The directive is rooted in the Securities Registration and Issuance Regulations, 2073, specifically Rule 9, Sub-rule (4), which stipulates that organized institutions must allocate up to 10% of their issued capital to project-affected local residents. The latest instruction from the parliamentary committee unequivocally clarifies that locals will no longer be required to pay a premium for these shares, reinforcing the original spirit of the regulation.

This decision is poised to have a multifaceted impact on Nepal's capital market and hydropower sector. By removing the premium barrier, it democratizes investment opportunities for local communities, fostering a stronger sense of ownership and partnership in national development initiatives. For hydropower developers, while it means foregoing potential premium revenue from local allocations, the expedited IPO process and enhanced community relations could lead to smoother project execution and reduced social risks. Furthermore, it sets a precedent for future infrastructure projects, emphasizing inclusive growth and equitable distribution of benefits. The move is expected to boost investor confidence among locals and potentially attract broader participation in the primary market, contributing to the overall depth and liquidity of the Nepalese stock exchange. This strategic intervention by the parliamentary committee is a crucial step towards aligning capital market practices with social equity goals, ensuring that the benefits of Nepal's burgeoning hydropower sector are shared more broadly across its population.