Public enterprises in Nepal trace their origins back to 1936 A.D. (1993 B.S.) with the establishment of the Biratnagar Jute Mill. The pace of establishing such enterprises accelerated significantly during the First Five-Year Plan period (FY 1956/57–1960/61). The primary objectives behind their creation were to ensure the availability of essential goods and services, promote exports, generate employment opportunities, and encourage private sector participation in national development.
In the early years, the business and financial performance of public enterprises was generally satisfactory. However, following the economic liberalization of the 1990s, state-owned enterprises began to struggle in a more competitive market environment. Burdened by managerial inefficiencies, outdated technology, and persistent financial losses, many of these enterprises gradually weakened and failed to compete effectively with the private sector.
According to the Public Enterprises Annual Status Review Report 2023, there are currently 44 public enterprises operating in Nepal across various sectors, including industry, trade, services, public utilities, and finance. Of these, 25 are operating at a profit, 17 are incurring losses, and two have had no transactions. The continued losses have led to an inefficient allocation and use of government resources.
Although the government has attempted to reform these underperforming enterprises through financial support, management restructuring, privatization, and operational subsidies, these efforts have largely failed to produce effective results.
Government’s plan to revive sick public enterprises through PPPs
Recognizing the limitations of past interventions, the government is turning to public-private partnerships (PPPs) to revitalize struggling public enterprises. This approach seeks to attract private investment, management expertise, and operational efficiency while retaining government ownership or partial control.
In February 2025, during a meeting of the Industry-Commerce Promotion Dialogue Council, Prime Minister KP Sharma Oli called on the private sector to submit concrete proposals under the PPP model for the revival of sick public enterprises. Earlier, in October 2024, the Privatization Committee led by the finance minister had decided to propose to the Cabinet the classification of eight closed and sick public enterprises, including the Janakpur Cigarette Factory, Nepal Metal Company, and Hetauda Textile Industry, for privatization.
In line with the PPP concept, a shared understanding among stakeholders is vital for the revival and operation of these enterprises through PPP model. To ensure success, it is important to thoroughly understand the challenges of the PPP model and explore measures for its effective implementation.
Understanding PPPs
PPPs are agreements between government entities and private sector organizations to finance, develop, and operate infrastructure projects or public services. These long-term partnerships combine government oversight with private sector expertise, efficiency, and investment capital. One of the core features of PPP is that both the public and private sectors share risks according to their respective strengths. This balanced risk-sharing contributes to making projects more effective and sustainable in the long run. Compared to past government-led efforts, PPP holds the potential to be a more effective model for reviving sick public enterprises.
The Public–Private Partnership and Investment Act, 2019 (PPPIA) outlines various modalities under which projects can be implemented under the PPP framework. By sharing investment and operational risks between the public and private sectors, the PPP model helps reduce the financial burden on the government. Private sector participation brings in superior management practices and technical expertise, while financial discipline enhances operational efficiency and promotes innovation.
Compared to full privatization, PPP presents a more balanced and viable alternative.
PPP is not privatization
Following economic liberalization in the 1990s, Nepal privatized 30 public enterprises. Although the privatization process was pursued with enthusiasm, it failed to deliver the expected outcomes – such as increased investment, growth in production, and job creation. As a result, public confidence in privatization declined, and the process came to a standstill.
It is important to distinguish between privatization and PPPs. In privatization, ownership and full control of an enterprise are permanently transferred to the private sector. In contrast, PPPs typically involve private partners managing and operating public enterprises for a fixed period, after which control reverts to the government. This structure incentivizes the private sector to improve productivity and reduce inefficiencies while maintaining long-term sustainability.
In full privatization, the government's role is largely limited to regulation and oversight. However, under a PPP model, the government remains actively engaged, defining the terms of the agreement, safeguarding public interests, and monitoring performance.
The PPP model offers a practical solution for reviving underperforming public enterprises by striking a balance between full government control and full privatization. It can also help rebuild trust among the private sector, the government, and the public.
Key challenges
The PPP model offers significant advantages, but it is not without challenges. Effective implementation faces several hurdles.
The success of PPP projects heavily depends on the selection of the right private partners. If the selected partner is competent and trustworthy, risk management becomes easier. However, if inexperienced or incapable firms are chosen, it can weaken the enterprise’s competitiveness and efficiency. Additionally, government liabilities can escalate if private partners demand excessive guarantees and incentives, straining public finances.
Policy ambiguity, administrative delays, and procedural complexities can discourage private sector participation in PPP projects.
In addition, resistance from political groups and labor unions can pose serious obstacles. Labor unions may oppose PPP initiatives due to fears of losing influence or concerns over job security.
Such opposition can disrupt project implementation, leading to delays or even failure.
The way forward
To successfully revive sick public enterprises through the PPP model, the government must develop a clear policy framework and adopt a transparent, structured approach.
Establish independent study committees
The government should form independent study committees comprising representatives from the Ministry of Industry, Commerce and Supplies, the Ministry of Finance, relevant sectoral ministries, the Investment Board, and PPP experts. These committees would conduct detailed assessments of underperforming public enterprises and recommend the most appropriate modality in accordance with the PPPIA. When determining the appropriate PPP model, it is crucial to establish clear criteria based on cost–benefit analysis, fiscal and contingent liabilities, and risk–return assessments.
Develop clear private sector selection criteria
To ensure the success of PPP projects, it is important to select financially sound and experienced private partners through a transparent and competitive bidding process. A selection process based on clear criteria strengthens accountability and public trust.
Develop financial and risk mitigation instruments
To make PPP projects more attractive to investors under the PPP model, the government must establish robust financial and risk mitigation mechanisms. Instruments such as viability gap funding (VGF) and blended finance should be implemented to improve project bankability and to incentivize private sector participation.
Collaborating with international financial institutions can help introduce advanced risk mitigation measures into Nepal’s market. Additionally, the government should work to develop the bond market to enable the issuance of bonds for financing PPP projects.
To ensure high-quality proposals from the private sector, the government itself must be willing to share risks and returns. Furthermore, it must proactively address political and regulatory risks to create a stable and predictable environment for PPP investments.
When offering incentives such as tax exemptions, land lease arrangements, or other benefits, the government should adopt fair and balanced policies based on thorough financial and economic analysis, ensuring fiscal responsibility is maintained.
Strengthen legal and institutional frameworks
A strong legal and institutional framework is fundamental for the success of PPP projects. While the PPPIA 2019 provides a robust foundation, several of its provisions still require further clarification and operationalization.
Section 24 of the Act outlines the Swiss Challenge method, which allows unsolicited project proposals to be competitively challenged. However, the absence of detailed guidelines has created uncertainty, hampering effective implementation.
Viability Gap Fund (VGF), as outlined in Section 43 of the Act, is designed to support projects that are economically significant but financially less attractive to private investors. Despite its importance, the intended support mechanism remains underutilized. To operationalize VGF effectively, the government should allocate dedicated annual funds, set transparent selection criteria, and prioritize investments in critical sectors.
Models such as Build-Operate-Transfer (BOT), Lease-Operate-Transfer (LOT), Develop-Operate-Transfer (DOT), and Rehabilitate-Operate-Transfer (ROT) under the PPP framework have not been clearly defined in existing legislation. This lack of clarity has led to confusion during the implementation of agreements and hindered effective project execution. To address this, the government must provide clear definitions and detailed explanations of these PPP modalities.
Engage stakeholders in decision-making
The successful implementation of the PPP model requires the active participation of labor unions, civil society, and experts. A transparent and inclusive decision-making process not only addresses public concerns but also helps reduce resistance and ensures the long-term stability of agreements.
By implementing these strategic measures, the government can foster a more enabling environment for PPP investments, effectively revive sick public enterprises, and transform them into engines of economic growth. Moreover, it will help safeguard public interest and ensure the optimal use of state-owned assets for national development.
(The author is an engineer. He has worked in the fields of public–private partnership (PPP), development policy, and research.)
