Should Hydropower Companies Be Allowed to Issue IPO Before COD? Nepal’s Energy Investment Debate

Nepal’s evolving rules around hydropower IPOs and public share issuance have raised an important question among investors and stakeholders: Should hydropower companies be required to reach Commercial Operation Date (COD) before they are allowed to issue an IPO?

The debate is bigger than the IPO market itself. At its core, an IPO is a mechanism for capital raising. For infrastructure-intensive sectors such as hydropower, restricting access to public capital until a project reaches COD could create a significant financing challenge.

Hydropower IPO Rules and the Need for Project Financing

Hydropower projects require substantial capital long before they begin commercial electricity generation.

Land acquisition, construction, civil works, equipment procurement, transmission infrastructure, interest during construction and other development expenses require funding during the project-development phase.

This raises a fundamental question:

If a hydropower project has already reached COD, why would it need an IPO primarily for construction financing?

From an investment perspective, one of the traditional purposes of allowing public participation in infrastructure projects is to help mobilize capital while the project is still being developed.

Therefore, a policy that effectively makes public capital available only after commercial operation could limit one of the important financing channels available to hydropower developers.

IPO Is More Than Just the Primary and Secondary Market

An IPO is often discussed in the context of the primary market, followed by trading in the secondary market.

But fundamentally, an IPO is also a capital-raising mechanism.

For Nepal, where large infrastructure projects require significant long-term investment, public participation can potentially provide an additional source of domestic capital.

The question, therefore, should not simply be whether hydropower companies should be allowed to issue IPOs.

A more useful policy question may be:

Under what conditions should a hydropower project be allowed to raise public capital before COD while protecting investors?

A framework based on project progress, promoter history, financial transparency, construction milestones and regulatory compliance could potentially address both objectives.

Nepal’s Hydropower Ambition Requires Private Investment

Nepal has ambitious plans for expanding electricity generation and improving energy infrastructure.

Achieving large-scale generation targets will require substantial investment in:

• Hydropower projects
• Transmission lines
• Distribution infrastructure
• Substations
• Energy storage
• Cross-border electricity infrastructure
• Supporting energy industries

The private sector has already played an important role in expanding Nepal’s electricity-generation capacity.

The broader lesson is that government policy and private investment need to work together if Nepal wants to accelerate energy development.

Capital-market policies that affect hydropower financing therefore have consequences beyond individual companies and IPO applicants.

The Private Sector’s Role in Ending Load Shedding

It is sometimes suggested that Nepal’s load-shedding problem was solved primarily by a particular individual, institution or government.

However, the reduction and eventual end of widespread load shedding involved multiple factors, including improvements in electricity management, transmission and distribution, increased generation and growing participation from private hydropower developers.

Private-sector investment has become an important part of Nepal’s electricity-generation landscape.

Rather than viewing the energy sector only through the lens of government investment, Nepal's policy framework should recognize the role of private capital, institutional investors and public shareholders in expanding generation capacity.

Could Crowdfunding Help Finance Transmission Lines?

The same discussion can be extended beyond hydropower generation.

Nepal still requires substantial investment in transmission infrastructure to efficiently connect electricity-generation projects with demand centers.

Could carefully regulated crowd investment or public investment models be considered for selected transmission projects?

A regulated structure could potentially allow citizens and domestic investors to participate in infrastructure development while maintaining strong disclosure, governance and investor-protection standards.

Such a model would require detailed feasibility studies, appropriate regulation and clear accountability. But the larger principle is worth discussing:

If Nepal wants large-scale infrastructure development, it needs multiple channels of capital—not a system where the government alone carries the entire financing burden.

Should Hydropower Projects Near Completion Be Allowed to Issue IPOs?

One possible policy approach would be to consider IPO eligibility for projects that have already completed a substantial portion of construction, subject to strict conditions.

For example, regulators could consider criteria such as:

• A significant percentage of physical construction completed
• Verified project progress reports
• Strong promoter and director track records
• Independent technical due diligence
• Clear project financing arrangements
• Transparent use-of-proceeds plans
• Adequate transmission connectivity
• Audited financial statements
• Regular regulatory disclosures
• Investor-protection mechanisms
• Penalties for misuse of public funds

Such conditions could help distinguish between a genuine infrastructure project nearing completion and a speculative project seeking public money without sufficient safeguards.

Investor Protection Must Remain Central

Allowing earlier-stage hydropower IPOs does not mean that every project should automatically receive approval.

Hydropower projects carry construction risk, cost-overrun risk, financing risk, hydrological risk, transmission risk and regulatory risk.

Therefore, SEBON and other relevant authorities have an important investor-protection role.

The objective should be to balance two legitimate goals:

Protect investors + Enable infrastructure financing

A regulatory system that focuses only on restricting IPOs may reduce risk in one area while potentially creating financing constraints elsewhere.

Conversely, allowing companies to raise public money without adequate safeguards could expose investors to unnecessary risks.

The solution lies in designing transparent eligibility standards rather than simply closing the door to public capital.

Nepal Needs Capital-Market Innovation for Energy Development

Nepal’s capital market can potentially become an important source of domestic financing for long-term infrastructure.

Hydropower companies, transmission projects and other energy-related infrastructure could benefit from appropriately regulated capital-market instruments.

This does not mean lowering regulatory standards.

Instead, it means creating clear, transparent and practical rules that allow genuine projects to access capital while preventing misuse of investors' money.

The debate over hydropower IPOs should therefore be viewed as part of a much larger discussion about Nepal’s capital market, infrastructure financing and energy development strategy.

Conclusion: The IPO Debate Is Really About Capital Formation

The central issue is not simply whether hydropower companies should issue IPOs before or after COD.

The bigger question is:

How can Nepal mobilize enough domestic and institutional capital to finance the thousands of megawatts of electricity generation and the transmission infrastructure required to support it?

If projects with substantial construction progress can demonstrate financial transparency, promoter credibility, technical feasibility and appropriate investor safeguards, policymakers could consider a conditional framework for public capital raising.

Nepal cannot expect to achieve ambitious energy and infrastructure goals through government funding alone.

Capital formation, private investment, public participation and strong regulation must move together.

For investors, this is also a reminder that understanding hydropower fundamentals, IPO regulations, project risk, financial statements and Nepal’s capital market is essential before making investment decisions.

Learn more about share market training in Nepal, NEPSE analysis, fundamental analysis and technical analysis through Sarbaguna.com.

Frequently Asked Questions (FAQ)

1. What is COD in a hydropower project?

COD stands for Commercial Operation Date. It generally refers to the point at which a power project is ready to begin commercial electricity generation according to applicable regulatory and contractual requirements.

2. Why is IPO important for hydropower companies?

An IPO can provide a mechanism for raising capital from public investors. Since hydropower projects require substantial investment during construction, access to capital markets can be relevant to project financing.

3. Should hydropower companies be allowed to issue IPOs before COD?

This is a regulatory policy question. One possible approach is to allow qualifying projects to issue IPOs before COD subject to construction-progress requirements, technical due diligence, financial transparency and investor-protection conditions.

4. What risks do hydropower investors face?

Hydropower investors may face construction delays, cost overruns, financing risks, hydrological risks, transmission constraints, regulatory changes and project-management risks.

5. Why is private investment important for Nepal’s hydropower sector?

Large-scale energy development requires substantial capital. Private-sector investment can supplement government resources and help finance electricity-generation and infrastructure projects.

6. What is the role of SEBON in hydropower IPOs?

The Securities Board of Nepal (SEBON) regulates Nepal's securities market and plays a role in overseeing public securities issuance and investor protection under applicable laws and regulations.

7. Can the capital market help finance Nepal’s infrastructure?

Yes. Depending on the regulatory framework, capital-market instruments can provide financing channels for companies and infrastructure projects. Proper disclosure, governance and investor protection remain essential.

8. Why should investors learn about hydropower before buying shares?

Hydropower companies can have different project stages, financial structures, generation prospects and risk profiles. Investors should understand project progress, financial statements, valuation, debt, generation capacity and regulatory factors before making investment decisions.

9. Where can I learn about Nepal’s stock market?

Investors looking to understand NEPSE, fundamental analysis, technical analysis, IPOs, portfolio management and stock-market investing in Nepal can explore Sarbaguna’s stock market training resources.

Nepal Stock Market & Share Market Training: Learn NEPSE fundamentals, technical analysis, IPO analysis, portfolio management, hydropower stock analysis and practical trading strategies through Sarbaguna Stock Market Training Nepal.

For share market training, NEPSE analysis, stock-market education, investment learning and market insights, visit Sarbaguna.com.

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