Foreign companies developing infrastructure projects in Nepal have been allowed to factor in the cost incurred prior to their establishment as paid-up capital, Nepal Rastra Bank (NRB) said. 

The country’s central bank issued a notice last week saying that the cost incurred before the joint venture or subsidiary of a foreign company was set up will be considered as foreign direct investment. 

According to NRB’s notice, foreign companies constructing national pride projects and those that have received investment approval from Investment Board Nepal (IBN) are eligible to receive this facility. 

Following this decision, the money spent during the feasibility study, geological exploration, survey and design besides the expenses incurred in the home country will be added as paid-up capital. 

Earlier, according to NRB guidelines, foreign companies were allowed to capitalize pre-incorporation costs amounting only up to 1 percent of the paid-up capital. 

Several foreign companies had expressed serious concern over the rule and had been lobbying IBN to have it relaxed. Acting on the complaints, IBN requested the central bank to change the rule and allow foreign investors to include pre-incorporation costs in their paid-up capital. 

“Various foreign investors were facing difficulties because of the earlier rule as even the pre-incorporation expenses of large infrastructure projects can be massive. Not allowing foreign companies to include such huge amounts in their paid-up capital had been discouraging them from investing in Nepal,” said Maha Prasad Adhikari.

“The new rule will improve the environment for foreign investment in Nepal.” 

The new guideline has come as a respite for China Three Gorges Corporation (CTGC), the joint venture partner of the Nepal Electricity Authority (NEA) for developing the 750 MW West Seti Hydropower Project. 

CTGC and the NEA have signed an initial joint venture agreement to form a company to build one of the largest reservoir type hydro projects in Nepal. 

The NEA board has approved the initial joint venture, but the CTGC board is yet to approve the pact. Problems in including pre-incorporation expenses in the paid-up capital have been one of the major reasons behind CTCG’s holding back in approving the pact, according to IBN.