The newly-formed Electricity Regulatory Commission drew the ire of power producers who said some of the provisions in its recent directive regulating public offerings by hydropower companies were illogical.

The Share Issue Directives of Hydropower Companies 2019 permits hydropower companies to issue rights shares and make follow-on public offers only two years after their initial public offerings. The commission has barred hydropower companies from making follow-on public offers and issuing rights shares with the intention of investing in other companies or projects and clearing debts.

“There is no point in issuing further shares if we cannot pay back our debts and invest public money in other productive projects,” said Kumar Pandey, vice-president of the Independent Power Producers Association. “The commission did not understand our recommendations and enforced regressive regulations.”

According to Pandey, the primary motive of hydropower companies behind floating additional shares in the market is to settle debts and foster financial growth of the company by utilising the accumulated funds instead of depositing it as idle money in banks.

Commission officials countered the claim saying that the new regulations were put in place to foster a more accountable system of governance in hydropower companies that thrive on public investment.

“We have seen cases of hydropower companies making further public offerings for a particular project and then investing the money in other new projects without completing the under-construction project,” said Ram Prasad Dhital, a member of the commission. “The directives have been issued to ensure the security of public investment and prevent companies from mishandling the funds without providing dividends and completing the intended projects.”

The directives also state that only those hydropower companies that have achieved 50 percent completion in the construction of major structures and infrastructure ensuring transmission connectivity with the national grid can make initial public offerings. The draft provisions of the directive originally required 95 percent completion, but the commission relaxed the requirement after consultations with stakeholders.

Hydropower companies are required to carry out financial management for the project before issuing shares. The provision had drawn reservations from power producers who said the motive for making an initial public offering was to arrange funds for their projects. The regulator explained that the term ‘financial management’ meant that the companies should mandatorily disclose the amount they wish to collect from their initial public offerings in their financial plans.

Currently, there are 30 hydropower companies listed on the Nepal Stock Exchange. Statistics issued by the Nepal Electricity Authority show that there are 82 hydropower projects owned by independent power producers in operation. A total of 107 independent projects had achieved financial closure as of the last fiscal, and 74 projects are yet to do so.