KATHMANDU: To enhance the institutional capacity and promote investment in the hydropower sector, the government has introduced a provision allowing mergers, acquisitions and transfer of ownership among hydropower companies.
The Guidelines for Mergers, Acquisitions, Share Purchase, Share Transfer, Acquisitions or Accept-2020, issued recently by the Electricity Regulatory Commission (ERC), has a provision whereby mergers and acquisitions will be allowed among hydropower firms.
The decision to facilitate mergers or transfer of ownership among the hydropower firms was taken during the 74th meeting of ERC.
As per the directives, physical infrastructure and projects related to power generation, transmission system, distribution system or trade owned by a licensed person or institution will be able to buy and sell 50 percent or more shares of another hydropower company that is in poor financial condition, and can be merged and a new organization can be established.
In case of a public company, if the licensed entities want to merge with each other, they will have to submit an application to the commission after passing a special resolution through their respective general assemblies. In the case of a private company, a decision has to be taken by the board of directors to this effect.
Such application may be approved by the commission within 90 days after assessing the acquiring company. However, the merger application may be rejected if the deal could result in an adverse impact on the power sector. The application can also be rejected if issues related to protection of consumer interest and public interest come to the fore. Another reason that the application can be rejected is if it seriously affects structure, financial condition or staff management of the concerned entities.
As per Section 7 of the directive, companies with yearly transaction of Rs 100 million need to pay a fee of Rs 100,000 to apply for merger or acquisition.
Most of the hydropower companies in the country are in poor financial condition. The 33 hydropower companies listed at the Nepal Stock Exchange have an average share price of Rs 100.
“Growing risk in the construction of hydropower projects has also had a negative impact on the capital market. So, we have decided to introduce the merger and acquisition policy between hydropower projects,” informed DilliBahadur Singh, chairperson of ERC.
“Now, weak companies or institutions will be able to merge and improve their financial health and expand investment in projects or secure public shares and income and ensure profits. This can reduce the risk of public investment even after the project construction and operation period,” he added.
Govt allows mergers and acquisitions between hydropower companies
