Public-Private Partnership (PPP) Policy, 2072 (2015): Comprehensive Study Notes & Analysis

1. Background, Historical Context & Rationale

1.1 Why PPP Was Needed

•         National treasury alone insufficient to fund infrastructure (roads, bridges, airports, railways, electricity, irrigation, cable cars, drinking water)

•         PPP attracts private sector means, resources, skills and technology for public development works

•         Private sector contributes: managerial expertise, innovative technology, and capital investment

•         Goal: make public assets and services less costly, effective and reliable

1.2 Legislative Timeline

•         2000 2000 AD - "Construction, Operation and Handover of Public Infrastructure Policy" formulated

•         2006 2006 AD - "Private Sector Investment in the Construction and Operation of Infrastructure Act" enacted; still in force

•         2015 2015 AD - PPP Policy 2072 (new policy) formulated; repeals the 2000 policy 

1.3 Nepal's Development Status (2015 Baseline)

Nepal aimed to graduate from Least Developed Country (LDC) to developing country by 2022 AD.

Indicator	Nepal Status (2015)	LDC Target / Goal
GNI per capita (actual)	USD 659	USD 1,242
Human Asset Index	68.7	66 (threshold)
Economic Vulnerability Index	26.8	32 (threshold)
Infrastructure investment (% GDP)	3-4%	6-7% growth target
Required investment by 2022	-	~Rs. 10,000 billion

 

1.4 Key Challenges

•         Enhancing investment and management capacity in infrastructure sector

•         Private sector unable to meet time-bound responsibilities (land acquisition, coordination, environmental approval)

•         Limited resources and weak professional competence in PPP implementation

•         Absence of policy on proper risk-sharing for large national infrastructure projects

•         No proper Viability Gap Funding (VGF) arrangement

•         Non-transparent project selection process; inadequate feasibility studies

•         Lack of independent appraisal practices for feasibility studies

•         Persistent security problems and land acquisition difficulties

•         Policies not in tune with current international norms and practices 

Key Fact: Nepal needed approximately Rs. 10,000 billion in investment by 2022 AD to achieve the required growth in infrastructure. Current infrastructure investment of 3-4% of GDP was insufficient; 6-7% annual economic growth was targeted.

2. Vision, Goal & Objectives

2.1 Vision

"To ensure public access to infrastructure and services through their qualitative and sustainable development."

2.2 Goal

"To enhance public-private sector investment on development and operation of public infrastructure services through the adoption of the PPP model for comprehensive socio-economic development."

2.3 Objectives (Clause 8)

•         8.1 Clause 8.1 - Create environment attracting private investment (domestic and foreign) to meet capital and resource requirements for development, reconstruction and operation of public infrastructure

•         8.2 Clause 8.2 - Utilize professionalism, work efficiency, entrepreneurship and technical skills of private sector for qualitative public infrastructure services

3. Policies & Strategies

3.1 Three Core Policies (Clause 9)

•         9.1 Policy 9.1 - Promote PPP-related international norms and standards in all feasible state organs and entities

•         9.2 Policy 9.2 - Create conducive investment environment for domestic and foreign private sector in infrastructure development

•         9.3 Policy 9.3 - Optimal utilization of private sector professionalism, entrepreneurship, ability and latest technologies

3.2 Strategies (Clause 10)

For Policy 9.1 (Clauses 10.1-10.3)

•         Accept and adopt prevailing PPP norms in all possible public sectors on basis of necessities and relevance

•         Identify and prioritize infrastructure and services implementable under PPP concept

•         Make all state organs vibrant as needed to implement PPP projects

For Policy 9.2 (Clauses 10.4-10.6)

•         Make procurement and approval processes simple and transparent

•         Share risks and benefits between public and private sectors in a justifiable manner

•         Ensure GoN investments, cooperation and commitments to implement PPP and boost private sector morale

For Policy 9.3 (Clauses 10.7-10.9)

•         Use private sector competence in identification, prioritization, feasibility study and framework preparation

•         Utilize professionalism and entrepreneurship of private sector in construction and management

•         Ensure accountability of private sector for sustainable operation, repair and maintenance

4. Underlying PPP Principles & Project Forms (Clause 11.1)

4.1 Defining Characteristics of a PPP

•         Fixed-period contract between public and private entities

•         Private entity bears full or partial financial/construction/operation/maintenance risks

•         Private entity provides public services directly or indirectly

•         Return on investment through user fees collected over the concession period

•         Assets must revert to public entity ownership after the contract period ends

4.2 Salient Features Required (Clause 11.1(5))

•         Clearly defined contract period

•         Full or partial private capital investment for construction/rehabilitation/modernization

•         Private entity responsible for operation, maintenance and service delivery

•         Performance-linked payment benchmarks set in advance

•         Private entity accepts income-related risk (partly or fully)

•         All provisions formalized in a duly signed project agreement

4.3 What Does NOT Constitute a PPP (Clause 11.2(ii))

•         Services operated by private sector without transferring financial, technical or operational risks

•         Privatization of public assets or liabilities

•         Commercialization of public works through government-owned enterprises created by government decision

•         Receipt of grants, donations or gifts from private entities for public works

•         State security provisions

4.4 Forms of PPP (Spectrum - Minimal to Maximum Private Involvement)

•         Management/Operation Contract - private operates public asset, no investment, no risk transfer

•         Lease / Concession Agreement - private operates public asset, pays royalty/rent

•         Build-Operate-Transfer (BOT) / Build-Own-Operate-Transfer (BOOT)

•         Design-Build-Operate-Transfer (DBOT)

•         Full private investment with eventual ownership transfer - maximum private involvement

Suitability determined by: project structure, investor/lender acceptability, user fee viability, risk-benefit sharing, and defined agreement period.

4.5 Requirements for Project Implementation (Clause 11.2(i))

•         Clear provision on user fees or performance payment mechanism

•         Clear allocation of responsibilities between public and private entities

•         Risk borne by entity most capable of bearing it

•         Detailed service specifications, payment benchmarks, incentives, penalties and grievance mechanisms

•         Clarity on ownership of existing and newly created assets

•         Effective monitoring system at every level of project cycle

•         Result-based payment, motivational incentives and penalty provisions

5. Priority Sectors & Project Identification (Clause 11.3)

5.1 National Priority Sectors

•         Physical infrastructure and transportation - Roads, Bridges, Airports, Railways, Cable Cars, Ropeways, all ports

•         Electricity sector - Generation, transmission and distribution (together or separately) and other energy types

•         Information and communication sector

•         Urban and rural environment - Solid waste management, drinking water, sewerage and sanitation

•         Education, health infrastructure, and tourism infrastructure (excluding hotels and accommodation)

•         Urban amenities

Important: Local level PPP projects do NOT require their own specific prioritization list. Techno-economic and market feasibility are the deciding parameters for local level projects (Clause 11.3(3)).

5.2 Project Selection Criteria

•         Quality and access to services enhanced

•         Current public service status improved

•         Economic benefit to Nepalese economy ensured

•         Government and local entity funds effectively mobilized

•         Innovative and high-level technology utilized

5.3 Project Identification Process (Clause 11.4)

•         All public entities identify and determine priority areas; may hold consultation meetings with private sector

•         PIAs select, design and assess suitability of PPP projects from identified areas

•         PIAs furnish identified projects to National Planning Commission (NPC) for analysis before proceeding

•         For projects below Rs. 50 million - chief executive of public entity may formulate own procedures

•         Private sector interested in developing a project may be invited to do so (Clause 11.4(4))

6. Project Appraisal & Procurement Process (Clauses 11.6 & 11.7)

6.1 Approval Before Procurement (Clause 11.6)

•         Procurement process can only commence after: feasibility study, suitability appraisal, and procurement document approval by competent authority

•         PIA submits feasibility study, procurement documents, bidder details and preferred competitor details to approving authority before signing project agreement

•         Approving authority may ask PIA to revise project structure or grant approval with mandatory conditions

•         Any changes to approved documents or project outlay require fresh approval from competent authority

6.2 Six-Step Procurement Process (Clause 11.7)

Step 1: REOI — Request for Expression of Interest - optional stage to gauge market interest, understand prospective bidders and associated risks

Step 2: RFQ — Request for Qualification - evaluate overall technical and financial competency; prepare shortlist of qualified bidders

Step 3: RFP — Request for Proposal - detailed technical and financial proposals invited from shortlisted bidders only; project agreement draft included

Step 4: Evaluation — Committee (including PPP Centre, NPC and MoF representatives) evaluates proposals on predetermined criteria; technical and financial proposals opened at different times

Step 5: Bid Approval — Preferred bidder's proposal approved by competent authority; notification letter issued

Step 6: Agreement Signing — Project agreement signed; no substantive changes from RFP draft; only minor administrative matters may be amended

6.3 Key RFP Provisions (Clause 11.7(C))

•         Project period and specifications clearly stated

•         Monitoring process and compensation provisions

•         Methods for resolving force majeure, contract termination and scope changes

•         VGF and/or equity provisions; royalty/rent/lease charge details

•         Risk sharing and management methods during project period

•         Infrastructure handover process

•         Bid security required with proposal; performance guarantee required before agreement

•         Financial proposals opened only for technically qualified bidders

6.4 Unsolicited Proposals (Clause 11.8)

An unsolicited proposal is one not invited by PIA but identified and submitted by an interested private entity.

•         Accepted only under three specific conditions:

◦         (a) Proposals were invited earlier but a successful bidder could not be selected

◦         (b) Project uses proprietary goods available only with that particular entity

◦         (c) Council of Ministers declares the project strategically important

•         Projects above Rs. 100 million require Council of Ministers approval in principle before proceeding

•         If project accepted for processing - PIA invites competitive bids; proposer may also participate

•         Proposer has 30 days to match preferred bidder's commitments; if accepted, preferred bidder compensated for bid preparation costs

•         If proposer declines or fails to qualify - project not awarded to proposer

7. Key Financial Thresholds

Threshold	Provision
Below Rs. 50 million	Chief executive of public entity may formulate and implement own PPP procedures independently (Cl. 11.4(8))
Below Rs. 100 million	PIA may decide itself whether to seek PPP Centre appraisal; single-stage RFQ+RFP process allowed (Cl. 11.7(2)(a))
Rs. 100 million and above	Mandatory submission to PPP Centre for suitability appraisal; model documents must be used (Cl. 11.6(1)(b))
Rs. 500 million+ OR requires VGF/grants	PPP Board of Directors approval required before commencing procurement (Cl. 11.6(3)(c))
Above Rs. 1 billion	International bids mandatory (Cl. 11.7(2)(d))
Land acquisition	Project agreement cannot be signed unless 80% of required land is acquired by GoN (Cl. 11.9(5))
Unsolicited proposals above Rs. 100 million	Council of Ministers approval in principle required before processing (Cl. 11.8(5))

7.1 Approving Authority Summary

•         National-level PIA, below Rs. 500 million, no VGF required - PIA chief executive grants approval

•         Rs. 500 million+ and/or requires VGF or government grants - PPP Board of Directors approval required

•         Local body, no VGF, no central grant - local body approves and implements independently

•         Local body, requires VGF or central government financial support - PPP Board of Directors approval required

•         Investment Board Nepal as PIA - follows Investment Board Act; Board of Directors only for VGF/central grant cases

8. Institutional Framework (Chapter 12)

8.1 PPP Board of Directors (Clause 12.1)

•         Chairperson: Secretary, Ministry of Finance

•         Members: Secretaries of PMO, NPC Secretariat, Home Affairs, Physical Infrastructure & Transport, Land Reform, Forestry, Science/Environment, concerned Ministry, Federal Affairs & Local Development

•         Member Secretary: Chief, PPP Centre

Scope of Work

•         Provide guidelines on all PPP-related policy matters

•         Identify areas and investment opportunities for PPP projects

•         Grant approval for procurement process for Rs. 500m+ projects and those requiring VGF

•         Establish necessary coordination with concerned entities

8.2 PPP Regulatory Committee (Clause 12.2)

•         Chairperson: Secretary, National Planning Commission

•         Members: Joint secretaries of MoF, Home Affairs, Physical Infrastructure, Federal Affairs, Land Reform + appointed expert; PPP Centre chief as Member Secretary

•         Submits annual report to NPC through infrastructure sector member

•         NPC may carry out review and issue necessary directives

8.3 PPP Centre (Clause 12.3)

•         Located under National Planning Commission

•         Functions: feasibility study and independent suitability appraisal; facilitation of public and private entities; PPP capacity building; domestic and international best practice research; model documents and guidelines; investor/bank coordination; maintain contingent liability records

•         Issues model documents: RFQ, RFP and project agreement templates

•         Must be consulted before implementing innovative, complex or debut PPP projects

8.4 PIA & PIU (Clause 12.4)

•         Every public entity implementing PPP projects = Project Implementing Agency (PIA)

•         Each PIA forms a Project Implementation Unit (PIU) per individual project

•         PIU responsibilities: preparatory works, studies, procurement, coordination, agreements with private entities, implementation

•         Investment Board Nepal: hands approved projects to concerned Ministry after financial closure

9. Financial Provisions (Chapter 13)

9.1 Four Key Financial Instruments

 (a) Project Preparation Facility Fund (PPFF) - Clause 13.4

•         Established by Ministry of Finance

•         Purpose: feasibility studies, consultancy services, analysis of challenges and opportunities of PPP projects

•         Management and mobilization governed by dedicated manual

(b) Revolving Fund for Land Acquisition (RFLA) - Clause 13.5

•         Established by Ministry of Finance

•         GoN acquires land for PPP projects; costs recoverable from private sector through royalty/rent/lease fee/compensation

•         Recovered amounts re-deposited in RFLA (revolving nature)

(c) Viability Gap Fund (VGF) - Clause 13.6

•         Established by Ministry of Finance

•         Provides direct capital grants to make financially unviable but publicly important projects viable

•         Conditions: financial income insufficient to meet expenses AND no adequate alternative funding exists

•         Board of Directors decides on VGF grant on recommendation of PPP Centre

•         NOT applicable to projects receiving annual installment payments from PIA

(d) Capital Participation - Clause 13.7

•         PIAs may invest equity in PPP projects in special cases with clear documented justification

•         Bases: enhancing financial viability, strong PIA presence, investor-friendly environment, reasonable project monitoring

9.2 Who Bears Which Costs (Clause 13.10)

•         Government: administrative processes (project selection, feasibility study, supervision, expert identification), initial land acquisition costs

•         Private sector: all financial obligations related to project implementation

•         Public entity: PIU administrative costs

•         Land acquisition costs initially by GoN; recoverable from private sector through royalty/rent/lease/reimbursement

•         Tax exemption/waiver by GoN permissible depending on project nature (Clause 13.8)

9.3 Budget Provisions (Clause 13.1)

•         National level: PIA proposes budget to MoF and NPC; MoF takes final decision in consultation with NPC and PIA

•         Local body as PIA: local body council decides budget; included in its budget book

•         PPP Centre administrative and other expenses included in every annual budget

10. Risk Sharing, Disputes, Monitoring & Handover

10.1 Risk Sharing Principles (Clause 11.10)

Central Principle: 'Public interest' is kept at the centre. The entity most competent to manage a particular risk should bear that risk. Risk sharing framework based on feasibility study and opportunity analysis.

 

Risk Type	Assigned To
Design, construction, project management quality, technical standards	Private entity
Environmental regulation compliance	Private entity
Cost of service, financial management, fee recovery, profit	Private entity
Permissions, approvals and inter-government coordination	PIA (public entity)
Land acquisition	PIA (public entity)
Government grants-related risks	PIA (public entity)
Force majeure (direct/indirect)	Insurance first; uninsured matters per project agreement
Asset transfer / contract void or cancelled	Adjusted per project agreement; burden depends on cancellation reason

10.2 Land Acquisition (Clause 11.9)

•         GoN provides required land to PIA for PPP projects at national and local levels

•         GoN follows prevailing land acquisition laws and Land Acquisition, Rehabilitation and Resettlement Policy 2014

•         Compensation against land acquisition may be reimbursed through private entity (fully or partly) as stated in procurement documents

•         Critical Rule: Project agreement CANNOT be signed unless GoN has acquired 80% of the required land

10.3 Dispute Settlement (Clause 11.12)

•         First: Prevailing Nepal laws apply to project agreement

•         Second: Amicable settlement through dialogue and discussion between disputing parties

•         Third: If amicable settlement fails - Arbitration Act, 1999 applies

•         For foreign investors: ICC Rules or UNCITRAL dispute resolution procedure may be adopted (must be stated in project agreement)

•         Special projects: separate provisions by Council of Ministers decision as stated in agreement

10.4 Monitoring & Evaluation (Clause 15)

•         Primary responsibility: concerned public entity through PIU

•         MoF (with PPP Centre) may constitute working committees for financial climate review

•         PPP Centre submits annual report to GoN through Board of Directors - must report results achieved and problems faced

•         Private entity submits annual audit reports on PPP project income and expenditure to public entity

10.5 Project Handover (Clause 18)

•         On contract expiry: private entity hands over physical infrastructure and assets in running condition to PIA

•         One year before handover: repair and maintenance under PIA supervision as guided by project documents

•         PIA deputes its representatives to oversee the handover process

10.6 Regulatory Provisions (Clause 16)

•         GoN constitutes separate sector-specific regulatory bodies

•         Regulatory bodies regulate PPP projects

•         If no regulatory body exists: regulation based on non-discrimination, independence, transparency and accountability

10.7 Policy Implementation Plan (Clause 11.11)

•         This policy acts as the base for formulating Acts, rules, guidelines and manuals

•         Within one year of approval: GoN to develop manuals for PPFF and VGF; PPP Centre to issue model documents

•         Local bodies to amend the "Public Private Partnership (For Local Bodies) Policy, 2003" on the basis of this policy

11. Quick Reference Summary for Exam

Repeal & Saving (Clause 19): The "Public Infrastructure Construction, Operation and Handover Policy, 2000" is repealed. All actions taken under the 2000 policy are deemed to have been taken under the 2015 policy.

11.1 Five Key Numbers to Memorize

•         Rs. 50 million - threshold below which PIA chief executive has autonomous authority

•         Rs. 100 million - threshold requiring mandatory PPP Centre appraisal and model documents

•         Rs. 500 million - threshold requiring PPP Board of Directors approval

•         Rs. 1 billion - threshold requiring international bids

•         80% - minimum land acquisition by GoN required before signing project agreement

11.2 Key Definitions

•         PPP Centre: Under NPC; responsible for appraisal, model documents, capacity building, guidelines

•         PIA (Project Implementing Agency): Any public entity implementing a PPP project

•         PIU (Project Implementation Unit): Unit formed by PIA per project for implementation

•         VGF (Viability Gap Fund): Capital grant to make financially unviable but publicly important projects viable

•         Unsolicited Proposal: Proposal not invited by PIA but submitted voluntarily by private entity

•         REOI: Request for Expression of Interest (optional, first stage of procurement)

•         RFQ: Request for Qualification (Stage 1 - evaluates technical/financial competency, produces shortlist)

•         RFP: Request for Proposal (Stage 2 - invites full technical and financial proposals)

11.3 Important Policy Principles

•         PPP is a time-bound contract - not permanent privatization

•         Assets always revert to public entity after contract period

•         Risk borne by entity most capable of managing it

•         Public interest is central to all risk/benefit sharing decisions

•         Feasibility study and suitability appraisal are mandatory before procurement

•         No project agreement can be signed without 80% land acquisition by GoN

•         International arbitration (ICC/UNCITRAL) available for foreign investor disputes

•         GoN may provide tax exemptions for PPP projects depending on nature and characteristics

These notes are based on the unofficial English translation of Nepal's Public-Private Partnership Policy, 2072 (2015). For official reference, consult the original Nepali version published by the Ministry of Finance, Government of Nepal.