Controversial telecom act interpretation threatens Ncell, Raises alarms over Nepal’s rule of law and FDI

KATHMANDU: A storm is brewing in Nepal’s telecommunications sector, centered around a fiercely debated provision in Section 33 of the Telecommunications Act, 2053 (1996). Stakeholders are voicing deep alarm over what they perceive as a concerted, forceful attempt to nationalize Ncell, the nation’s premier private telecommunications service provider, through an aggressive interpretation of the law.

This pressure is not merely a bureaucratic process; company officials fear it is a calculated move by certain actors within government bodies and the private sector to destabilize Ncell, render it vulnerable, and ultimately acquire its shares, a plan they suspect mirrors past controversial attempts.

The escalating controversy not only jeopardizes the future of one of Nepal’s largest taxpayers and employers but also sends a chilling message to prospective foreign investors, threatening to significantly sour the nation’s fragile Foreign Direct Investment (FDI) environment.

The Legal Flashpoint: Section 33 and the 2083 Deadline

At the heart of the dispute lies the interpretation of the legal timeline for Ncell’s ownership structure. Telecom sector experts, speaking to Fiscal Nepal, underscored a crucial point: “As per the law, the option for the investor to reduce foreign investment and prevent nationalization remains valid until Bhadra 15, 2083 BS [approximately August 30, 2026].”

However, these experts contend that certain government entities, private players and individuals are actively spreading false rumors about imminent nationalization, seemingly unwilling to wait for the legally stipulated deadline. They believe this campaign is specifically designed to obstruct the company’s ability to decrease its foreign ownership, a move that would legally avert nationalization.

Under the prevailing legal framework, if a telecom company successfully reduces its foreign shareholding to 49 percent or less, maintaining a 51 percent majority stake in Nepali ownership, it effectively prevents the government from assuming ownership of the company’s assets upon license expiry. The current rumors are, therefore, viewed as a deliberate tactic to preempt and undermine this legally sanctioned course of action.

Government’s Controversial Licensing Renewal Condition

This current agitation is not an isolated incident. The government’s actions during the most recent license renewal process for Ncell already set a contentious precedent.

In a decision dated Bhadra 13, 2081 BS (approximately August 29, 2024), the Council of Ministers approved the license renewal with an extraordinary and restrictive condition. The decision stated:

“Upon receiving a duly filed application with the renewal fee stipulated by the prevailing law, and if the company’s technical, financial, and managerial capacity is confirmed to ensure the continuity of the services it provides, the license shall be renewed by including a condition that the service provider company shall not make any change to the existing share ownership structure at the time of renewal, for the purpose of transferring the ownership of land, building, machinery, equipment, and infrastructure related to telecommunication services to the Government of Nepal under Section 33 of the Telecommunications Act, 2053, after the expiry of the 25-year license period.”

This condition—mandating no change to the ownership structure—was fundamentally at odds with the Telecommunications Service Provider Asset Management Regulations, 2079 (2022), which the government itself had promulgated. Rule 6 of these Regulations allows a company to sell its shares without the prior approval of the Nepal Telecommunications Authority (NTA) up to three years before the license period expires.

For Ncell, whose 25-year license expires on Bhadra 15, 2086 BS (approximately August 31, 2029), this regulation would have permitted the sale or transfer of shares, ensuring a 51 percent Nepali ownership, until Bhadra 14, 2083 BS (August 30, 2026). The Cabinet’s decision, therefore, legally prohibited Ncell from exercising its right to restructure its ownership five years before the license expiry, two years before the legal window would have closed.

Senior Advocate Gandhi Pandit strongly criticized this governmental overreach. He stated that the government’s attempt to enforce nationalization, despite clear legal provisions in the Act and Regulations regarding ownership structure change, amounts to sheer coercion and fundamentally calls into question Nepal’s investment-friendly environment and rule of law. Pandit stressed, “If Ncell wishes, it has the right to buy or sell its shares before the Bhadra 2083 deadline.”

The Cost of Uncertainty: Ncell’s Contribution and Plight

A high-ranking Ncell official lamented the pervasive atmosphere of uncertainty and hostility: “Sometimes it’s the ownership transfer, sometimes it’s tax issues—the intent has always been to cause distress.”

Despite this adversarial environment, Ncell’s contribution to the national exchequer is colossal. The company has already paid over NPR 360 billion to the Nepal government across various tax headings. Year after year, Ncell consistently remits an estimated NPR 30 billion in revenue, frequently earning recognition as one of the country’s highest taxpayers.

The official highlighted the detrimental impact of persistent legal and political harassment, noting the company has been a repeated target of “various kinds of movements and political victimizations.” This includes acts of violence, such as the arson attack on Ncell’s office during the Gen Z movement on Bhadra 24 (September 9) and previous incidents of bombings that destroyed Ncell towers.

The former ownership, Axiata, also raised concerns about the investment climate when it sold its shares to a UK-based company owned by Nepali-origin businessman Satish Lal Acharya. This current episode only exacerbates those fears.

International corporate law expert and senior advocate Pandit echoed the concern, noting that Ncell has been constantly placed in a difficult position, whether through tax disputes or renewal complexities. He emphasized that the law provides a clear process for transfer, and no party should be discouraged or harassed.

Pandit elaborated on the Telecommunications Act’s provisions: it allows the government to take over the assets after the license expires, negotiate a new 25-year license with the same company, or, as a final option, allow the license to be sold to another company. However, the core issue of nationalization only arises because the foreign ownership in Ncell currently exceeds 51 percent. Pandit firmly asserted that if Ncell reduces the foreign shareholding to less than 49 percent within the legally allotted time, the government would have no grounds to assume ownership.

Currently, SpectraLite UK Limited, owned by Satish Lal Acharya, holds an 80 percent share in Ncell, with the remaining 20 percent held by Sunivera Capital Limited. Despite the foreign registration of the majority shareholder, Ncell officials emphasize the company’s close ties to Nepali-origin and family ownership, making the current efforts to impede the transfer process even more frustrating.

A Cautionary Tale: The Failures of Government Management

The aggressive push for nationalization seems particularly ill-advised when juxtaposed against the government’s dismal track record in managing previously nationalized or lapsed telecommunications companies. Past experiences offer a stark warning: the government has demonstrated it can neither effectively run the companies itself nor facilitate their handover to capable private operators.

1. Smart Telecom Limited:

The company’s license was automatically revoked in Baisakh 2080 BS (April/May 2023) due to a failure to pay the renewal fee.

Smart Telecom’s entire assets, systems, and infrastructure were placed under the control of the Nepal Telecommunications Authority (NTA).

The government plans to recover this sum through auctioning the assets, but there is little chance the auction will raise the full NPR 27 billion, and the government is incapable of resuming the company’s operations.

2. United Telecom Limited (UTL):

UTL’s license was revoked in Falgun 2080 BS (February/March 2024) for failing to pay approximately NPR 7.50 billion in outstanding dues.

The process of asset valuation and auction remains pending, and similar to Smart Telecom, the government is not in a position to operate the company.

These two examples have delivered a crucial, expensive lesson to the state: in attempting to seize what was ‘on the ground,’ the government ended up losing what was ‘in the pocket.’ The nationalization attempts have led to a net loss for the state, with zero revenue generation from these once-operational private enterprises.

With Smart Telecom and UTL now defunct under state control, only two major players remain: the state-owned Nepal Telecom (NT) and the private sector’s Ncell. Both are already experiencing a decline in annual transactions. It is in this environment of market contraction that a faction within the state apparatus, reportedly influenced by an “intermediary group,” is pushing for the nationalization of Ncell by Bhadra 2086 BS. The Nepal Telecommunications Authority (NTA) has already begun preliminary studies toward this end.

Chilling the Investment Climate and Stalling Future Growth

The uncertainty surrounding Ncell’s fate is having a direct, detrimental impact on its future investment plans and, consequently, the national economy.

Former Ncell CEO Jabbor Kayumov had previously spoken of the bright prospects for 5G technology in Nepal, estimating a necessary investment of around NPR 60 billion to bring 60 percent of the Nepali population under 5G coverage by 2030.

However, the current specter of government takeover has effectively put the brakes on Ncell’s aggressive investment plans. The deployment and expansion of 5G, a critical upgrade for the country’s technological landscape, are currently on hold.

An Ncell representative noted the irony: “If an environment for further investment were created, Ncell’s contribution to revenue would also increase. The ultimate beneficiary of this is the nation itself. But right now, with our own future in limbo, new plans have been shelved.”

This stalling of investment affects the entire ecosystem:

Economic Growth: Postponed capital expenditure means slower economic activity.

Employment: Ncell directly and indirectly employs around 25,000 people, and halting expansion stifles job creation.

Service Quality: Delayed technology upgrades like 5G mean the mobile service quality for the entire country stagnates.

Social Responsibility: Ncell has spent over NPR 2.5 billion on Corporate Social Responsibility (CSR) and engages in extensive social work through the Ncell Foundation, all of which benefit the Nepali community.

The Legal Counter-Argument and the Way Forward

Legal and corporate experts are unified in their view that the government’s forced hand is both a misinterpretation of the law and a violation of the spirit of investment protection. The Asset Management Regulations explicitly provide Ncell with a window until August 2026 to legally change its shareholding structure. By attempting to close this window prematurely, the government is engaging in ultra vires actions—acting beyond its legal authority.

The current legal and political standoff is not merely a corporate battle; it is a critical test of Nepal’s commitment to the rule of law and its sincerity in attracting and protecting Foreign Direct Investment. The message being sent to multinational companies is clear: even substantial taxpayers and high-impact employers face the risk of capricious, politically-driven nationalization, overriding explicit legal provisions.

For the sake of the country’s economy, employment, technological advancement, and international reputation, stakeholders urge the government to:

Respect the Rule of Law: Adhere to the deadline of Bhadra 2083 BS (August 2026) provided under the regulations for Ncell to restructure its ownership.

Avoid Coercion: Cease the propagation of rumors and the use of restrictive conditions that pressure the company and obstruct its legal rights to manage its share structure.

Focus on Facilitation: Instead of seizing assets that the state has proven incapable of managing, the government should prioritize creating a stable, predictable, and supportive environment for the two remaining major telecom players to invest, expand, and contribute to the national treasury.

The outcome of the Ncell nationalization saga will define Nepal’s stance on global investment for years to come. The government must choose between a path of coercive, short-sighted seizure that leads to zero revenue and economic stagnation, or one of measured, law-abiding facilitation that ensures continued billions in revenue and a pathway to a technologically advanced future.