Section 33 of the Telecommunication Act, 2053 (1997) has long provided that assets built with majority foreign investment pass to the Government of Nepal when a licence expires. Until December 2022 there was no procedure for how that was actually to happen.
The Rules regarding Asset Management of Telecommunications Service Providers with Non-Existent Licences, 2079 (2022) filled that gap. This note sets out what they cover, the four situations an operator can find itself in, how auction and negotiation work, and where the Rules fall short.
Why the Rules Were Needed
Section 33 of the Telecom Act states that ownership of the land, buildings, plant, equipment and other structures related to a telecommunication service developed with more than fifty per cent of its investment by a foreign person or corporate body transfers to the Government of Nepal after the licence period expires.
The obligation existed; the mechanism did not. On 5 December 2022 the Government enacted the Rules, published in the Nepal Gazette, Volume 72, Number 47, Part 3.
Through them, the Government vested itself with both the procedure and the prerogative to expropriate the tangible and intangible assets held by telecommunication service providers.
What the Rules Cover
| Feature | Observation |
|---|---|
| Emphasis on procedure | The Rules focus on procedural aspects rather than substantive elements. |
| Clarity in transition | They give clarity on the transition period from expiry of a licence until a new one is issued. |
| Limited scope | They govern only the procedures relating to the operation of Sections 25, 28 and 33 of the Telecom Act. |
| Service continuity | They clarify how service continuity is maintained during the transition from expiry to fresh licence. |
Four Situations Under the Rules
Setting aside revocation of a telecom licence, the procedures prescribed by the Rules can be understood through four typical situations.
| Situation | Facts |
|---|---|
| 1 | The licence of an operator with more than 50% foreign direct investment expires and its assets transfer to the Government under Section 33. The operator decides to reobtain or buy the licence at the valuation determined under the Rules. |
| 2 | As in Situation 1, but the operator decides to reobtain the licence once FDI has been diluted to less than 50%. |
| 3 | An operator with more than 50% FDI decides not to reobtain the licence at the valuation determined under the Rules. |
| 4 | An interested third party decides to participate in the auction of a telecom operator. |
The briefing maps each situation onto a process flow running from pre-expiry information through verification and inspection, valuation and the consultative procedure to issuance of a fresh licence, or to auction, straight negotiation and cancellation. The flow diagram is reproduced in the PDF below.
Auction and Negotiation
| Feature | Position under the Rules |
|---|---|
| Minimum auction bid | Where the operator’s assets exceed its liabilities, the floor is the value of the assets. Where its liabilities exceed its assets, the floor is the value of the liabilities. |
| Eligibility criteria | Both domestic and foreign bidders with experience in operating telecommunication services may participate. Existing licence holders may also participate. (Rule 34) |
| Instalment payment of liabilities | Government dues payable immediately, and liabilities towards the NTA, may be paid through deferred instalment facilities on request. (Rule 29) |
| Additional facilities | Further facilitations can be negotiated, and the frequency spectrum cap is not applicable. (Rule 35) |
| Choice of licence | An operator holding an existing licence can choose between the existing licence, a new licence, or the term of either. |
The Good, the Bad and the Ugly
The Good
- Clarity on re-issuance of a licence.
- An opportunity for operators to renegotiate certain terms of agreements, concessions and facilities.
- An opportunity to acquire the licences of other telecom operators.
- Control measures and the restraint on the NTA are defined during the transition.
The Bad
- Certain provisions are ambiguous.
- There is no step-by-step procedural clarity on issuing a fresh licence where an operator decides to continue operating after its licence expires.
- Operators have little or no say in the prescribed valuation methods.
- The timeframe for each milestone is unclear.
The Ugly
- The minimum price for straight negotiation, where an auction fails, is unclear and not logical.
- There are contradictory provisions within the Rules.
- Rule 17(5) contradicts the nationalisation scenario where foreign holding is at or below 50%.
Speak to Our Team
If your licence is approaching expiry, or you are weighing participation in an auction or a renegotiation of terms, get in touch with Prakrit Shrestha, Attorney at Law, Managing Partner, or Tanija Singh, Attorney at Law. You can also contact the firm directly, or read more about our regulatory and transactional advisory services and our foreign investment and incorporation practice.
This publication is not intended to be used as a basis for undertaking any significant transactions, financial or otherwise, without consulting appropriate professional advisers.
Read the Original Briefing
The full insight, including the Asset Management Rules process flow, is reproduced below and available to download.