Privatization Policy

The term Privatization may be defined as the transfer of ownership of public enterprises from government to private sectors.

In other words, Privatization refers to minimize the government roles and maximize the role of private sectors in the economy of the country.

The Privatization Policy of Nepal was introduced to enhance the efficiency, productivity, and competitiveness of public enterprises by transferring their ownership, management, or operation to the private sector.

It is based on the belief that the private sector can operate businesses more effectively than the government, ensuring better use of resources and improved service delivery.

Privatization in Nepal began formally in the early 1990s as part of the economic liberalization program, aiming to reduce the financial burden of loss-making public enterprises on the government.

Objectives of Privatization Policy:

To reduce operating deficit of the government.
To improve efficiency and productivity of the country.
To minimize government involvement in enterprise decision making.
To promote domestic investment.
To attract foreign investment and new technology.
To create employment opportunities.
To increase the export and decrease import.
To Enhance Government Revenue.
To Improve Resource Allocation.
To promote transparency and accountability in enterprise management.
To promote economic liberalization.

Methods of Privatization:

Privatization can be carried out using several methods depending on the nature of the enterprise and government objectives. The major methods of privatization are explained below:

Sales of Shares
Sale of Assets
Sale of Business
Asset on Lease
Management Contract
Liquidation

1. Sale of Shares

Sale of shares involves transferring ownership of a public enterprise to private individuals or institutions by selling its shares. This method allows the government to gradually reduce its ownership while allowing the private sector to participate in management and decision-making. It is commonly used when the enterprise is financially stable and suitable for public offering.

2. Sale of Assets

Sale of assets involves selling the physical assets of a public enterprise—such as land, buildings, machinery, or equipment—to private investors. This method is used when the enterprise is unprofitable or when the government wants to dispose of its assets directly. After the sale, the private buyer can use the assets to operate a new business or integrate them into an existing one.

3. Sale of Business

Sale of business means selling the entire enterprise as a running business, including its assets, liabilities, brand name, and ongoing operations. This method ensures a complete transfer of ownership and management to the private sector. It is used when the government wants to fully exit from a particular enterprise or sector.

4. Asset on Lease

Under the asset-on-lease method, the government leases the assets of a public enterprise to a private party for a specific period. The private operator manages and operates the enterprise while paying a lease fee to the government. This method allows the government to retain ownership of assets while benefiting from private sector efficiency and expertise.

5. Management Contract

A management contract involves hiring private managers or firms to operate a public enterprise without transferring ownership. The private contractor is responsible for improving efficiency, increasing productivity, and meeting performance targets in exchange for a management fee. This approach is useful when the government wants to improve management without selling the enterprise.

6. Liquidation

Liquidation means closing a public enterprise that is unable to operate efficiently or generate profit. The enterprise’s assets are sold, and the proceeds are used to pay off debts and liabilities. Liquidation is used as a last resort when revival is not possible and privatization through other methods is not feasible.