Development Through Partnerships

Nepal stands in a situation of critical imbalance between development needs and available resources. The nation's development needs to place exceptional demands on public investment to meet its strategic development goals. The 16th Plan estimates that Nepal will require a total gross investment of Rs.9,482 billion (FY 2023/24 prices) to achieve targeted economic growth, employment generation, and infrastructure expansion. This level of investment significantly exceeds the capabilities of traditional public financing systems, necessitating a review of how development projects are planned, financed, and delivered.

Historically, Nepal relied on government revenue, domestic borrowing, external assistance as its primary sources of finance. However, the 16th plan openly states that "traditional resources alone will not be sufficient." Government spending is estimated to total Rs. 12,063 billion throughout the plan period, whereas federal revenue is only expected to be Rs. 8,465 billion. The ensuing shortfall is not a viable case for filling through greater taxes, grants, or more domestic borrowing, as all of these would raise fiscal tensions and limit private sector credit access. A disparity between the needs and resources is precisely the circumstance that calls for Public-Private Partnerships (PPP).

PPP is neither a regulatory preference nor an ideological choice; rather, it has emerged as a strategic necessity. It represents a long-term collaborative arrangement between the public and private sectors in which resources, risks, responsibilities, and rewards are shared for the delivery of public infrastructure and services. In the context of growing development demands and limited public finances, PPP has become integral to meeting financing needs while ensuring efficient implementation. By enabling risk sharing, improving accountability, and enhancing service quality, PPP aligns public welfare objectives with private sector efficiency, making it an essential instrument for sustainable and inclusive growth. Moreover, PPP plays a crucial role in introducing efficiency, innovation, and managerial expertise into public service delivery. As stated, the 16th Plan clearly emphasises that widespread and structured private sector involvement is no longer optional, as the absence of such participation would be more detrimental to the country’s future development. 

Systemic trust

Nepal's history has shown that PPP is a useful instrument and extremely valuable when the requisite conditions are achieved. The country's power generation sector represents the most successful example of PPP investment in the hydropower sector as a whole. Hydropower projects with a clear Build-Own-Operate-Transfer (BOOT) model gave investors what they wanted: stable earnings from bankable power purchase agreements, risk sharing with the Nepal Electricity Authority as the power purchasing agency, and, for government and public a substantial improvement in generation capacity which served as a foundation for improving electric supply to the nation. As a result, the industry was able to attract private investment worth thousands of crores. The lesson is clear: Nepal set a system in which private players receive the appropriate balance of transparency, stability, and risk-sharing, and they undoubtedly responded positively with high confidence and trust.

On the other hand, other sectors have not had the same level of success in terms of attracting private investments. Airports, urban transit, logistics, tourism infrastructure, waste management, and digital infrastructure all continue to make modest and unequal progress. Many economists and strategists point out our nation’s inability to generate a new influx of investors, but what is rather needed is clear ownership and accountability within line agencies for PPP delivery as well as strong project structuring, implementing and risk-sharing systems that ensure success. Hence, attracting private investment, including foreign investors. For large infrastructure projects exceeding Rs. 6 billion, Investment Board Nepal must be provided strong coordination under the federal PPP framework. It must be realised that when basic foundations are unclear, even the most promising prospects struggle to progress from being a concept to evolving into a meaningful realisation. 

Globally, nations have developed successful partnerships with the private sector by institutionalising expertise and reliable long-lasting systems rather than depending on certain individuals. They set a clear system of PPP cycle, from project identification to implementation, including procurement. In Nepal, development agencies and their implementing entities find greater ease in conventional public sector spending with simpler procurement and budget execution systems compared to PPPs, which demand significantly higher effort, discipline and technical rigour.

Nepal’s private investment and PPP practice are still evolving towards systems-based maturity. Prolonged debates on investment modalities, such as concessions, leases, joint ventures, or availability payments, have taken a forefront in our policy discussions and have diverted us from efficiently operationalising the established foundational systems, including detailed project preparation, clear risk allocation, and effective mitigation planning, and these continue to delay our existing project pipelines and timelines. The downfall of PPPs worldwide has a similar trajectory: there is too much excitement without adequate preparation and decisions are made based on personal opinion rather than proper analysis. Partnerships, as a rule, require technical rigour.

Trust and transparency are the two key elements that come out as the main reasons for the success of PPPs. The success of every partnership is built on the assurance that the contracts will be followed, the performance will be evaluated according to the standards, and the public interest will be served. On the other hand, transparency is the factor that creates trust. If the costs and benefits, the timeline, and the performance data are all made known to the public, then the people will hold each other accountable and there will be fewer disputes. The international experience, especially with PPPs, has shown that the transparent processes do not lead to confrontations but to positive dialogues even when the projects are encountering unexpected challenges.

The impact of PPP goes beyond finance; it is a change in the frame of mind in the governance system of development management. It compels the government to change its role from that of a solo provider to that of a facilitator, from a direct controller to an effective regulator, and from a project executor to a service guarantor. A strong and efficient government is not one that does everything on its own but one that makes sure everything is done well. PPP imposes this discipline by requiring transparency in the rules, independence in the institutions, and responsibility for the outcomes towards timely delivery of quality public services.

Looking into comparable nations, Rwanda, an LDC peer, demonstrates the importance of system design to offset fiscal and market constraints. Rwanda channels all PPPs through a centralised MoF-led gateway and has strategised PPPs on specific bankable sectors (energy, urban facilities), achieving a high realisation rate despite a very small market. To attract private sector investments, the nation systematically retains political, land and regulatory risks on the public side, offsetting other risks to the private parties while also limiting contingent liabilities. On the other hand, a neighbouring comparable economy, Bangladesh, shows how scale and risk absorption can drive outcomes mobilising over USD 25 billion in PPP/IPP investment by explicitly retaining demand and offset risk , deploying Viability Gap Funding, standardised contracts and selective sovereign guarantees to crowd in private capital in development initiatives. Nepal can also address its PPP challenge by improving its institutional and risk-allocation systems with clearly outlined appropriate risk-sharing instruments.

Partnership governance

When we discuss PPPs, mostly large-scale development projects come into our minds. However, recognising the importance of small and mid-scale PPPs is similarly crucial. Large infrastructure projects get the limelight; however, it is the community-level partnerships that most often bring about the development in daily life for improvement in the most visible forms. Intricately strategised collaborations can enhance even the most basic services with limited funding as evidenced by municipal solar streetlighting, local water-supply partnerships, and waste-management pilots in Nepali cities. Such projects create trust between the citizens, local governments, and private actors, and that way, the social foundation of partnership is reinforced.

At the provincial level, mid-scale PPPs play a bridging role between local service delivery and national infrastructure development. Mid-scale PPPs are large enough to attract credible private participation yet small enough to be managed without heavy sovereign guarantees. Without a strong pipeline of mid-scale PPPs, the PPP ecosystem risks becoming polarised: overcrowded at the federal level and underdeveloped at the subnational level. 

However, the benefits of mid-scale PPPs come with its added intricacies. Effective implementation at this scale requires clearer delineation of roles among provincial governments, line agencies, local governments and private sector. Recognising and formalising the accountability of each actor at the provincial level is essential to avoid overlaps, reduce execution risk, and ensure that PPPs contribute meaningfully to regional economic integration and service equity.

Looking ahead, the partnership agenda for Nepal needs to move from asset-building partnerships only and focus on outcomes. Integrated health delivery systems, technology-enabled partnerships for education, green mobility initiatives, and digital public services do not exist or succeed in isolation. They exist and succeed through the power of collaboration systems to address complex challenges. Challenges require true partnerships, and when managed properly, complexity transforms into simplicity with trust and coordination.

In conclusion, PPP must never be seen as only a “construction contract” or a “contract for providing infrastructure”. PPP is a “partnership to fulfil promise of public value.” Where risk is distributed equitably and institutions are capable and transparent, PPP is no longer simply a financing technique; it is a philosophy for improved public service. Instead of focusing on what extent the government is spending, progress today is now measurable by how effectively it partners. As a lesson for Nepal, partnership with private sector as a mode of governance is not only highly desirable; it is the route to sustainable development.

(The author is a former CEO of Investment Board Nepal.)