Fixing Nepal’s Loss-Making Public Enterprises

Nepal’s public enterprises (PEs) are profitable on paper in some sectors, but structurally weak in many others. The latest annual review of state-owned enterprises issued by the Ministry of Finance shows that, out of 43 publicly owned enterprises, 27 made profits during FY 2024/25, while the remaining 16 continued to operate at a loss. The net profit of profitable entities rose by 10.58 percent to Rs 48.89 billion, while losses among failing enterprises declined slightly by 4.14 percent to Rs 3.80 billion. Overall net profit climbed to Rs 45.08 billion from Rs 40.24 billion in the previous fiscal year, largely driven by the strong performance of Nepal Oil Corporation and three commercial banks. At the same time, however, the report exposes deep structural weaknesses in Nepal’s public enterprise ecosystem. Several state-owned companies, including Nepal Orind Magnesite Pvt. Ltd., Nepal Metals Company Ltd., and Butwal Spinning Mills Ltd., remain closed yet continue to incur administrative expenses. Dhauwadi Iron Company Ltd. has not even entered commercial operation but is already generating losses. Meanwhile, the government’s total investment in public enterprises surged by 13.44 percent to Rs 798.56 billion, with loan investments increasing sharply by 26.32 percent. Much of that borrowing is concentrated in the Nepal Electricity Authority.

Although the net worth of public enterprises has crossed Rs 1.073 trillion and their total income accounts for 11.8 percent of GDP, the contradiction is glaring: taxpayers continue to pour billions into enterprises that underperform, remain inactive, or survive merely on state backing. Why do Nepal’s public enterprises continue to struggle despite decades of state investment and repeated reform pledges? The answer lies largely in chronic political interference, weak governance, poor managerial accountability, and outdated operational models. Rather than fulfilling strategic long-term national goals, public enterprises have evolved into bureaucratic shelters where managerial appointments are often based on political considerations instead of performance. Frequent changes in management have undermined long-term planning and strategic continuity. Another major problem is the lack of performance-based management. Loss-making enterprises continue operating despite producing little output and lacking clear business or restructuring plans. It is unjustifiable to keep pouring public money into enterprises that remain closed for years while maintaining bloated administrative structures. This indicates that many public enterprises have drifted away from their original objectives. The government must now focus on serious administrative reform and restructuring of loss-making enterprises. If enterprises show no realistic prospect of financial recovery within a reasonable timeframe, they should be sold, restructured, merged, leased, or shut down. At the same time, Nepal must seriously consider expanding public-private partnership models.

In sectors where government ownership remains strategically important, internal operations should still benefit from private-sector efficiency and innovation. Lessons from other countries show that professional management, autonomous boards, and private-sector participation can successfully reform public enterprises without fully privatizing national assets. Public enterprises should operate with business discipline, enhanced transparency, and stronger accountability. Annual audits, performance standards, independent evaluations, and oversight mechanisms must be made mandatory. Well-performing enterprises should be rewarded and encouraged to expand, while persistently weak institutions should face decisive restructuring measures. Public enterprises can and should contribute significantly to GDP, employment, infrastructure, energy security, and financial stability. But they cannot become engines of national growth unless they are freed from political patronage and institutional complacency. The latest report offers both a warning and an opportunity. The government must act decisively to transform public enterprises from budget liabilities into drivers of broader economic growth.