Background
Nepal’s energy sector is entering a phase of ambitious expansion, but the scale of investment required is equally large. The Government of Nepal’s Energy Roadmap 2081 targets installed generation capacity of 28,500 MW by 2035 and estimates that achieving this will require around USD 50 billion, of which about USD 39.7 billion is still to be arranged. The same roadmap also estimates that an additional USD 7.4 billion will be needed for transmission lines and USD 1.5 billion for the distribution system. These numbers show that the challenge is not only building projects, but also mobilizing long-term financing at a scale Nepal has not historically needed for the sector.
This financing gap is unfolding alongside rising pressure on public resources. Nepal’s debt-to-GDP ratio has increased to 44.69% as of 2025, up from about 25% in FY 2015/16, which limits the extent to which additional borrowing can sustainably fund new infrastructure. At the same time, the FY 2025/26 capital expenditure budget is NPR 407.89 billion, representing 20.8% of the national budget, and NPR 86.01 billion has been allocated to the energy sector from within that capital expenditure. The National Planning Commission’s 2024 SDG costing report also estimates that Nepal needs an average annual investment of around Rs 3.02 trillion to meet its 2030 targets, with a significant share required for industry and infrastructure and for affordable and clean energy. In this context, relying mainly on tax-funded spending and traditional public borrowing is increasingly difficult, which is why Nepal needs to look beyond conventional financing models.
Against this background, asset monetization, also called asset or capital recycling, becomes relevant as a practical financing strategy to unlock tied-up capital. The basic concept is to unlock capital that is already tied up in mature, operational infrastructure and redeploy it for new investment needs. For a country facing large infrastructure targets, growing financing requirements, and rising public debt constraints, asset monetization offers an alternative route to mobilize private capital and reduce pressure on the public balance sheet while continuing to fund new infrastructure priorities.
Asset monetization can widen the pool of available investment. Because the asset is already operational, the transaction is generally free from design and construction risks. This makes it attractive to institutional and financial investors that prefer stable cash flows and have limited appetite for greenfield risk.
Asset Monetization/Asset Recycling
Asset monetization, often also described as asset or capital recycling, is a method of raising funds by using existing public infrastructure assets that are already built and operating. Instead of creating new debt or relying only on tax-funded spending, the government allows a private party to take over the right to operate an asset for a fixed period, or in some cases transfers ownership, in return for an upfront payment or regular periodic payments. The key idea is that the asset is already performing, so the transaction is focused on operating rights and the revenue the asset can generate, rather than on construction.
In practical terms, asset monetization means the public authority enters into a structured contractual arrangement under which the private operator is responsible for running and maintaining the asset according to agreed service standards. The private operator earns returns by operating the asset more efficiently and by improving performance within the contract terms, while the government receives funds that can be used elsewhere. In most models, the arrangement is time-bound and includes provisions for the asset to return to public control at the end of the contract period, which is why it should be understood as a structured partnership rather than a straight slump sale. Asset monetization is not the same as privatization because it is typically a time bound transfer of operating rights, not a permanent sale of public assets. The asset usually remains in public ownership and is handed back to the public authority at the end of the concession or contract period. So,
Relevance and Advantages of Asset Monetization/Recycling
Asset monetization is needed because traditional infrastructure financing has limits. Governments usually fund infrastructure through tax revenues, public borrowing, or by reallocating budgets from other public programs. As debt rises and a growing share of tax revenue is used to service existing obligations, sustaining large scale infrastructure investment becomes harder. Asset monetization offers an alternative by unlocking value from infrastructure that is already built and operating, allowing governments to mobilize capital without immediately raising taxes or taking on additional debt.
Asset monetization converts mature infrastructure into a funding source for new priorities. It enables the public sector to generate proceeds from existing assets and redeploy those funds to build new greenfield infrastructure, cover operations and maintenance costs of existing assets, or repay debt incurred for earlier infrastructure development. This approach eases fiscal constraints, strengthens public balance sheets, and creates room to invest in assets that communities need.
It also supports better operational outcomes. When a performing asset is transferred under a structured concession or contractual framework, operating responsibilities and risks are clearly defined. The private operator typically bears the risk of operating cost overruns and must meet specified service standards, which creates incentives to improve efficiency, manage costs, and maintain performance. With appropriate contract design, private operators can also introduce innovation and additional commercial uses that improve asset utilization and increase overall value. Asset monetization can widen the pool of available investment. Because the asset is already operational, the transaction is generally free from design and construction risks. This makes it attractive to institutional and financial investors that prefer stable cash flows and have limited appetite for greenfield risk. Over time, this can help position infrastructure as an investable asset class, mobilize domestic and foreign institutional capital, and support the development of deeper financing options, including local currency financing.
It can also help governments maintain investment momentum during periods of economic uncertainty. When global conditions are volatile and public budgets come under pressure, recycling capital from existing assets can support continued infrastructure investment without relying on additional sovereign borrowing for each new project.
The structure of asset monetization can also address political economy concerns that often arise around private participation in public infrastructure. Public resistance is commonly driven by fears of privatization, loss of public ownership, and the risk that commercial interests may override user welfare. Asset monetization can be designed to avoid outright sale, retain strategic public control, and return the asset to the government at the end of the contract period, while still capturing private capital and efficiency gains. The proceeds can be aligned with broader policy goals. Reinvestment can be directed toward high-priority projects that deliver wider economic benefits, including employment and improvements in living standards. It can also support climate objectives by funding new climate-resilient infrastructure and upgrading older assets that may not be climate-resilient.
Relevance to Nepal
In Nepal, asset monetization is especially relevant because most transmission infrastructure is already a public sector asset. The national grid transmission lines are owned by state-owned entities, mainly NEA and Rastriya Prasaran Grid Company Limited (RPGCL), while IPPs generally own only the lines required to connect their generation units to the national grid. NEA has more than 6700 circuit kilometers under its ownership as of FY 2024/25. RPGCL is currently undertaking 11 high-voltage transmission projects with an estimated length of around 260 km, and it plans to build 16000 circuit kilometers of transmission lines by 2035.
Private sector participation in transmission remains limited in scope, even though the system needs faster expansion and stronger operations and maintenance. In the fiscal context described in the background, where financing needs are large and public resources are under pressure, asset monetization offers a practical Nepal-specific option. It can recycle capital locked in existing, performing public assets and create funding space for new infrastructure needs, while also bringing private sector efficiency into the operation and maintenance of those performing assets through a structured, time-bound arrangement.
Global Examples of Asset Recycling
Global experience shows that asset monetization has been used in different ways to unlock capital from mature public infrastructure and reinvest it into new priorities. In Australia, the federal government began a major push after 2013, when the Productivity Commission was asked to examine infrastructure costs and financing and recommend ways to improve decision-making and delivery. By 2018, a set of major public assets had been rolled out under an asset recycling approach, which helped unlock more than USD 17 billion for new infrastructure development. The assets covered multiple classes, including ports, electricity generation, transmission and distribution, and roads, and the approach included leasing or sale of those assets to mobilize capital for reinvestment.
Indonesia has introduced a distinct model through its Limited Concession Scheme as an alternative to traditional PPP structures. Under a 2020 enabling regulation, Indonesia created a framework to finance public infrastructure by granting limited concession rights over existing assets operated by the central government or state-owned enterprises. The private sector can be invited to operate, maintain, and expand existing assets in exchange for an upfront concession fee or ongoing revenue sharing with the government. These additional revenues are intended to help fund large infrastructure programs, including economically important projects that may not be financially strong on their own, as well as social infrastructure in less developed regions. Private partners are selected through a prequalification-based tender, and the concession period is designed to allow the investor to earn a return.
A well-known example from the United States is Indiana’s toll road transaction in 2005 to 2006. A 157-mile toll road connecting the Chicago Skyway to the Ohio Turnpike was monetized through a long-term concession. The road remained owned by the state, while the private concessionaire received the right to manage and operate the road and collect tolls for 75 years, against an upfront payment of USD 3.8 billion. The proceeds were used to support a ten year statewide plan for building and repairing roads.
Global experience shows that asset monetization has been used in different ways to unlock capital from mature public infrastructure and reinvest it into new priorities.
Models of Asset Recycling
Asset monetization can be implemented through several practical models, depending on whether the asset is simply operational, due for expansion, or best monetized through financial markets.
One common model is Operate, Maintain, Transfer. In this structure, the asset has already been constructed by the government or the public asset owner and is ready for immediate revenue collection. Because the revenue profile can be assessed with reasonable certainty, the public authority can monetize the asset by awarding a concession to a private party in return for an upfront payment or periodic payments, often structured as a premium or revenue share. The private party then takes responsibility for operations and maintenance, which reduces the ongoing financial and capacity burden on the public sector. At the end of the concession period, the asset is transferred back to the public authority.
A related approach is Operate Maintain Develop. This is used where an asset is already operational but requires augmentation or capacity expansion. The private party is given responsibility for both operating and maintaining the asset and undertaking the required augmentation during the concession period, often while keeping services running. The private party typically raises financing based on the strength of the existing asset and the expected revenues. A similar variant is Rehabilitate Operate Maintain Transfer, where the asset requires an upgrade before normal operations and revenue collection can resume.
Asset monetization can also be undertaken through capital market structures such as an Infrastructure Investment Trust. Such pool funds from a wide range of investors invest in infrastructure assets with predictable cash flows. In such a transaction, asset owners transfer revenue-generating asset companies into a trust, which then issues units to investors to raise money. The upfront funds can then be used to finance new greenfield projects or repay existing debt, while investors receive returns linked to the underlying cash flows of the brownfield assets.
For Nepal, the key is to approach asset monetization as a disciplined program, not an isolated transaction. A strong pipeline of suitable brownfield assets, transparent partner selection, clear performance standards, predictable pricing, and credible contract enforcement are essential to attract serious investors and protect public interest.
Implementation Strategy for Asset Recycling
A successful asset monetization program requires a credible pipeline of mature, de-risked brownfield assets with stable and clearly ring-fenced revenues. Effective monetization depends on well-designed, time-bound concession structures focused on revenue rights rather than outright ownership transfer, supported by clear contractual frameworks, performance standards, and KPIs. Transparency in investor selection, pricing, asset-level financial disclosures, and use of proceeds is essential to attract investors and build public trust. Strong institutional capacity—particularly within agencies like the Investment Board of Nepal—is needed to identify assets, manage transactions, and oversee implementation. Equally important are robust contract management, dispute resolution mechanisms, and credible reinvestment strategies that channel proceeds into priority infrastructure projects through transparent and accountable funds. Finally, a coherent governance and legal framework, supported by existing laws such as the Privatization Act 2050 and reinforced by standardized concession documents and monitoring systems, can help Nepal transition asset monetization from isolated deals into a scalable, trusted program.
Conclusion
Nepal’s infrastructure goals are expanding faster than the fiscal space available to fund them through traditional means. In this context, asset monetization provides a practical option to mobilize new capital by recycling value from mature operating public assets, while also improving how those assets are managed and maintained. It is not a substitute for public investment, nor a quick fix, but it can reduce pressure on budgets and borrowing and create room to finance new priorities more sustainably.
For Nepal, the key is to approach asset monetization as a disciplined program, not an isolated transaction. A strong pipeline of suitable brownfield assets, transparent partner selection, clear performance standards, predictable pricing, and credible contract enforcement are essential to attract serious investors and protect public interest. Equally important is a clear reinvestment plan that shows where the proceeds go and what public benefits they will deliver. If designed and implemented carefully, asset monetization can help Nepal accelerate infrastructure development while retaining strategic public control and maintaining public trust. Nepal’s transmission network sits at the center of the power sector’s ambitions. Generation targets will only translate into reliable supply and export potential if the national grid expands on time and is operated efficiently. Yet the transmission backbone is largely held by public entities, and the expansion pipeline remains heavy, which means transmission will continue to compete with many other priorities for limited public capital and institutional capacity.
In this setting, asset monetization offers a transmission-specific pathway to unlock capital from mature operating grid assets and recycle it into the next phase of transmission expansion and system strengthening. If structured as a time-bound partnership with clear service standards, strong contract management, and transparent reinvestment of proceeds, it can bring in private sector operational efficiency while keeping strategic control with the public sector. Done well, it can reduce the financing burden on NEA and RPGCL, accelerate grid readiness, and ensure that transmission does not remain the binding constraint on Nepal’s power sector growth.
References:
- World Bank Group and International Finance Corporation. Asset Recycling Handbook.
- Government of India, NITI Aayog. National Monetisation Pipeline, Volume I: Monetisation Guidebook.
- World Economic Forum. Recycling Our Infrastructure for Future Generations.
