Saudi Arabia’s mining sector is on the brink of significant expansion, with $75 billion in anticipated investments and an additional $100 billion in untapped opportunities, fueled by the ambitious Vision 2030. The sector is concentrating on critical resources such as iron, aluminum, phosphate, gold, zinc, copper, titanium and battery metals.

In contrast, Nepal, nestled within the 2,500 km Himalayan belt, boasts economic potential across 63 mineral commodities. These include 21 metal mineral groups, 23 non-metallic industrial minerals, six gemstones, nine construction materials and four fuel minerals. Despite this rich resource base, the mining and quarrying sector contributed a mere 0.51% to Nepal’s GDP in 2022/23. Additionally, iron and steel remain among the country’s most heavily imported goods, highlighting a missed opportunity for domestic production.

Currently, state-owned entities and private companies in Nepal hold prospecting licenses for 30 mineral categories and mining licenses for 18 categories, totaling approximately 422 prospecting licenses and 222 mining licenses. To accelerate growth, Nepal has opened its mining and minerals sector to 100% Foreign Direct Investment (FDI), attracting significant interest, particularly in the cement industry. Among the most notable FDI projects is the Hongshi Shivam Cement Industries, with a total investment of $359.18 million, and the Huaxin Cement Narayani Industries, which has secured $140 million in funding.

In addition to foreign-led initiatives, the Office of the Investment Board of Nepal (OIBN) has approved substantial domestic investments in the sector. Key local projects include the Dang Cement Project with a budget of Rs 32.5 billion, Samrat Cement Industries with project cost of Rs 15.05 billion and the Suryatara Cement Project amounting to Rs 14.28 billion.

Beyond cement, Nepal holds significant promise in metallic minerals such as iron ore, copper, zinc, lead and uranium, as well as non-metallic minerals like dolomite, phosphorite and magnesite. At the 2024 Nepal Investment Summit, one of the highlighted projects was the iron and copper mining initiative in Jhumlabang, Rukum East—home to Nepal’s largest iron mine, with an estimated 200 million tons of high-grade hematite reserves. Despite its potential, the project struggled to attract substantial interest during the summit.

State-Owned Enterprises in the Mining Sector

Several state-owned enterprises, including Nepal Orind Magnesite Private Limited and Nepal Metal Company Limited, were established over four decades ago with the support of foreign investments. However, these entities are now non-operational and face significant financing gaps. Addressing these challenges is crucial to revitalizing these projects and restoring their operations.

One of the newly established public enterprises in Nepal’s mining sector is Dhaubadi Iron Company Limited (DICL). It has been designated as a top priority project by the government. Its primary objective is to establish an iron and steel plant utilizing domestic iron ore deposits. This initiative aims to reduce Nepal’s trade deficit by substituting the massive imports of billet iron currently relied upon by local manufacturers.

To advance its goals, DICL recently organized a workshop titled “Strategic Roadmap to DICL”, which explored models of public-private and government partnerships. The workshop sought to attract private investors to the company, whose share capital structure allocates 55% ownership to the government with the remaining 45% intended to come from private investment through qualified institutional investors.

Financing and Technical Expertise Gap

In this context, it is essential to evaluate the key gaps in the country’s mining policies, laws and regulations that hinder the industry from realizing its full potential. A critical consideration is whether Nepal’s existing mineral resources have sufficient access to financing and technical expertise to support the development and operation of mining projects. To address this challenge, the government plans to adopt a public-private partnership (PPP) model as a strategy for advancing mining project development.

The Public-Private Partnership and Investment Act, 2018 (PPPI Act) defines PPP projects as infrastructure projects, which seemingly excludes core mining excavation activities from its scope. This creates legal ambiguity regarding the applicability of the PPPI Act to mining projects. While the OIBN has publicly clarified that mining projects are not excluded from the Act’s purview, legislative clarity is still needed to remove any uncertainty.

In the past, the OIBN has approved project investments in the cement industry based solely on monetary thresholds, with investments exceeding Rs 6 billion falling under IBN’s jurisdiction. However, there is a lack of clarity regarding whether OIBN, on behalf of the government of Nepal, has the authority to enter into concession agreements, such as Project Development Agreements (PDA), with mining project companies. This uncertainty is a key concern for investors, who seek stronger investment protections, including safeguards like change-in-law protection, national treatment, compensation for government defaults, and other rights and remedies typically found in concession agreements.

Furthermore, while the Industrial Enterprises Act, 2019 designates the mining industry as a national priority sector, it lacks clear guidelines for project implementation. Additionally, the absence of specific facilities or concessions for the mining industry remains a significant concern for investors.

Given Nepal’s limited experience in developing and implementing mining projects, addressing the significant gap in technical expertise is crucial. However, public procurement laws in Nepal do not provide clear guidelines for sourcing technical expertise from foreign governments. A key issue arises in government-to-government (G2G) procurement, where Nepal lacks a structured legal framework to guide the process of direct procurement from foreign governments. The Public Procurement Act and its Regulations do not outline a clear procedure for G2G procurement, leading to transparency concerns and public criticism of past G2G procurement deals. Establishing a comprehensive G2G procurement framework is essential to ensure transparency, accountability and efficiency in securing foreign technical expertise.

Challenges in Project Implementation

One of the major challenges in Nepal’s mining sector is project implementation. Unlike renewable energy projects, mining involves the extraction of non-renewable resources, meaning that at the end of a mining license term, assets and projects cannot be returned to the government. As a result, a well-defined project implementation model is essential for the sector’s success.

In addition to gaps in financing and technical expertise, another major obstacle is the lack of a suitable construction modality for mining projects. Globally, the Engineering, Procurement, Construction and Management (EPC/EPCM) model is widely used in the mining industry. The EPC model ensures that a single contractor assumes responsibility for engineering, construction and management, streamlining the project execution process.

However, Nepal’s EPC Procurement Guidelines, 2021, issued by the Public Procurement Monitoring Office (PPMO), do not include mining projects as eligible for the EPC model. This exclusion significantly hampers the ability to execute mining plant and industry construction under the EPC framework, further delaying the growth of Nepal’s mining sector.

Transformation to Green and Sustainable Mining

The National Adaptation Plan (NAP) 2021-2050, Project 32, and the Nationally Determined Contribution (NDC) underscore the urgent need to strengthen and upgrade technologies to build a climate-resilient industry and achieve carbon neutrality. Additionally, the central bank’s Green Finance Taxonomy identifies mining as a sector of strategic importance due to Nepal’s significant reserves of iron, lithium, copper, and nickel—critical minerals essential for the global low-carbon transition.

A paradigm shift from coal-based iron and steel production to natural gas, and ultimately to hydrogen-based plants, is essential to attract foreign investment in Nepal’s mining sector. Among the most sustainable mining projects globally, Chinese initiatives rank the highest, followed by ArcelorMittal, South Korean POSCO and others. Recently, the Essar Group announced plans to invest INR 300 billion over the next four years to establish a green hydrogen plant in Gujarat.

Given these global trends, Nepal must transition its mining sector toward sustainable, green mining practices, incorporating hydrogen-based reduction technologies. This shift is crucial to attracting foreign institutional investors, international financial institutions and foreign governments to invest in its mining projects.

Key Policy Reforms

The Mines and Minerals Act, 1987, along with its Regulations, 1999, and other relevant environmental and tax laws, require transformative reforms to address key challenges in Nepal’s mining sector. These reforms should focus on the following:

● Simplifying licensing procedures for obtaining prospecting and mining licenses to reduce bureaucratic delays

● Establishing clear guidelines for transforming existing or new mining projects to adopt sustainable mining practices, with effective implementation and enforcement mechanisms

● Introducing substantial tax incentives to encourage investment in sustainable mining projects

● Harmonizing taxation policies across federal, provincial and local governments to avoid inconsistencies

● Facilitating mining project development through public-private partnerships (PPPs) to leverage private sector expertise and investments

● Providing incentives for mineral exports to enhance global market participation.

● Developing a robust regulatory framework for monitoring and enforcing licensing conditions

● Expanding tax and royalty revenue sources from mining projects. For example, adopting a "dead rent" system, as seen in India, which requires mining rights holders to pay penalties for underutilized or closed mines

● Decentralizing approval authorities to align with federal governance.

● Establishing a Green Tribunal to adjudicate environmental disputes related to mining activities

● Safeguarding the rights of indigenous and disadvantaged communities affected by mining activities

● Implementing a single-window clearance system for environmental and forest approvals to expedite project implementation

Conclusion

The transformative reforms outlined above have significantly improved the mining value chain in countries such as Argentina, Tanzania, Mongolia and several African nations, demonstrating the benefits of comprehensive policy and regulatory enhancements. Nepal should initiate policy-level discussions to evaluate successful global frameworks and identify best practices that can be adapted and implemented within its own mining sector. By learning from international success stories, Nepal can develop a sustainable, competitive and well-regulated mining industry. This will not only unlock the sector’s economic potential but also ensure long-term environmental and social benefits.

(Khatri is a legal practitioner.)

(This opinion article was originally published in  February 2025  of New Business Age Magazine.)