Inside Nepal’s Biggest Telecom Scandal: How Smart Telecom’s Collapse Caused Rs 30 Billion Loss to the State

Kathmandu. Smart Telecom has been recorded as the largest and most serious financial loss to the state in the history of Nepal’s telecommunications sector. The collapse of the once third-largest telecommunications service provider in the country, along with political manoeuvring to keep it afloat, has resulted in losses amounting to billions of rupees for the state.

The controversial decision to reinstate the license of Smart Telecom, which had been revoked six and a half years earlier, was taken by the government led by then Prime Minister KP Sharma Oli. As a result, the state has incurred losses exceeding Rs 30 billion under various headings.

Had the government not intervened at the time to reverse the decision to revoke the company’s license, such an enormous financial loss would likely have been avoided. However, under intense pressure from power centres, political influence, and policy manipulation, the move triggered an unprecedented crisis in the telecommunications sector and caused irreparable damage to the state treasury.

How the company’s license was reinstated

The Nepal Telecommunications Authority had decided to revoke Smart Telecom’s license on 28 July 2019 after the company failed to clear due amount owed to the state. At that time, the company still had dues amounting to Rs 2.32 billion.

Immediately after the authority’s decision, company representatives filed an appeal and approached the Minister for Communication and Information Technology, Gokul Baskota. Following this, the Oli-led government annulled the authority’s decision to revoke the license.

See the Cabinet decision of 6 January 2020 to reinstate the canceled Smart license

The Cabinet meeting held on 6 January 2020 decided to withdraw the letter that had informed Smart Telecom Pvt. Ltd. of the license revocation.

Along with Smart Telecom, the Oli government also reinstated the revoked licenses of Ajeya Raj Sumargi’s Nepal Satellite Telecom (Hello Nepal) and the internet service provider, Websurfer.

Although the regulator had cancelled these licenses due to unpaid dues, all three companies were granted relief under the influence of business interests and intermediaries. As part of the bailout, Smart Telecom was also granted a favourable instalment facility to pay its due amounts of Rs 2.32 billion in five instalments.

According to the Cabinet decision, Smart was required to clear the dues at the end of each fiscal year. The instalments were set at Rs 598.8 million for the first, Rs 832.3 million for the second, Rs 774 million for the third, Rs 715.6 million for the fourth, and Rs 657.2 million for the fifth. However, despite receiving such concessions, the company failed to pay even the first instalment for several years.

Four decisions in favor of Smart during Oli's term

Despite non-payment of dues, the government continued extending protection to the company. For the unpaid first instalment, the then Oli government extended the deadline by six months on 14 September 2020. By then, Communications Minister Gokul Baskota had already resigned following the leak of an audio recording related to negotiations on the Security Printing Press purchase. From 20 February 2020, the ministry was under Finance Minister Dr. Yubaraj Khatiwada, who later resigned on 4 September 2020, after which the Prime Minister himself took charge of the ministry.

See another decision made by the Oli government in favor of Smart Telecom on 14 September 2020.

Even after the extension, Smart Telecom failed to clear its due amount. The deadline was extended once again until 2022 on 14 March 2021. At the time, KP Sharma Oli was Prime Minister and Parbat Gurung served as Minister for Communication and Information Technology.

See the third decision made by the Oli government in favor of Smart Telecom.

Furthermore, on 12 July 2021, a Cabinet meeting led by KP Sharma Oli extended the repayment deadline for arrears for the fourth time until mid-January.

Here, see the fourth  decision 

During Oli’s tenure, Smart Telecom repeatedly received extensions from the Cabinet despite failing to pay its dues by the specified deadlines. By that time, the total due amounts to the state, including beyond license fees, had exceeded Rs 5.5 billion.

When then-Prime Minister KP Sharma Oli was in power, Smart Telecom repeatedly received multiple chances from the cabinet, yet it had not paid its dues by the end of January. By that time, the amount the company had to pay to the state under various headings, apart from the license fee, had exceeded 5.5 billion rupees.  

While the license was repeatedly protected under political influence, the company’s financial condition deteriorated significantly. An analysis by the Nepal Telecommunications Authority on fiscal year 2077/078 revealed that the company was bankrupt.

The company’s total assets stood at Rs 5.277 billion, while its due amounts had reached Rs 13.6959 billion. By 2026, the state’s total loss from Smart Telecom, including license fees, had exceeded Rs 30 billion. The dues to be collected from the company for royalty, RTDF, and frequency charges had already surpassed Rs 7 billion.

Manipulations up to the Court

As the 10-year license period approached its end, Smart Telecom’s license was set to automatically expire on 15 April 2023. Unable to pay the renewal fee of Rs 23 billion and nearly Rs 7 billion in dues, the company attempted to influence policy decisions.

At the time, MP Padam Giri raised concerns in the House of Representatives, stating that the company was approaching ministers to secure license renewal without paying the required fee. The company had proposed renewing the license by paying only Rs 1 billion, including a request to pay Rs 200 million immediately and the remaining Rs 800 million later on credit.

After the license was automatically revoked on 15 April 2023, the Telecommunications Authority decided on 17 April to take control of the company’s assets and initiate infrastructure transfer. Smart Telecom subsequently approached the High Court. Justice Narishwar Bhandari of the Patan High Court issued a show-cause order and an interim order, attempting to halt implementation of the authority’s decision and revive the automatically cancelled license.

Interestingly, in the STM Telecom case, the Supreme Court had previously ruled that courts cannot override conditions accepted in the gazette, invoking the principle of estoppel. The High Court’s order in this case was seen as contradictory to that precedent and to the renewal conditions originally accepted by Smart Telecom.

Senior lawyers Shambhu Thapa and Raman Kumar Shrestha represented Smart Telecom. However, the joint bench of Judges Dhruba Chandra Nanda and Dipendra Bahadur Bam of the Patan High Court ultimately ruled that there was no basis for an interim order, marking the failure of Smart Telecom’s final attempt to retain its license.

Bank-led auction leaves government empty-handed

Following the complete cancellation of the license, the Nepal Telecommunications Authority announced on 22 May 2023 that it had taken control of all assets, infrastructure, networks, and equipment of the company.

Under the Telecommunications Service Provider Asset Management Regulations, 2079, the authority is empowered to seize and auction assets of companies whose licenses are not renewed in order to recover government dues. However, the required management and pricing committees could not be formed, raising suspicions of possible collusion at the leadership level of the authority.

Meanwhile, Nepal Investment Mega Bank proceeded to auction the company’s assets, infrastructure, and network without legal coordination, leaving the government with no recovery from Smart Telecom. Although the infrastructure had already come under regulatory control, the bank’s unilateral action resulted in a complete loss for the state. Consequently, the government suffered losses exceeding Rs 30 billion and was left with “zero in hand.”

In fact, another scheme had also been considered during the company’s collapse. During the tenure of the Sher Bahadur Deuba government and Communications Minister Gyanendra Bahadur Karki, the Asset Management Regulation 2079 was introduced with provisions to merge Smart Telecom’s cancelled license into Ncell. Under this arrangement, Smart Telecom’s liabilities would have been transferred to Ncell, effectively allowing Ncell to operate the remaining 15 years of the licence period. However, the Nepal Telecommunications Authority later recommended correcting what it termed a deliberate policy error.

If the Oli government had not reinstated the cancelled license for non-payment of dues of Rs 2.32 billion in 2019, the state would not have faced a loss of approximately Rs 3 billion today. There was also a possibility to recover funds through seizure of assets, infrastructure, and network facilities, along with investor rights. However, political protection, coordination between political leadership and intermediaries, repeated unlawful deadline extensions, and tactics that even rendered regulatory bodies ineffective, have turned Smart Telecom into an epitome of state resource exploitation.

It now stands as stark evidence of how a public system funded by taxpayers can be systematically weakened and drained by a small number of businessmen and politicians—the Smart Telecom case.

पछिल्लो अध्यावधिक: जेठ ८, २०८३ १६:७

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