Only two SEZs in operation in 25 years

Kathmandu, June 28: In 2000/01, the government allocated fund to develop a Special Economic Zone (SEZ) near the Nepal-India border in Bhairahawa. The Detailed Project Report (DPR) of the project was ready in 2004 but physical construction started in 2008 and administrative set up was completed only in 2014. Interestingly, the industrial infrastructure was inaugurated twice – the administrative building in 2014, and the SEZ itself in 2017. 

But the first-ever SEZ failed to attract investors due to its exorbitant rent of Rs. 150 per square metre. While the investors were asking to set it at Rs. 5 per sq. metre the SEZ Authority reduced it to Rs. 20. In November 2025, the rate was slashed to Rs. 5 through a Cabinet decision. Meanwhile, it took several years to provide seamless power supply to the industries in the SEZ – it is still in the process and the government has allocated budget for the same for the next Fiscal Yeat 2026/27.

Likewise, it took an entire decade for the SEZ to lease out all 67 plots although the first industry, Shakti Minerals, started production in 2019. It leased out all plots by late 2024.

So, Bhairahawa SEZ is the story of two-and-a-half decades which exhibits the pathetic side of industrial promotion and development – including policy inconsistency, myopic bureaucracy and poor coordination among the government agencies. 

The SEZ Authority maintains that the concept of SEZ was introduced to help industries to provide locations with physical infrastructure and other facilities and offer registration and other services through a one-door facility. However, the case is otherwise. 

The one-door facility is yet to get in its full shape despite multiple efforts and promises to the foreign investors, especially during the investment summits and business forums in foreign countries. 

Other SEZs are also witnessing delay. Panchkhal SEZ was announced in 2004 and budget allocation was also made the same year but the project could take off recently through the initiatives of the Investment Board of Nepal (IBN). In November last year, the IBN and Nepal Hehe Economic Development Zone Company Limited signed an agreement to prepare a DPR for the project. 

While the SEZ Authority has completed the feasibility study and DPR of the project, the Chinese firm is taking up fresh initiatives for the same with full support from the former.  The plot number in the Panchkhal SEZ has also been increased to 68 from the earlier 52. This infrastructure is expanded in 1000 ropanis, and had an initial cost of Rs. 4.15 billion which was raised later.

Similarly, the SEZ in Simara of Bara district is still in construction phase with Block A in operation. The DPR of first phase was prepared in 2005 while other blocks were prepared in 2016/17. 

It has five phases with a total of 353 plots in 832 bighas of land. Estimated cost of Simara SEZ as per the DPR is Rs. 19.58 billion.

SEZs in 22 locations

Apart from the three priority SEZ projects, the SEZ Authority has concluded the feasibility study of 15 other projects in Gorakha, Kailali, Chitwan, Banke, Saptari, Sarlahi, Rautahat, Morang, Nuwakot, Dhanusha, Kapilvastu, Bardiya, Kailali, Jhapa and Rasuwa. The government had started allocating budgets for those projects about two decades ago. For instance, Nuwakot SEZ received budget as early as in 2004/05, and Banke, Saptari and Kailali in 2008/09. 

Feasibility study of SEZ in Jhapa was completed in 2009/10, and Gorakha, Dhanusha and Kailali in 2015. 

Likewise, pre-feasibility study for SEZ has been carried out in other six locations – Mahottari, Sindhupalchowk, Ilam, Dang, Sindhuli, Jumla and Tanahun. The Ministry of Industry, Commerce and Supplies has completed Environment Impact Assessment for another SEZ in Haraiya as well. 

But these SEZs are unlikely to be developed anytime soon. "Several of those projects were the results of the political interests of the senior leaders of previous ruling parties," said a senior official from the Ministry of Industry Commerce and Supplies (MoICS). "Industrial infrastructure and projects should be developed to facilitate the investors and industrialists, not to serve political interest of certain politicians." 

Ironically, the 15th periodic plan of Nepal aimed to establish five SEZs, other than Bhairahawa and Simara, by the end of the plan period FY 2023/24 but it couldn't see any progress. 

Given the budget allocation of Rs. 170 million to the sector for the upcoming Fiscal Year 2026/27, any significant development is unlikely. The Authority is not allowed to use the fund collected in rent. The Ministry of Finance is formulating procedure to use that fund which has accumulated to Rs. 250 million. 

High in demand 

For long, political and policy instability, energy crisis and infrastructure deficit remained as the key challenges for investors in Nepal. But recently, managing land for the industry has become one of the greatest challenges for them. 

It is expensive and hard to find, especially in the areas bordering with India and around the market centres. 

While environmental concerns have created hurdles to install production plants in and near the urban 

centres, deficit of trade infrastructure has forced the manufacturers 

to build the ir industries in the Southern plains along the border with India. 

Since Nepal's trade is highly concentrated to India with about two-thirds of income and export happening with the latter, having production plants at the bordering areas helps to reduce the cost of transporting raw materials as well as finished goods.

Various studies and situation reports of the multilateral donor agencies like the World Bank have concluded that Nepal's landlockedness, infrastructure deficit, poor application of latest technology and low productivity of manpower

has made Nepali products dearer and less competitive in the international markets. Manufacturers of 

garment, one of the top exports of the country, said that cost of Nepali goods is 28 to 35 per cent higher due to those reasons. 

In such a scenario, a well-facilitated SEZ can help producers to produce goods at a comparatively lower cost so that their products could be more competitive in the domestic and international markets. 

"Investors' attraction to SEZ is very high. We are unable to provide plots to all applicants in Simara SEZ," said Er. Dinesh Neupane, Information Officer of the SEZ Authority. 

According to him, all sorts of industries ranging from metal craft, utensils, electric goods to minerals, granites and aluminum products have been attracted to SEZ. 

Although the SEZ Act, 2073 has a provision to construct, manage and operate the SEZ by the private sector or in a public-private-partnership model, this option is being applied in Panchkhal SEZ. 

Nepali private sector has asked the government to let them build and run industrial zones but not the SEZ, said an official from the Ministry of Industry. 

Krishna Prasad Sharma, Vice-President of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said that the well-facilitated SEZ could provide much relief to the investors in terms of land, security and other facility but the government should take proactive initiatives to ensure smooth export environment to India and other countries. 

"The mandatory provision for the industries in SEZ can be impacted by the decision of the destination country. The government should create assurance to the producers," he said while adding that if the export is disrupted by the very reason, the producers should be provided with alternative solutions. 

Developments proposed for 2026/27

The government has allocated piecemeal budgets to create various structures in SEZs. These include fencing and land mapping at Simara SEZ Block B, C, D and E, constructing electricity transmission line and substation, and access road, procuring machinery, and developing other infrastructure in Block A.

Developing online system for SEZ Authority, tree-felling in Panchkhal SEZ, and constructing solid waste management facility in Bhairahawa SEZ have also received budget. 

Budget allocations to the SEZs have given impressions that the development of SEZ has not been a top priority of the government. 

A study convened by the Policy Research Institute (PRI) and carried out by Chandra Kumar Ghimire, Dr. Hari Sharma Neupane and 

Laxman Prasad Bhattarai in 2023 found that only Rs. 6.44 billion has been allocated to SEZ in the past two decades, of which only Rs. 3.23 billion was utilised – just half of the total earmarked budget. 

The study also concluded that lack of policy harmonisation and 'single-window service' has impacted the successful operation of the SEZs. 

It said that due to the failure in striking harmony between the economic and sectorial policies, a characteristic differential treatment as seen around the world between the industries operating within the SEZ and outside is not evident in Nepal so far.

The Commercial Policy 2015 also seems to be silent regarding the provision of differential treatment for industries operating in SEZ.

Finance Minister Dr. Swarnim Wagle announced through the budget for the next FY 2026/27 that industrialists can use structures built in the industrial estate, SEZ, and the land made available by the government, for banking purposes.

Likewise, the SEZs will be treated as 'Special Economic Administration Area', where all matters related to tax, customs, import, export, and investment will be handled from a single point.

A special programme for the protection of the industries and investors has also been proposed. Security has been managed on an ad hoc basis so far. The SEZ Authority had written to the Home Ministry for multiple times. Neupane said that security should be a primary facility to be provided to the investors not only in the SEZ but in all industrial areas.