Govt Report Raises Serious Concerns Over Ncell’s Financial Practices, Ownership Transfer

A high-level government investigation has concluded that Ncell (Axiata), a private telecommunications service provider, has generated significantly higher profits than many leading global telecom companies by imposing comparatively high service charges on Nepali consumers. These findings are contained in a report prepared by the High-Level Study and Investigation Committee, which was formed to examine Ncell’s financial condition and the circumstances surrounding its share purchase and sale transactions.

The committee, chaired by former Auditor General Tanka Mani Sharma Dangal, was constituted following a Cabinet decision on 21 Poush 2080. Its members included Government Secretary Phanindra Gautam, Joint Secretaries Ritesh Kumar Shakya and Baburam Bhandari, and Sujan Kumar Kafle, President of the Nepal Institute of Chartered Accountants.

According to the report, Ncell’s profitability is exceptionally high when compared with international telecommunications companies. Serving more than 13 million subscribers in Nepal, the company reportedly records operating profits well above those of established global telecom operators. Based on an analysis of the company's average EBITDA over the past eight years relative to market value, the committee concluded that Ncell’s profitability significantly exceeds that of major international operators, including Vodafone India, British Telecom, and Telekom Malaysia. The report argues that these figures indicate comparatively high service charges and substantial profit margins derived from Nepali consumers.

The committee further states that Ncell’s parent company, Axiata Group Berhad, has earned a higher proportion of net profit after tax from its Nepal operations than from several other markets in which it has telecommunications investments, including Indonesia, Bangladesh, and Sri Lanka. In light of these findings, the committee disputes Axiata’s public statement of 1 December 2023 that Nepal’s business environment was not conducive to investment, describing the claim as inconsistent with the company’s financial performance.

Limited Investment and Significant Profit Repatriation

The report concludes that Ncell has introduced relatively limited capital investment into Nepal since commencing operations. According to the committee, the company invested approximately Rs. 80 million in foreign capital and Rs. 200 million in domestic capital while generating a cumulative net profit of approximately Rs. 113.58 billion.

Of this amount, the committee reports that Rs. 93.5 billion was distributed as dividends, with more than Rs. 66.95 billion repatriated abroad and an additional Rs. 2 billion transferred overseas under other categories. Domestic shareholders reportedly received approximately Rs. 19.95 billion in dividend payments.

Outstanding Tax Disputes

The report states that Ncell remains involved in long-standing tax disputes with the Government of Nepal involving more than Rs. 85 billion in tax and non-tax liabilities. According to the committee, these disputes are currently pending before various judicial and administrative bodies.

The committee alleges that, rather than settling its outstanding obligations, the company has repeatedly challenged the government's tax assessments through domestic litigation and international arbitration proceedings.

Questions Over Share Sale Valuation

The committee also raises concerns regarding the valuation of Axiata’s divestment of its ownership stake in Ncell. It argues that the reported transaction value does not reflect the company's substantial physical assets, telecommunications licenses, and ongoing profitability.

Although Axiata announced that the commercial value of the sale of its 80 percent shareholding was approximately USD400 million, the committee notes that Satish Lal Acharya, identified as one of the purchasers, informed the investigation committee that the company's overall commercial value was substantially higher than the announced valuation.

The report further concludes that discrepancies exist between the figures presented by the purchaser, the share purchase agreement, and Ncell’s audited financial statements. Consequently, the committee considers the share purchase and sale agreement between Axiata Group Berhad and Spectrlite UK to be unreliable and not reflective of the company's actual value.

Concerns Over Corporate Governance

While Ncell maintains that it has contributed approximately Rs. 302 billion to the Government of Nepal through taxes and non-tax revenues, the committee argues that the company's alleged tax avoidance practices, opaque share transactions, and repeated legal challenges to government decisions raise significant concerns regarding its corporate governance and business practices.

Criminal Investigation and Government Action

Based on the committee’s findings, the Government of Nepal has initiated the implementation of the report and intensified investigations into alleged irregularities related to Ncell’s ownership transfer, licensing process, tax compliance, and investment transactions.

According to the government's 100-day progress report, the Central Investigation Bureau (CIB) of Nepal Police has been directed to investigate allegations of fraud, criminal breach of trust, tax evasion, unlawful transfer of investments abroad, and irregularities in obtaining telecommunications service licenses. The Nepal Rastra Bank is also reported to be assisting in the investigation.

Authorities have indicated that legal action may be initiated against Ncell investors, senior company executives, and public officials who held key positions within the Ministry of Communications and the Nepal Telecommunications Authority during the period of the disputed share transactions.

The report identifies Sachin Lal Acharya, Satish Lal Acharya, and Bhavana Singh as principal investors. It also notes that shares allocated to seven employees as part of efforts to convert Ncell into a public limited company are under investigation by the CIB.

The Government has identified the investigation into Ncell among its priority anti-corruption initiatives under its governance reform agenda, placing it alongside other high-profile investigations involving public assets and alleged financial irregularities.