KATMANDU, Nepal (AP) — Nepal's government signed an agreement Friday with Indian company GMR to build the Himalayan nation's largest hydroelectric plant in a small step toward easing chronic power shortages and attracting new investment.
The $1.15 billion Upper Karnali Hydro power plant would be the biggest private foreign investment in Nepal, putting India ahead of northern neighbor China, which has long shown interest in developing Nepal's power industry.
The agreement was signed by officials from Nepal Investment Board and the Indian company in the presence of Nepal's Prime Minister Sushil Koirala and Indian Home Minister Rajnath Singh.
"This agreement has opened doors for future utilization of Nepal's natural resources for benefit of Nepal and its people. It will play an important a role for the prosperity of Nepalese people," Nepal's Deputy Prime Minister Bam Dev Gautam said at the signing ceremony.
Nepal's Cabinet had endorsed the draft agreement late Thursday to allow the company to build the plant with a 900 MW capacity.
The Cabinet in the same meeting also endorsed a draft of a power trade agreement to be signed with India. This agreement to be signed later in the year details buying, selling, exporting and importing power between the South Asian nations.
Nepal has been trying to woo investment from foreign companies as it recovers from years of communist insurgency and political instability. Its main options are India and China, the only countries with which landlocked Nepal has borders.
Power shortages are so severe in Nepal, its residents endure power cuts of up to 12 hours a day. The existing hydropower plants are not able to handle demand even during the monsoon season when lake and river levels are high. Nepal's mountainous terrain is lined with rivers, making it well suited to hydropower dams.
Indian Prime Minister Narendra Modi, who visited Nepal last month, pledged to help in developing hydro power projects and buying the power for use in Indian states. He also pledged $1 billion in concessional development loans that could be used for building infrastructure including power plants.
India has often ignored its small Himalayan neighbor but has been unnerved by China's growing presence in the country.
China's state-backed Three Gorges International Corp. is negotiating with Nepal for construction of a power plant over the West Seti river in Nepal's west. The project would cost $1.6 billion and generate 750 MW of electricity, according to the Nepal Investment Board.
Most of the power generated from the Upper Karnali Hydropower plant that will be built by GMR would be exported to neighboring India.
Under the agreement, Nepal would get 12 percent of the electricity free of charge and would able to buy more to ease power shortages. Nepal would have a 27 percent stake in the project.
GMR's R.V. Sheshan said the company would take two years to collect the funds needed through their partners and international finance agencies and another five years to build the project.
The Indian company known for building airports, highways and other infrastructure projects would take five years to build the plant, dam the Karnali river in northwestern Nepal and construct transmission lines. It would operate the plant for 25 years and hand it over to Nepal at the end of the term.