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Katmandu, Nepal • Nepal's government has endorsed plans for Indian company GMR to build the Himalayan nation's largest hydro power plant in a small step toward easing chronic power shortages and attracting new investment, officials said Friday.
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.
Govinda Pokhrel of Nepal's national planning commission said a Cabinet meeting endorsed a draft agreement late Thursday to allow the company to build the $1.15 billion power plant with a 900 megawatt capacity.
"This agreement would open the door for more foreign investment to enter Nepal to develop hydro power projects," Pokhrel said.
GMR executives are expected to fly to Nepal Friday and sign the final agreement with Nepalese officials.
Nepal has been trying to woo investment from foreign companies as it recovers from years of communist insurgency that was quickly followed by prolonged political instability. Its main options are India and China, the only two countries with which landlocked Nepal has borders.
The country faces severe power shortages, with residents enduring power cuts of up to 12 hours a day. The existing hydro power plants are not able to handle demand even during the monsoon season when lake and river levels are high.
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 Himalyan neighbor but has recently 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 megawatts 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.
Nepal is mountainous and lined with rivers, making it well suited to hydropower dams.
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.