KATMANDU, Nepal (AP) — Nepal's government is signing an agreement Tuesday with an Indian company to build a hydroelectricity plant that will export power to India and also boost supplies in the energy starved Himalayan nation.
The inking of the deal with Indian company Satluj Jal Vidyut Nigam Ltd. to build the 900 megawatt Arun III hydropower station will coincide with Indian Prime Minister Narendra Modi's visit to Nepal for a South Asian regional summit.
The $1.04 billion project is expected to begin producing electricity in 2020. More than three quarters of its output will be exported to India, said Ghanashyam Ojha, external affairs official at the Investment Board Nepal.
The Arun III agreement, which was endorsed by Nepal's Cabinet late Monday, comes just two months after a similar deal with another Indian company.
They are the two biggest private foreign investments in Nepal, and put India ahead of neighboring China, which has long shown interest in developing Nepal's power industry.
In September, Nepal signed an agreement with Indian company GMR to build the $1.15 billion Upper Karnali Hydro power plant.
Under the Arun III agreement, Nepal would get 22 percent of the electricity free of charge and would able to buy more to ease power shortages.
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 that electricity supplies can be but for 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.
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 megawatts of electricity, according to the Investment Board Nepal.
Modi is arriving in Nepal on Tuesday afternoon for the South Asian Association for Regional Cooperation summit that begins on Wednesday.