Nepal is signing an agreement Tuesday for an Indian company to build a $1 billion hydroelectricity plant to boost supplies in the energy-starved Himalayan nation and to export power to India.
The move comes as regional leaders, including Indian Prime Minister Narendra Modi, are arriving in Nepal for a summit of South Asian Association for Regional Cooperation.
Continue Reading Below
The inking of the deal with Indian company Satluj Jal Vidyut Nigam Ltd. to build the 900 megawatt Arun III hydropower station coincides with a visit by Modi, who has been keen to spread India's influence in the Himalayan nation.
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 that border landlocked Nepal.
Power shortages are so severe in Nepal that outages can last 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.
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.
During the summit on Wednesday and Thursday, leaders from Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka are expected to discuss energy sharing.
Leaders are expected to meet as a group and also hold bilateral discussions on the sidelines of the summit.
A meeting between Indian Prime Minister Narendra Modi and Pakistan counterpart Nawaz Sharif may also happen, although no official announcements have been made.
"I also look forward to holding bilateral discussions with other South Asian heads of state and government on the margins of the SAARC Summit," Modi said in a statement Tuesday.