Nepal reinstates $2.5b hydropower deal with Chinese firm

Nepal has reinstated a deal with a Chinese State-owned ­company to build a $2.5 billion hydroelectric plant scrapped by the previous government, ­officials confirmed on ­Monday, as the new administration seeks massive infrastructure investment.

The agreement with the China Gezhouba Group Corporation (CGGC) to construct Nepal's largest hydro plant was abruptly canceled by the outgoing government just weeks before a general election late last year.

"The decision to scrap the agreement with the Chinese company by the previous government was taken without any grounds," information minister Gokul Baskota said.

"We decided to correct that, because Nepal doesn't have the capacity to build such a big project and funding is also challenging."

The long-mooted 1,200 megawatt Budhi-Gandaki plant would nearly double Nepal's ­hydropower production.

The landlocked ­country ­suffers chronic energy ­shortages and is forced to buy electricity from neighboring India.

Water-rich Nepal has a ­mountain river system that could make it an energy-­producing powerhouse, but failure to develop its ­hydropower sector has weighed heavily on its ailing economy.

Nepal has awarded contracts for its mega hydropower projects to its two giant neighbors India and China, but construction has been slow.

Construction finally began on the $1.4 billion India-backed Arun Three hydropower plant earlier this year, 26 years after it was first proposed.

CGGC is building three smaller hydropower plants in Nepal and has completed one.

Another Chinese firm, the China Three Gorges Corporation­, recently pulled out of a 750 megawatt hydropower project, citing financial concerns.