Nepal scraps $2.5 billion hydropower plant deal with Chinese company

By Gopal Sharma

KATHMANDU (Reuters) - Nepal has scrapped a $2.5 billion deal with China Gezhouba Group Corporation to build the country's biggest hydropower plant, citing lapses in the award process, the energy minister said.

"The cabinet has cancelled the irregular ... agreement with Gezhouba Group to build the Budhi Gandaki hydroelectric project," Energy Minister Kamal Thapa, who is also the country's deputy prime minister, said on Monday in a twitter post in Nepali after a cabinet meeting. He did not give further details.

Nepal's rivers, cascading from the snow-capped Himalayas, have vast, untapped potential for hydropower generation, but a lack of funds and technology has made Nepal lean on neighbour India to meet annual demand of 1,400 megawatts (MW).

In June, a Maoist-dominated coalition government awarded a contract to China Gezhouba Group Corporation to build a 1,200 MW plant on the Budhi Gandaki river, about 50 km (32 miles) west of Kathmandu, to address acute power shortages.

Critics say the $2.5 billion project was handed to the Chinese company without any competitive bidding, which is required by law, and a parliamentary panel asked the government that succeeded the Maoist-led coalition to scrap the deal.

Speaking in Beijing on Tuesday, Chinese Foreign Ministry spokesman Geng Shuang said he was unaware of the reports but said China maintained very good relations with Nepal and enjoyed cooperation in many areas and projects.

Gezhouba did not immediately respond to a faxed request for comment and did not answer telephone calls.

China and India jostle for influence with aid and investment in infrastructure projects in Nepal.

Kathmandu has cleared a 750 MW project to be built on the West Seti River in the western part of the country by China's state-owned Three Gorges International Corp.

It has also permitted two Indian companies - GMR Group and Satluj Jal Vidyut Nigam Limited - to build one hydropower plant each, both capable of generating 900 MW of power each, mainly to be exported to India.

(Reporting by Gopal Sharma; Additional reporting by Chen Aizhu, Muyu Xu and Philip Wen in BEIJING; Editing by Malini Menon and David Goodman)