Government of Nepal to re-award US$2.5 billion hydropower project to China Gezhouba Group

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Government of Nepal to re-award US$2.5 billion hydropower project to China Gezhouba Group

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A government minister of Nepal has stated that China Gezhouba Group Company (CGGC) will construct and finance a 1,200 MW hydroelectric power plant in the country.

CGGC agreed to develop the US$2.5 billion Budhi Gandaki project last year, but the agreement was scrapped shortly after and the project re-assigned to state-owned Nepal Electricity Authority (NEA).

On Friday, the Cabinet directed the Energy Ministry to initiate the process of formally awarding the project to the Chinese developer. The Ministry will now prepare a proposal and negotiate terms with CGGC, before signing a Memorandum of Understanding (MoU).

It is thought that the project will follow an engineering, procurement, construction and financing (EPCF) model.

Since taking office in February, the new government has faced pressure to reinstate the agreement with CGGC. The Prime Minister announced his intention to do so in March, believing that his predecessors had no grounds for the cancellation. 

Significant pressure has come from the Chinese government, which is seeking to strengthen its influence in Nepal and expand its One Belt, One Road Initiative. This entails the development of a network of railways, roads, pipelines, and utility grids that would link China to Europe via everything in between. Nepal was the first international partner to join the initiative, demonstrating the country's eagerness for Chinese investment.

However, the agreement with CGGC is not approved by all. The decision to re-award the project has been criticized due to the lack of competition and transparency.

Located on the Budhi Gandaki river, about 50km west of capital city Kathmandu, the power plant would nearly double Nepal's hydropower production. The country currently has less than 1 GW installed hydropower capacity, which dwarfs in comparison to its vast potential. The International Hydropower Association estimates that this is around 84,000 MW, of which 43,000 MW is economically viable.

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