[KATHMANDU] Nepal and India will sign a deal later Tuesday to develop a US$1-billion hydroelectricity project that will boost supplies in the Himalayan nation and export power to its larger neighbour, an official said.
India's Prime Minister Narendra Modi and his Nepalese counterpart Sushil Koirala will witness the signing of the agreement on the sidelines of a summit of South Asian leaders and ministers underway in Kathmandu, the official said.
The deal will allow India's state-owned Satluj Jal Vidyut Nigam to construct a 900-megawatt hydropower project on Nepal's Arun river, with electricity expected to be generated from 2021.
"This project is an important achievement for both Nepal and India. There is a lot of excitement here to finally sign the agreement," said Radhesh Pant, from the Nepal Investment Board, who will ink the deal.
"Our partner has a lot of experience and knowledge in this area... and Nepal will benefit from it," Pant told AFP.
The deal is the latest between the two energy-hungry countries which both suffer crippling electricity shortages and blackouts.
Nepal will receive for free about 22 per cent of the power generated, while the remainder will be exported to India, according to the board.
India is investing billions of dollars to develop Nepal's hydropower potential. Modi has sought to deepen their energy ties since coming to power in May, with the two countries signing a power trade agreement last month.
Modi arrived Tuesday afternoon in Kathmandu for the South Asian Association for Regional Cooperation (SAARC) summit.
Indian infrastructure giant GMR inked a deal in September to construct Nepal's first 900-megawatt hydropower project on the Karnali river.
A vast network of fast-flowing rivers through the Himalayas means Nepal has huge untapped hydropower resources, but disagreements over perceived threats to its sovereignty stalled earlier agreements to develop joint ventures with India.
Nepal currently produces just 750 megawatts of hydropower - less than two percent of its potential.