Norwegian energy giant Statkraft AS has withdrawn its plan to build a hydropower project in Nepal, officials said on Wednesday, in a blow to the Himalayan nation’s efforts to woo foreign investment and lift its struggling economy.
The company was to invest $1.5 billion in the Tamakoshi III plant to generate 650 megawatts for export to energy-hungry India, which has an agreement with Nepal to buy electricity to help cover its own supply shortages.
Ghanashyam Ojha, external affairs chief with the Investment Board Nepal (IBN), said the Norwegian firm withdrew because it was not sure it could send the power to markets in India, as necessary cross-border transmission lines are not in place yet.
He said the decision may have also been prompted by last year’s devastating earthquake, which increased investment risks in Nepal.
The project was located in the Dolakha district, about 100 km (62 miles) northeast of Kathmandu and close to the border with Tibet. The area was one of the worst hit by two earthquakes last year that left 9,000 people dead.
Statkraft said it had backed out after a thorough assessment of the commercial, technical and regulatory factors as well as what it called a non-conducive project development environment.
“These factors include a lack of viable power offtake option, lower electricity price forecasts, insufficient transmission capacity for power evacuation and absence of necessary policies and regulatory framework for operationalizing power sales,” country director Sandip Shah said in a statement.
Nepal has been in political turmoil since it adopted a new constitution last September. There have been violent protests by minority ethnic Madhesi groups in the southern plains who say their concerns have not been addressed by the charter.
Nepal is estimated to have the potential to generate more than 42,000 MW of electricity, but has installed capacity of just over 800 MW and has daily power cuts for up to 15 hours.
In 2014, authorities allowed two Indian companies to build separate power plants, with a capacity of 900 MW each at a total cost of $2.54 billion, for export to India.
China, which has helped Nepal develop smaller power plants, is also in talks on big projects, officials said, as Beijing jostles with New Delhi for influence over Nepal through aid and investment.