The Investment Board Nepal (IBN) has awarded generation licence of the 900-megawatt Arun-III hydroelectric project to SJVN Arun-III Power Development Company — a subsidiary of Indian government-owned Satluj Jal Vidyut Nigam Ltd.

The foundation stone laying ceremony of the project is scheduled to take place during Indian Prime Minister Narendra Modi’s upcoming visit to Nepal. Indian Prime Minister Modi is scheduled to visit Nepal on May 11 and 12.

The largest foreign direct investment (FDI) ever from India is going to be realised after laying the foundation stone to take forward the construction of the project. SJVN will invest $1.4 billion in Arun-III project and financial closure must be achieved by September 29 this year.

SK Sharma, managing director of SJVN Arun-III Power Development Company, said that the project is ready to take off, with construction contract of lot-I (dam) and lot-II (power house) already awarded and the contractors have already started bringing construction materials to the project location.

Arun-III is the largest capacity project in the history of hydroelectricity that is scheduled to be constructed within the next five years.

The Indian government has so far approved investment of INR 57.24 billion proposed by SJVN in Arun-III. Arun-III is an export-oriented project and it will sell the electricity to India. However, it has to sign an agreement with power utilities in India to sell the power in a bid to achieve the financial closure.

Indian Prime Minister Modi will observe the foundation stone laying ceremony of the project from Kathmandu. The project is located in Sankhuwasabha district of eastern Nepal.

The 900-megawatt project was supposed to be constructed under the assistance of the World Bank Group some two decades back. However, political polarisation and protests against reservoir projects back then forced the World Bank to drop the project.

The project was later awarded to the SJVN, a state-owned company of the Indian government, through competitive bidding some 10 years ago. Project Development Agreement (PDA) with SJVN was signed on November 25, 2014 and IBN has granted several extensions for financial closure of the project.

Apart from the local share and free energy to the residents of the affected area, the government will receive benefits worth Rs 348 billion from Arun-III as royalty, income tax, customs tariff and free energy in the concession period of 25 years. The project will also provide 21.9 per cent or 197 megawatts of the generated energy free of cost.