Kathmandu: Nepal Electricity Authority (NEA) on Monday signed a memorandum of understanding (MoU) with Satluj Jal Vidyut Nigam (SJVN), India, to construct the 679 MW Arun-4 Hydropower Project.

The agreement was signed in the presence of Nepal’s Prime Minister Sher Bahadur Deuba and India’s Prime Minister Narendra Modi, who is now on a single-day visit to Lumbini. NEA’s Managing Director Kulman Ghising and SJVN’s Chairman and Managing Director Nand Lal Sharma inked the agreement.

SJVN is an Indian public sector undertaking promoted jointly by the Federal Government and Himachal State of India. During Prime Minister Deuba’s visit to India on April 1-3, both countries had issued a joint vision paper on the energy sector that talked about promoting collaboration between the public sector companies of both the countries.

The semi-reservoir project will be located downstream of the under construction Arun-3 Hydroelectric Project and upstream of the proposed Sapta Koshi High Dam project. The dam site of the project will be located at about 34 km upstream whereas the powerhouse site will be 7 km upstream from the Tumlingtar Airport.

India has agreed to build Lower Arun (Arun 4) in line with all conditions set for the 900 MW Arun III project. According to the agreement on Arun III, the Indian company will pay INR 330 billion as royalty to Nepal for 20 years. The project will also provide 152 MW (21.9 percent) of the generated energy free of cost to Nepal apart from providing the project’s shares to the local people while providing free energy to the people from the project affected areas.

Speaking at the agreement signing on Monday, Ghising said the NEA will hold 49 percent shares in the Arun 4 project, out of which 10 percent will be allocated to the local people affected by the project while 15 percent will be issued for the general people. According to him, the feasibility report of the project will be reviewed in the next 90 days whereas in the next 18 months, the detailed project report and the environment impact assessment report will be finalized.

A meeting of the Investment Board of Nepal (IBN) held in January 2021 had decided to award the contract to the Indian company under the BOOT (Build, Own, Operate and Transfer) model.

Earlier, a Chinese state-owned company, Power China, had expressed interest in constructing the hydropower project. The Chinese company had even signed a MoU with the IBN to develop the project. However, the Chinese company retracted from the project construction expressing its dissatisfaction that the government showcased the project at the Investment Summit held in March 2019.

The Lower Arun project will have the installed capacity to produce 490.2 MW. The construction of the project is estimated to cost around Rs 79.12 billion.