"We have decided that the project should go ahead after due corrections in the agreement between the government and the company," said Shanta Chaudhary, head of Nepal's parliamentary committee on natural resources on Monday, The Wall Street Journal reports.
The West Seti approval came after China Three Gorges, China' largest hydropower development company and operator of China's massive Three Gorges Dam, on March 16 threatened to pull out of the 750 megawatt project if it didn't move forward.
That was because Chaudhary's committee said it was investigating whether the government had followed proper procedures in granting the license to China Three Gorges on Feb. 29.
The committee said that Nepal's government too hastily gave its approval to China Three Gorges, without inviting international competitive bidding as had been the general practice, said Chaudhary.
Under the Feb. 29 agreement, Nepal's state power utility would have a 25 percent share in the project and China Three Gorges the rest.
Construction is to start in 2015, with electricity generation to begin starting in 2019.
Nepal aims to tap the huge hydroelectric potential from its swift-flowing Himalayan river system to provide electricity to its population, 60 percent of whom don't have access to electricity.
Nepal's Independent Power Producers' Association says that Nepal has approximately 40,000 megawatts of economically feasible hydropower potential, only about 600 megawatts of which is currently developed.
Nepal says the estimated $1.6 billion cost for West Seti will come from China Three Gorges as well as from a loan from China's Exim Bank. It says the 3.33 billion units of energy the project is expected to supply is intended for domestic consumption.
The project license for West Seti was previously awarded in 1994 to Australia's Snowy Mountains Engineering Corp. but was scrapped last July. Under the terms of that license, Nepal was to receive 10 percent of the project's 750 megawatts of electricity along with a nominal royalty from SMEC's profit from the project, with the remaining 90 percent of the power exported to India.
SMEC's West Seti project called for the relocation of about 30,000 people from the highlands to the plains of the Terai in Kailali, home to the indigenous Tharu people.
The Asian Development Bank, along with the China National Machinery and Export Corp. and China Exim Bank were involved as co-financiers but later pulled out of the project, International Rivers says.
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