KATHMANDU • Nepal has cancelled an agreement with a Chinese company to build the largest hydroelectric plant in the impoverished landlocked country, which suffers from chronic energy shortages.

The project, agreed in June, would have nearly doubled Nepal's current hydropower production and cost an estimated US$2.5 billion (S$3.4 billion).

But the Finance Ministry recommended it to be scrapped, saying it had been awarded without an open and transparent bidding process, according to letters seen by Agence France-Presse yesterday.

"The Cabinet has terminated the irregular and impulsive Budhi-Gandaki hydroelectric project agreement with Gezhouba Group," tweeted Deputy Prime Minister Kamal Thapa on Monday following a Cabinet meeting.

The government signed an agreement with the Chinese state-owned China Gezhouba Group Corporation (CGGC) in June to build the 1,200MW Budhi-Gandaki hydroelectric plant. The deal followed Nepal's decision to sign up to China's One Belt, One Road initiative, a massive infrastructure drive at the centre of the Asian giant's push to expand its global influence.

China's creeping influence in Nepal has been closely watched by India, which has traditionally played the role of big brother to its small Himalayan neighbour.

A Nepal representative for CGGC said they were surprised by the government's decision. "We had done quite a lot of work for the project... Such decision is bound to alarm not just us but any investor. There is fear among other foreign companies as well," said CGGC public relations manager Om Bandhu Karki.

Water-rich Nepal has a mountain river system that could make it an energy-producing powerhouse but instead it imports much of its electricity from India. Experts say it could be generating 83,000MW but its total installed generation capacity currently stands at less than 2 per cent of that.

AGENCE FRANCE-PRESSE