US company, Eurorient Investment Group, has beaten off a challenge from two other companies to win a controversial deal to develop the Arun III hydro-electric project in Nepal.

The scheme was postponed five years ago after the World Bank refused to provide finance following criticism that the dam and associated tunnel works would cause severe environmental damage.

The Nepalese planning, works and water resources ministry has now chosen Eurorient to build a 402MW station in a remote valley in the Sankhuwasabha district in the Himalayas. The planned station is double the size of the earlier plant.

But the ministry will only sign a final agreement once Eurorient secures financial backing and finalises a power purchase deal.

Competitors were Canadian outfit ASTQ Holdings and Nepali company, Susasun Power Company.

Meanwhile, the water resources ministry is set to complete a detailed project report into the Pancheshwore hydro-electric scheme in the next 18 months.

The government has also accepted a private sector proposal to develop the Tamor hydro station.

Both Enron Corp and Australia’s Snowy Mountain Energy Corporation have shown interest in developing hydro-electric plants in Nepal. Enron proposed a scheme on the Karnali river, while Snowy Mountain planned a 750 MW station on the Seli river. But both companies withdrawn over uncertain political and economic situation.

The Nepali authorities are also seeking a US$60 million loan from the Asian Development Bank to finance the Melamchi water supply scheme that includes a 27km long tunnel.

The water resouces ministry is confident the project will be completed in three years.

The scheme will transfer 70,000m3 of water a day from the Melamchi river to the Kathmandu Valley. Apart from tunnel construction, the scheme also includes headworks.