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Updated: Nov 14, 2017 00:17 IST

Nepal on Monday scrapped the award of a 1,200-MW hydropower project to a Chinese state-owned company, dealing a blow to Beijing’s ambitions to take on key infrastructure schemes in the country.

A meeting of the cabinet decided to scrap the agreement for the Budhi Gandaki hydropower project with Gezhouba Group on the directive of several parliamentary committees.

The move followed allegations of corruption, and deputy prime minister Kamal Thapa tweeted that the agreement was signed “recklessly and shadily”.

The move comes at a time when the Sher Bahadur Deuba-led government is under pressure from China to move ahead with projects under the Belt and Road Initiative (BRI).

The cabinet also decided to give two Indian firms – GMR Energy and Sutlej Jal Vidyut Nigam – developing 900-MW hydropower plants six more months for financial closure of the projects. The firms are facing several bottlenecks, such as compensation, land acquisition and forest clearance.

At one time, the Nepal government had considered including the Budhi Gandaki project, estimated to cost more than $2.5 billion, in the BRI.

There was widespread speculation in Kathmandu that Prime Minister Deuba took the bold step to signal to China that Nepal will not be pressured into developing projects under the BRI at a time when several communist parties have joined hands for the upcoming elections, reportedly with the backing of Beijing.

The former government led by Pushpa Kamal Dahal “Prachanda” awarded the contract for the Budhi Gandaki project during his last days in office without any competitive bidding. The decision attracted controversy from various quarters.

The decision was first opposed by former premier Baburam Bhattarai, whose hometown is in the Gorkha region where the project is located. Several political parties and Nepalese energy entrepreneurs too opposed the deal even though the government has distributed more than Rs 12 billion as compensation for land acquisition.

Gezhouba Group was awarded the contract to build the project on the “engineering procurement contract with financing (EPCF)” model, which was to be implemented for the first time in Nepal. The firm, which has been black-listed in Nepal, has also faced criticism for delays in other projects.

During their visits to Beijing, Prachanda and his predecessor KP Sharma Oli had sought Chinese investments for key projects.