UPDATE 2-Nepal clears $1.6 bln hydropower project by China's Three Gorges

(Adds details on project, Nepal hydropower potential)

KATHMANDU, April 13 (Reuters) - Nepal’s investment board on Monday cleared China’s Three Gorges International Corp to build a long-delayed $1.6 billion new hydropower project, the single biggest foreign investment in the Himalayan country.

The dam, to be built on the West Seti river in northwest Nepal, will generate 750 megawatts (MW) of power when complete, board official Ghanashyam Ojha told Reuters.

A Nepal parliamentary panel first approved the project in 2012 but state-owned Three Gorges had been waiting for the investment board’s clearance.

The project is forecast for completion by 2021-22 and officials said some of the generated power is expected to be given to locals for free with the rest sold to Nepal.

One of the world’s poorest countries, Nepal is opening up its vast hydropower potential to help ease chronic power shortages and grow an economy still emerging from a decade-long civil war.

That has prompted a rush by China and India to invest billions exploiting their neighbour’s rivers and, in the case of India, import electricity to its energy-hungry economy.

In October, India and Nepal signed an agreement to start selling electricity to each other.

Last year Nepal also cleared two major Indian hydropower projects worth a combined $2.4 billion, including what was at the time the largest foreign investment scheme in the country.

New Delhi has long seen Nepal as part of its sphere of influence but growing Chinese investment in recent years has altered the relationship.

In March, Beijing said it would extend a $145 million grant for the upgrade of a 114-km (71-mile) road that links the capital Kathmandu with the Tibetan border, as well as other infrastructure projects.

Three Gorges is China’s biggest hydropower developer and operates the world’s largest hydropower plant at the Three Gorges on the Yangtze river.

Nepal is estimated to have the potential to generate 42,000 MW of hydropower but today produces 800 MW -- less than the demand of 1,400 MW. (Writing by Tommy Wilkes; Editing by Jeremy Laurence and Mark Potter)