The China-backed Asian Infrastructure Investment Bank (AIIB) has made its first investment in Nepal with the provision of up to $90m (€80m) loan to help fund a $650m hydropower project.

The Beijing-headquartered bank said it has approved the loan for the Upper Trishuli-1 Hydropower Project, a 216MW hydropower project expected to increase Nepal’s power generation by almost 20%.

Co-financed with the International Finance Corporation, Asian Development Bank and other development institutions, the project involves a $650m investment, financed entirely by foreign capital.

The hydropower project, which will be developed under a build-own-operate-transfer model, will sell power to the Nepal Electricity Authority under a power purchase agreement.

AIIB said it has also provided Nepal with $0.9m for the proposed Tamakoshi V Hydroelectric project and $1m for a proposed power distribution system upgrade and expansion project from its project preparation special fund.

AIIB vice president and CIO DJ Pandian, said: “We recognise that power supply shortages in Nepal have caused significant delays in the restoration of infrastructure and services impacted by the 2015 earthquake.

“By investing in hydropower and encouraging further private sector investment in the country, we will help drive economic growth and poverty alleviation efforts.”

AIIB director general Dong-ik Lee, said: “AIIB’s investment will provide much-needed, long-term financing for a vital infrastructure project.

“We are confident that our investment will demonstrate the viability of Nepal’s sustainable energy sector to other potential private-sector investors.”