Nepal is hoping to get underway a $450 million hydropower joint venture with an Indian power major despite escalating Maoist insurgency in the project area.

Nepalese media said Thursday that the state-owned Nepal Electricity Authority (NEA) and India's National Hydro Power Corp (NHPC) have been discussing a hydropower project on the Karnali river in western Nepal to generate 300 MW power.

The Nepalese government estimates the project cost at about $450 million. It has already sent NHPC a draft memorandum of understanding (MoU) it hopes to sign early this year.

The state-owned Rising Nepal newspaper reported that according to the MoU draft, 15 percent of the power generated should be given free to Nepal. It also wants Nepal to have priority to buy the remaining quantity of power generated.

Initial talks on the project ran into problems because of the cash crunch faced by the Nepalese government, whose defence spending has shot up to combat the escalating Maoist insurgency.

While the NHPC will inform Monday whether its officials would come to Kathmandu to discuss the MoU, NEA officials are already talking about the agreement being signed within a fortnight.

Even if the pact is signed soon, it is debatable how soon actual work can begin.

The project will be located in three districts - Surkhet, Dailekh and Achham, all three considered Maoist strongholds with several skirmishes between security forces and the communist guerrillas.

The main site at Dailekh is a cause of worry to the rebels as villagers there have revolted against the spate of extortion and abductions. The Maoists are likely to oppose any new projects there.

Last year, a Chinese contractor hired for building roads through a Maoist stronghold gave up on the job, which subsequently was taken up by the Royal Nepalese Army.

Recently, the German government's technical aid wing GTZ pulled out of a project, citing threats to its staff due to the insurgency.

With general elections likely in Nepal this year and the Maoists threatening to oppose the polls, political leaders fear more violence, a scenario that would undoubtedly affect ongoing projects.

While India considers hydropower projects a long-term scheme and has expressed confidence that the insurgency will not last indefinitely, it remains to be seen if NHPC shares this view.