The Asian Infrastructure Investment Bank (AIIB) has agreed to provide a sovereign-backed loan of $112.3m to Nepal to increase electricity access in the country.

The loan will be used by the country to finance its Distribution System Upgrade and Expansion project. It is expected to increase electricity access and improve the quality of the electricity supplied across the country’s western regions.

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AIIB vice-president and chief investment officer DJ Pandian said: “AIIB’s investment gives much-needed financing to provide affordable, reliable and modern energy, especially in rural areas where people lack basic infrastructure.”

Although 78% of the country’s population has access to grid electricity, around 22% of the population located in the hilly and rural areas of western Nepal does not have complete access.

The project will focus on constructing 21 primary substations and over 2,000km of supply lines across 13 districts in Provinces 5 and 6 (Karnali Pradesh).

The project is also reported to be the first to receive AIIB’s technical assistance under the Special Fund, which has backed the project preparation from the ‘very early stage’.

Pandian added: “This project will help provide more than half a million people with new or improved access to electricity.

“By investing in Nepal’s energy sector, we hope to encourage further infrastructure investment in the country, which will support Nepal’s efforts to achieve the Sustainable Development Goals and drive economic growth, employment opportunities and poverty alleviation.”

In June, AIIB agreed to provide financial support for the Upper Trishuli-1 hydropower project in Nepal.