The inauguration of Nepal's biggest hydropower project by King Gyanendra may be delayed because the royal palace is trying to find out more about a controversial transfer of cost overruns to a foreign contractor, an official source said.

The palace is said to have raised the issue after the government made an official request to the king to inaugurate the 144MW hydro plant, Nepal's biggest-ever project built at a cost of $428 million on the Kali Gandaki river.

The plant went into operation last year, but has been mired in a dispute over the unauthorised payment of $30 million in cost overruns to its Italian civil contractor (For full story see Nepali Times, #166). Impregilo SpA billed the amount citing geological complications and delays caused by political disturbances, and it was paid without permission from the board of directors of the Nepal Electricity Authority (NEA).

"The palace often seeks clarifications, especially in any issue that is controversial," a palace official told us. The NEA board had earlier asked officials for details on the shady payments. Management has played down the issue, saying overruns are common in projects of this magnitude.

Serious differences have also cropped up between board members who want an investigation and others who don't want any scandals to mar the royal inauguration. One official told us NEA is under pressure from the project's main financier, the Asian Development Bank (ADB) to go through the inauguration in the presence of the bank's president Tadao Chino.

ADB's Nepal director, Sultan Hafeej Rahman, told us the inauguration was the government's business: "They can always get it inaugurated whenever they want. But our bank's president will certainly need some notice."

But both Chief Secretary Bimal Koirala and Water Resources Secretary Kishor Babu Aryal confirmed the ADB has been in touch for a royal inauguration. "Initially, they proposed November but later they told us that their president would not be able to make it," said Aryal.

The ADB has refused to get involved in the dispute between NEA and the Italian contractor, and says it just wants to close the project. NEA had approved a $130 million bid by the Italian Impregilo SpA for an open-ended bill of quantities contract. By the end of the project, Impregilo and the American engineering consultant Morrison Knudsen International Inc racked up a total of $180 million. The extra $50 million was paid by NEA between 1997-2002.