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Nicaragua's national assembly has approved development of the 160MW Tumarin hydro project, the legislative body reported.
Feasibility studies have begun for the plant, the statement said.
Last year, the energy and mines ministry signed a LOI with Brazil's federal power holding company Eletrobrás for the plant. Centrales Hidroeléctricas de Centroamérica, which belongs to Brazilian group Queiroz Galvão, also signed the deal.
Tumarin is due to cost US$350mn and be built in the Grande de Matagalpa river basin in the south Atlantic autonomous region (RAAS), according to preliminary information.
The Brazilian firms will foot the project's bill under a BOT contract in which Nicaragua will have a 10% share. Once the firms have recovered their investment (20-30 years), the plant will be handed over to the Central American country.
Operations would begin in 2012.