The Arun III Hydropower Project was canceled on 18 Shrawan 2052 after the World Bank refused to invest. After the cancellation of Arun, the government proposed to build the 144 MW Kaligandaki 'A' project in Syangja.

The private sector was interested in investing in power projects as the government adopted a policy of economic liberalization. Construction of the 36 MW Upper Bhotekoshi in Sindhupalchowk and the 60 MW Khimti project on the border of Dolakha and Ramechhap had begun with private and foreign investment.

While the government was trying to raise investors to build the Kaligandaki, campaigners to return the Arun to the Kaligandaki had protested at the national/international level. Some were protesting that the construction of the Kaligandaki tunnel and road would cause landslides and damage the local environment.

The incident of locals of Syangja giving grass as a gift to campaigners, calling them anti-development, is still in the news. The locals had given grass as a gift to campaigners, declaring that the Arun III project was canceled due to the dispute. After the incident, campaigners who were active in the name of the campaign did not return to the construction site. A group active against Arun was also doing the same in Kaligandaki. After receiving the grass as a gift, the activities against Kaligandaki were stopped. Gopal Siwakoti of the anti-project Inhured International was given grass as a gift by Geeta Bhattarai, a 45-year-old literate housewife.

While there was opposition and support for the construction of Kaligandaki, the Asian Development Bank had decided to provide US$160 million from Japan's Overseas Economic Development Fund. The project was being prepared by the then government of His Majesty, ADB and Nepal Electricity Authority at a cost of 452.8 million US dollars. The project was targeted to generate electricity from September 1, 2000. A 28.5 km access road was constructed for the implementation of the project, which has a reservoir of about 65 hectares and a length of 5.3 km.

After the investment was assured and the local environment was comfortable, the then Prime Minister Sher Bahadur Deuba laid the foundation stone of the Kaligandaki 'A' project in Beltari, Syangja on 21 Magh 2053. Deuba had said that the people who were carrying the slogan of the so-called environment had been corrected by the development-loving people. 'They do not care when the Bagmati and Bishnumati are polluted in Kathmandu, but they are concerned about Kaligandaki,' he had said. After the project was implemented, the citizens of Syangja, Palpa and Gulmi expressed happiness. A large crowd of locals had gathered to watch the foundation stone laying program. A large number of locals had watched the foundation stone laying program from the nearby Yamgha hill. At the program, Deuba had talked about how the coalition government had succeeded in attracting foreign investment in a short period of time, claiming that this had made good use of natural resources. At the program, Deuba had said that the government was active in implementing the missing Arun III and Karnali hydropower projects. He had also announced that the generated electricity would be distributed according to local needs.

Water Resources Minister Pashupati Shamsher Rana had informed that a renewable fund of Rs 3 million had been established for locals, saying that a 287 megawatt project had been implemented in 16 months. According to Rana, the purpose of the fund was to provide loans to locals for income-generating programs. At the program, the then Finance Minister Ram Sharan Mahat had said that foreign investment had been attracted due to the government's efficient economic policy. He said that Kaligandaki was built keeping in mind the people's demand for electricity supply and that the project would be completed with the support of the Japanese government, the Asian Development Bank, and the Electricity Authority. A large number of locals were present at the foundation stone laying ceremony in the presence of the American and Japanese ambassadors, ADB resident representatives, local people's representatives, and officials of the National Planning Commission. At the

program, Water Resources Minister Rana announced that a strategy had been formulated to provide maximum light to the people of the region. A plan was put forward to electrify Shree Krishna Gandaki, Jagatradevi, and Yamgha in Syangja, Harmichaur in Gulmi, and Darpuk VDC in Palpa from the same fiscal year. Kirtichandra Thakur, Executive Director of Nepal Electricity Authority, said that the operation of Kaligandaki was necessary because a big question arose as to how the country's electricity demand could be met after the postponement of Arun III. Before the change in 2046, about 228 megawatts of electricity were being generated in Nepal. However, despite the increasing demand for electricity, it was very difficult not only to raise investment during the construction of the projects, but also to gain national consensus. The country's main political party, UML, and national/international organizations were active against the Arun project. This created distrust in the process of attracting foreign investment. That is why there was pressure on the government to give a positive message by operating Kaligandi. The situation for attracting investment also became weak due to the creation of additional distrust when the government was not stable. The government had faced no-confidence motions twice in 16 months.