The power project will go to the power grid in northern India, which faces a serious energy shortage in times of high consumption.
"The electricity generated by the project will be provided to Punjab, Haryana, Rajasthan, Uttar Pradesh, Himachal Pradesh, Uttarakhand, Chandigarh and Delhi, Jammu and Kashmir," said a Finance Ministry statement.
THDC (Tehri Dam & Hydro Electric Project) is a joint venture between the central and Uttar Pradesh.
The tripartite agreement to this effect was signed between the World Bank, Government of Uttarakhand and the central government.
Uttarakhand Government will receive a royalty of 12% or around Rs 90 crore ($ 20 million) per year.
The assistance will be used to build a diversion dam 65 meters in Chamoli district of Uttarakhand to create a reservoir on the river Alaknanda, along with a 13.4 km tunnel adduction. The loan will also be used to build a 3 km tunnel chute that will take all the water diverted from the river again.
"The project is expected to have the least negative impact on local communities and the environment," the statement said.
On occasion, the World Bank Country Director Robert Zagha, said the project was approved for construction only after the Ministry of Environment and Forests studied the cumulative impacts of hydropower development in the basin of Alaknanda.
Secretary for Economic Affairs said Venu Rajamony social and planning of protective measures for afforestation, provision of electricity over 10 years affected households, the allocation of 1% of revenues for local development project, have instilled in this project.