How to tell advisor I'm declining a scholarship?
Just honestly tell him your reasons. They are very understandable.

Making a commitment to work for years an institution that you aren't sure you want to work for, at a location thousands of miles away from where you want to be, is a very big deal for your life.  

Yes, it might be somewhat less convenient for your advisor, but so what?  This decision is about you and what is best for you, not about your advisor.  A reasonable person would not expect you to re-order years of your life, just so it is slightly easier to fund their lab.

I would just give your reasons and not worry about it.  It will probably be fine.  On the off chance that your advisor does get upset, just try to remember that it is not your fault.  And certainly don't change your plans in response.