In the recently held Chukha tariff revision talks between Bhutan and India in New Delhi on 22nd June, though both sides agreed that it is time for a revision, there are differences in what could be the final revision.
The 1974 agreement on Chukha project outlines that the tariff will be revised ever four years based on factors like Operation and Maintenance costs, weighted average costs of hydro projects in the North East and Eastern region and other factors.
The Indian government in 2014 agreed to a hike of 0.25 cheltrums per unit effective from January 2013 coming to a total of Nu 2.25 per unit and increasing the revenue by around Nu 450 mn. This pushed the annual Chukha revenue from around Nu 3.6 bn to around Nu 4 bn.
So the next revision would be due from January 2017. It has been learnt that Bhutan sent a letter on the need for talks to revise the Chukha tariff around September 2016 with the response from India coming a few months ago.
It has been leant that Bhutan’s team put forward an expectations of a 12.5% hike on the current tariff which is a hike of around 0.28 cheltrums. If agreed to this would mean additional revenue of around Nu 500 mn a year from Chukha.
Bhutan put forward this figure based on its own calculations, the historical trends of how Chukha tariff hikes were given, the revenue requirement of Bhutan and other factors.
However, some delegations members from the Indian side said that Bhutan should not expect much this time around based on their calculations. Some even showed that taking certain calculations given the low tariff rates in India, technically, there should be a downward revision of the Nu 2.25 per unit. One calculation was some on the Indian side selecting certain projects in Eastern and North Eastern India to give a weighted average along with Bhutan’s operation and maintenance costs.
The Bhutanese delegation comprised of officials mainly from the Ministry of Economic Affairs and Ministry of Foreign Affairs while the Indian delegation had counter parts from the Minister of Power and Ministry of External Affairs.
The discussion on tariff rates also brings to home the issue of increased power production in India and the generally low tariff rates in India which has been exacerbated by the poor financial health of its state level discoms. It also raises questions on the future of tariff rates for Bhutan’s upcoming hydro projects and a need to reassess and balance Bhutan’s hydropower priorities.