His Majesty The King granted an Audience to Indian Foreign Secretary Dr. S. Jaishankar who was on a 3-day visit to Bhutan from 2-5th October
His Majesty The King granted an Audience to Indian Foreign Secretary Dr. S. Jaishankar who was on a 3-day visit to Bhutan from 2-5th October

Bhutan sounds out Indian foreign secretary on Hydro, 11th plan, 12th plan, CBTE, GST

Lyonchhen Dasho Tshering Tobgay meets Foreign Secretary Dr S. Jaishankar
Lyonchhen Dasho Tshering Tobgay meets Foreign Secretary Dr S. Jaishankar

The 2-5th October visit of the Indian foreign secretary Dr Subrahmanyam Jaishankar saw his call on meetings with Prime Minister Lyonchhen Tshering Tobgay and the Foreign Minister Lyonpo Damcho Dorji leading to discussions on an array of mainly economic issues.

The Foreign Secretary, according to a senior government official on the condition of anonymity, had come with the main aim of hearing out Bhutan’s concerns and views on an array of issues.

The senior official said that hydropower was discussed extensively with the visiting secretary who was also accompanied by the Joint Secretary North, Sudhakar Dalela.

The Bhutanese government talked about the importance of pending inter-governmental (IG) reservoir mega projects like the 2,500 MW Sunkosh project whose detailed project report is complete and was even passed by India’s Central Electricity Authority (CEA).  The other project is the bigger 2,640 Kuri Gongri reservoir projects whose DPR which is funded by India is going on.

The official said that both sides agreed that both governments must start considering the launch of the next inter-governmental projects.

The two mega projects are favored by Bhutan as it an IG model where Bhutan maintains full ownership and it is important for Bhutan as they are more than half of the 10,000 MW commitment and they are also reservoir projects which can hold water and give stable power during the power scarce winter months. The two projects would also be able to generate ‘peaking power,’ that is sought after and commercially more viable.

Bhutan also sounded out its concerns with India’s Cross Border Trade of Electricity guidelines (CBTE) issued in December 2016.

The CBTE, was seen by many in Bhutan to not be in Bhutan’s interests as it restricted the type of hydropower investments that could be made in Bhutan, put Bhutan at a disadvantage in setting future tariff rates beyond the current government to government formula and denied Bhutan access to India’s primary power market where tariff rates are more competitive. CBTE even asked that any power trading company exporting power to India from another country would be required to have 51 percent Indian ownership.

The Bhutanese government earlier this year had raised several issues in the CBTE through its foreign ministry.

An Indian power regulator the CEA had responded in late July 2017 essentially giving only verbal and unclear assurances instead of the changes or clear black and white exemptions that Bhutan wanted in the actual rules.

The Indian Foreign Secretary is understood to have assured that he would look into all issues on the CBTE and get them addressed.

Another issue discussed was on the remaining fund disbursement for the last year of the 11th plan. The Bhutanese side appreciated India’s timely disbursements of the 11th plan assistance of Nu 45 bn with 76 percent already disbursed.

The Bhutanese side requested an early and complete disbursement of all the remaining funds for 11th plan activities to complete the last year of the 11th plan. This is important because there was no complete disbursement of funds in the 10th plan forcing the former government to take loans and also leading to 10th plan activities spilling into the first year of the 11th five year plan.

Of the Nu 45 bn of the 11th plan there remains around Nu 11 bn to be received of which Nu 8 bn is already being processed leaving only Nu 3 bn. Of the Nu 5 bn Economic Stimulus Plan (ESP) there is only around Nu 600 mn due for Bhutan.

On the 12th plan the Bhutanese side said the 11th plan had been successful due to generous support from India. The Indian side were informed that the 12th plan is in its final stages of drafting and that Bhutan would be requesting India’s continued support to achieve the objectives of the 12th plan.

This comes in the backdrop of the 12th plan’s revenue projections being affected mainly by the delay of the Punatsangchu I and II projects and partly by the Goods and Services Tax (GST) of India.

The revenue figures for the 12th plan had earlier been projected at Nu 251 bn out of a plan size of around Nu 300 bn leaving only around Nu 54 bn to be asked from donors. There was even supposed to be a Nu 5 bn revenue surplus but all of this has changed with the delay in the projects.

The only way is to now narrow the fiscal deficit gap by a combination of seeking more grant and cutting down on current expenditure in the 12th plan.

Donors in the 11th plan like the Swiss, Denmark and Netherlands will no longer be there in the 12th plan as bilateral donors.

Bhutan will have to depend more on the big three bilateral grants donors of India, Japan and the European Union who are the biggest donors with India by far being the largest. More grants will also have to be sought from multilateral agencies like the United Nations, World Bank, Asian Development Bank, Global Environment Fund etc.

Bhutan is also set to graduate from the Least Developed Country status in 2020 which is in the middle of the 12th plan. This would make Bhutan ineligible for several smaller grants, soft loans, programs and waivers that LDC countries are eligible to.

The Indian side was positive on both the 11th and 12th plan discussions with them.

The issue of India’s Good and Sales Tax (GST) impact on Bhutanese businesses was also raised by the Bhutanese side. One key and pressing issue has been the customs land station at Jaigaon which while undergoing improvements is still leading to delays on trade.

The Indian side assured that they are increasing the capacity of the station.

Bhutan has also made other GST related requests with the main one being on exports by Bhutan not having to pay GST at entry but if it can be passed down to the point of resale so that Bhutanese exports are not affected.

One additional issue that was discussed was on the upcoming 50 years of formal diplomatic relations between the two countries coming up in 2018, since the first appointment of an Indian Ambassador and Embassy in Thimphu in 1968. There are expected to be a series of events to mark this occasion.

The Indian Foreign Secretary apart from the call on meetings with the Prime Minister and Foreign Minister was also granted audiences with His Majesty The King and His Majesty The Fourth King.

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