Bhutanese consumers pay more than export rate for power

While you will pay Nu 2.14 per unit from July 2012 for more than 300 units of power, Bhutan exports power at Nu 1.98 per unit to India. There is also concern that Bhutan’s export tariffs are too low in the context of the rupee crisis.

 

The lights on the streets may dazzle the sight but it comes at a price(Phoyo by: upasana)

Next time you pay your electric bill to Bhutan Power Corporation (BPC), remember that you may be paying more than what the Government of India (GoI) pays for Bhutan’s hydropower export.

This paper has found that those people using energy above 300 units a month are paying Nu 2.04 per unit now. This is scheduled to go up to Nu 2.14 by 1 July 2012 till July 2013 after which it will be due for another tariff hike. This category of consumers includes most of the middle class in urban areas, especially in winter.

In comparison, Bhutan’s export tariff to India is Nu 1.98 for 1,020 MW Tala and 62 MW Kurichu. It will remain so for the next three years. The tariff export rate for 336 MW

Chukha is Nu 2.00

The figure means two things. First middle-class Bhutanese consumers who use electricity above 300 units are being charged more than export rates and second, the country’s export tariff rates are so low that domestic consumers are paying more.

This discovery understandably has generated some outrage among ordinary consumers that  The Bhutanese talked to.

Norbu Tshering, a 48-year old civil servant said, “It is shocking that Bhutanese  are paying higher rates for electricity than the export rates to India. No wonder my electricity bills are so high.”

A senior BCCI official said, “It is puzzling to learn that domestic consumers pay higher that what is being exported, since in principle, domestic rate should be less or equal to the export rate. We need to check the profit of BPC, whether it is beyond or as mandated by the Bhutan Electricity Authority. ”

BPC’s revenue in 2011 increased to Nu 1.5 bn up from Nu 1.4 bn last year. The profit after tax in 2011 was Nu 365mn.

Currently, the monthly electricity bill is divided into three segments: Nu 0.85 for the first 100 units coming to Nu 85. Then from 101 to 200 units, Nu 1.54 per unit is charged coming to Nu 308. From 201 units onwards Nu 2.04 has to be paid which is higher than the export rate.

So in short, if monthly electricity bills exceed Nu 393, then every Ngultrum after that is higher than what the Government of India is paying.

Bhutanese Industries also pay far lower than households. A medium sized industry is charged only Nu 1.71 per unit while a heavy industry only pays Nu 1.54 per unit.

Industrialists however argue that the cost of distribution is much lower in their case as each big industry will be using 8 to 12 MW of power.

President of Association of Bhutanese Industries Dasho,Rinchen Dorji said, “The government must be charging us the economic cost with rational reasons so we are bound to pay the tariff”.

Another question that arises is if Bhutan’s export tariff to India is too low. This is given the fact that Bhutan’s electricity exports are among the cheapest in the world if not the cheapest. This is also when the country is going through a severe rupee crisis and all plans on earning rupee hinge on current and upcoming hydro projects.

This paper found out that while Bhutan exports electricity at Nu 1.98 to Nu 2.00 per unit, this same electricity is sold for a profit by Indian utility companies.

Bhutan-exported power is bought by the Power Trading Corporation of India (PTCI) under the Power Ministry at the border after which they add a nominal wheeling charge of 0.7 chetrums per unit and sell it to state governments and utility companies who in turn sell it to consumers.

In West Bengal where a chunk of Bhutan’s exported power is exported, the cost of power is Rs 4.35 per unit. In  Delhi too where Bhutanese power is exported, the tariff is Rs 5.62 per unit.  Another major buyer is Bihar which gives power at Rs 3.22 per unit.

Similarly many of India’s upcoming hydro projects are expected to charge far in excess of what Bhutan is charging.

The Alkanad project in Uttarkhand is expected to charge Rs 6.23 per unit after cost escalations. Similarly the 2,000 MW Subansari project in Arunachal Pradesh is expected to cost Rs 3.64 per unit.

A businessman, Tshering Penjore, 35, when asked for his view said. “No wonder we are facing a rupee crisis. Our hydro projects are unable to earn to their true potential since our export rates are so low compared to Indian rates that even the domestic consumers are paying more.”

Power tariff export rate is an especially sensitive issue given that there is an ongoing and severe rupee crisis.

The Chukha tariff was due for a revision in 2009 as per the bilateral agreement whereby a tariff is to be hiked every 4 years but Indian power officials have written saying that the next hike will only be in 2014.

This considerable delay in hiking the Chukha tariff is expected to affect the country’s domestic revenue projection and finances until 2014.

This is because after the Tala project, Chukha comes a close second as the second largest contributor to the national exchequer given the fact that Chukha cleared its loans in 2007.

In 2010, Tala earned around Nu 7.2bn in total revenue but minus the Nu 2.6bn loan component, the net revenue was Nu 4.6bn. Chukha by comparison gave Nu 3.6bn as revenue since it had no loan component.

The explanation by Indian officials is that earlier hikes were given before the four year period.

Official reactions

Bhutan Electricity Authority (BEA) is the country’s electricity regulator and also plays an important role in fixing domestic tariff rates.

A BEA official said, “The generation, transmission, distribution and service charges make the people feel that they are paying more than what is being charged for the exported energy.”

The official explained that the power being exported was based on bilateral agreements between the two governments.

“The end user which is the Indian consumer will be charged with many other services like that of transmission and so it is definitely far expensive than what you and I  pay,” explained the official.

A Bhutan Power Corporation official said that export tariff and domestic consumption cannot be compared. “Bhutanese domestic users are also charged for the transformation cost, distribution costs and maintenance costs since power lines have to be set up even the most remote areas like in the case of the ongoing electricity for all by 2013,” said the BPC official.

As per the Bhutan electricity act, BEA has to make  electricity affordable to domestic consumers. Therefore the BEA is entitled for royalty energy of 15% from all the generation projects which is used mainly for the domestic purpose.

Druk Green Power Corporation (DGPC) currently supplies 1,070mn units of free energy a year to the government. The government sells this for Nu 0.13 chetrum to BPC who sells it to domestic consumers.

If BPC uses power above this Royalty energy they are charged Nu 1.20 per unit. In 2012, it is estimated that 660mn units will be used for domestic purposes above the royalty limit.

DGPC MD, Dasho Chhewang Rinzin said, “Our actual cost of production would be Nu 1.50 but this rate was not accepted.”

On Bhutan’s export rates the DGPC MD said that a similar understanding existed between Thailand and Laos at 4 to 5 cents per unit.

“The cost of tariff in the end depends on the financing terms of the project and as of now the tariff is reasonable considering the financing and investment,” said the MD.

When asked about the potential of a tariff increase solving the rupee crisis, the DGPC MD said, “It is interesting to think about increasing the tariff on electricity but it should be discussed which takes time and any increase will have to undergo many procedures.”

Sonam Tobgay of Lhaki group of companies said that, as of now he is comfortable but the tariff should not exceed the export tariff.

 

 

About Ugyen Dorji

11 comments

  1. right_thoughts

    Please try and understand, who has build hydro projects in Bhutan. Also try and understand that 30% of the project are financed by india as a grant to Bhutan. please update your facts.

  2. Our government has the guts only to blame us and impose taxes and tariffs on us. It is shameful that they cannot negotiate with Indian government on equal footing. I do understand Indian government give us huge amounts of grants but what is the use if they steal that grant from our hydro exports. That doesnot make sense at all.

    • right_thoughts

      No question of equal footing. let me tell you.
      Indian people pay more or Petrol and LPG Gas than what is paid by Bhutanese people who gets these materials on subsidy from India. If there is equal footings then it will be difficult for Bhutan to survive.
      On equal footings are you ready to pay Nu. 980 per LPG cylinder and Nu. 73 for petrol to run your cars. These are the cost at which goods are landed in India AND India pays US dollars to import these.

  3. Glorified Clerk

    Exactly, it would be interesting if the Paper can do a comparative study of energy pricing in the region so that people know for what good Bhutan is selling its electricity. Negotiations in the past would have been done in a completely different situation but now things have changed. The Govt should be careful and smart while negotiating tariff rates for the new hydro power projects especially now that the funding mechanisms (70/30) have also changed.

  4. our govt  thinks to solve the problem of rupee crunch on the spot by imposing tax and increasing tariff rate.While it is good to increase tax and tariff rate, on the other hand, government should study the affordability by the citizen. When people can’t afford,there comes corruption,burglaries,youth problem and many others.Therefore, i feel govt should do detail study before coming up with such imposition otherwise in long run negative consequences will be more than the positive impact.

  5. I am not sure who is dasho rinchen dorji,, and whether he is really officially dasho or not… please check author and highlight on this or he is just casual dasho.

  6. This rinchen dorji if i am not mistaken is the self centered, self possessed, egoist, full of himself, selfish man. He thinks he is the bill gates of bhutan. He doesnot know how to treat his subordinates and juniors. He wants poor and weak people to call him Dasho. I dont know who chose him as the president of industries association…. As far as I know he is not officially and legally entitled to be called Dasho…

  7. this is old news. it’s always been the case. ordinary bhutanese pay more than India or even the big industrliasts of bhutan. old news. good if it changes.

  8. This is interesting story.We know Bhutan is finding difficult to ask India Govt. to pay more for the electricity we export to India.Heard only HM can do that and no one else and the last increase was also because our 4th HM requested to India Govt.It was a long time back. But we paying more than them is ridiculous.It is our energy so why should we pay more and that also by middle class Bhutanese.

    Yes off course everything is funded by India but India should not be taking advantage like this.India is making 6x the profit than what  it is paying to Bhutan. 
    We are always bullied by India I feel from power to electricity to now Ruppes also.India has asked our Govt.to allow those Jaigaon merchants black money to be deposited ib Bhutanese banks.
      
    And one request to TB,please do some research on Bhutanese taxation system.From my limited knowledge only I know Bhutanese are one of the highesttax payers in the world  whether it is PIT,BIT or import tax whatever.please do this once.

  9. right_thoughts

    Its better we don’t talk about equal footings. let me Enlighten you…
    Indian people pay more or Petrol and LPG Gas than what is paid by Bhutanese people who gets these materials on subsidy from India. If there is equal footings then it will be difficult for Bhutan to survive.
    On equal footings are you ready to pay Nu. 980 per LPG cylinder and Nu. 73 for petrol to run your cars. These are the cost at which goods are landed in India AND India pays US dollars to import these.

  10. The comparison of price being paid by India to import electricity and what is being charged to households by governments of Bengal, Delhi, Bihar etc. is misleading. Household electricity charges are determined based on not only cost of, (in this case imported) electricity but also overheads like equipment maintenance expenses, salary to electricity board employees, cost of policy distortions such as free or subsidised electricity to farmers (a common occurrence in India), not to mention other common features in Indian power sector like losses in transmission and pilferage. To suggest somebody is getting a free ride here is akin to saying that New Yorkers are scumbags as Florida orange growers get a tiny fraction of what the fruit is finally sold in grocery stores in New York.

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