Site Visit by TCC Memberson 11th February 2019

600 MW Kholongchu expected to finally take off with a breakthrough in negotiations

Both sides aim to sign the Concessional Agreement soon after which major works can happen

A senior Bhutanese official said that a breakthrough in the 600 MW Kholongchu project has happened and the Concessional Agreement may be signed as early as this month so that the major works on the project can start soon.

While a lot of past issues around the project had been resolved from the Joint Venture agreement to management control to sale of 30 percent of its power in the commercial market, the only sticking point was on how the remaining 70 percent of the power would be sold.

It seems this key point has been agreed to by both sides.

It has been agreed that the 70 percent of the power will be sold based on the inter-governmental model like in the case of the recent Mangdechu project where both sides will negotiate the tariff rate as the project comes to a close.

“We are almost agreeing to the text of the Concessional Agreement now and it may be signed this month itself,” said a senior official.

The agreement is largely around what the Bhutanese side proposed and what the JV partner SJVNL accepted too.

Earlier, both sides were essentially unable to agree on the Power Purchase Agreement for this 70 percent of power or on what terms India would purchase the power.

Initially, the Bhutanese side wanted to bid out the remaining 70 percent of the power, but with this not making headway and the Indian market  not looking too good, the Bhutanese side, instead of adopting India’s CERC guidelines (which would push down tariff), wanted the next best thing which is to go for the current Inter-Governmental model like Mangdechu where both sides negotiate the tariff when the project is about to be completed.

The Bhutanese side had submitted its formulations and it was indicated to the JV partner SJVNL that this is a away out and so based on that there was hope that something would come out.

SJVNL and DGPC were told to agree and then come with a joint proposal to the board. SJVNL was positive about the proposal sent from Bhutan and it was put up to the GoI.

Though there have been no official communication, sources said that information at the higher levels show that the Indian side will agree.

The lockdown in India had impacted discussions on this final stage, but in a sign that there is an effort to the push the project form both sides a meeting was held between the Bhutanese and Indian officials on 26th May via videoconferencing to advance progress on the Kholongchu project.

The easing of lockdown restrictions in India have apparently allowed discussions to move ahead.

Once the Concessional Agreement is signed then major works at the project can be started.

The CA is granted by the RGoB to the JV project as a concession to use the river and other relevant resources for the project.

The final negotiations were supposed to happen and the CA was supposed to be signed early this year but the COVID-19 lockdown in India delayed this.

Background

Kholongchu was first listed as one of the four joint venture projects in the 10,000 MW by 2020 list in 2008.

From 2008 onwards Bhutan and India negotiated to come up with a JV agreement which was finally done in April 2014.

The project’s foundation stone was first laid by Prime Minister Narendra Modi when he undertook his first foreign diplomatic visit to Bhutan in June 16, 2014.

September 2015 saw the start of the pre-construction works like the access road and other building infrastructure which by today have come close to Nu 3 bn.

However, early on problems developed as DGPC’s JV partner Satluj Jal Vidyut Nigam (SJVN) an Indian PSU started imposing several demands like extending SJVN’s ownership beyond 30 years, not agreeing to a Bhutanese JMD as second-in-Command, not willing to follow local procurement rules, not invest in power transmission and not willing to put in revenue money in the 25th year for refurbishment works.   All these demands went well beyond the Inter-Governmental Agreement for the Joint Venture Projects.

Bhutanese officials at the time requested the support of GoI to resolve the issues first only after which it can sign the CA.

Just when these issues were resolved the end of 2016 saw the CBTE guideline from India that restricted the sale of Bhutanese power in India’s prime market and this impacted Kholongchu which as per the JV agreement had to sell 30 percent of its power in precisely this commercial market.

After much discussions a new CBTE guideline’ was issued by the end of 2018 which addressed Bhutan’s concerns and so Bhutan would be able to trade this 30 percent power in India energy exchange.

The last hurdle was on selling the 70 percent of the power and this seems to have been crossed finally paving the way for the major works like dam, tunnel and power house to be tendered out.

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