The Bhutanese Leading the way.
More IG model projects unlikely as Bhutan-India hydro cooperation evolves
Negotiations are at an advanced stage for Tata Power to be involved in the 600 MW Kholongchu hydro project.
Around two to three rounds of meeting have already been held and it has been agreed in principal that Tata power will be involved.
However, what will the exact role of the Tata is not clear as it could be anything from participation in the project overall to power purchase to even seeking financing.
The total project cost is Nu 60 bn of which Nu 4.626 bn is already spent by DGPC leaving around 56 bn to be raised. The funding of the project will have to be 70 percent debt and 30 percent equity.
While talks are on with Tata discussions are also ongoing to secure funding from Power Finance Corporation (PFC) and the Rural Electrification Corporation (REC) which are both Public Sector Undertakings of India and fund power projects.
It is taking longer than expected to secure financing from PFC and REC and so the potential entry of Tata is important.
While the loan that is being sought from the PFC and REC will be around 40 bn DGPC will have to raise around Nu 16 to Nu 17 bn as equity.
A deal with Tata could help with the financing and equity and moreover both Tata and Druk Green Power Corporation (DGPC) have had experience working in the 126 MW Dagachu projects where Tata has a 26% stake.
The 1,020 MW Punatsangchu II project which is aiming to complete by 15 August 2024 will likely be the last Inter Governmental project.
This has been clear for a while given that no new Inter Governmental projects have started between the two countries for many years.
However, recently Indian counterparts made it clear that if Bhutan wants to do hydro projects then it will no longer be in the old model of Chukha or P II with a certain percentage of grant given by India along with loan.
The new model being encouraged is for Bhutan to partner up with India Public Sector Undertaking companies or even private Indian companies.
A source said that the Indian government faces complaints from some of its own power companies on why such concessions are being made to Bhutan.
This means that the remaining IG project components of 10,000 MW by 2020 will not happen and even beyond that.
Traditionally, starting with the 336 MW Chukha and 1020 MW Tala projects, the IG projects have been both economic and strategic investments in Bhutan.
Doing away with the IG model will present financing challenges but the upside of new models will be a better rate of power for Bhutan as typically IG projects get a lower tariff rate due to lesser financing costs and it cannot be increased much over time. The new models will also enable Bhutan to use third country technologies.
Bhutan is also in early discussions with other private Indian companies over possible cooperation on the hydropower front. At the same time Bhutan’s Hydro Policy is for full government ownership of projects and so there is a dichotomy there.
One of the major reasons that slowed down hydropower cooperation between the two countries was the geological issues around the 1,200 MW Punatsangchu I project on the right bank side. Here a special team is drilling rock samples to see if it is safe to build a dam or what rectification measures are needed.
The report will be submitted to the Technical Committee with experts from both countries and finally to the project authority which again has officials from both sides. The authority will take the final decision with dam construction to go ahead if there are no major issues.
The next big project where the two countries could cooperate on is the 2,800 MW Kuri Gongri project which will be a reservoir project. Bhutan will be offering that project to India though the modality needs to be seen.
The joint statement of the Bhutanese and Indian Prime Ministers during the visit of Prime Minister Dasho Tshering Tobgay to India said, ‘Hydro-power cooperation has been an important pillar of India-Bhutan bilateral economic partnership. Both Prime Ministers reiterated their firm commitment to expanding hydro-power cooperation and directed their officials to hold expeditious consultations on implementation modalities for new projects.’
In the meantime, Bhutan is seeking funding from the Asian Development Bank for the 180 MW Bunakha reservoir project and the 442 MW Nyera Amari project. ADB already collaborated with Bhutan in the Nikachu project and the Dagachu project.
ADB will also be involved in a 17 MW solar project.
A World Bank led consortium which may include the European Investment Bank and ADB will be looking at financing the 1,125 MW Dorjilung project.
A group is also looking at the various ways that Bhutan can raise money for the 7,000 to 8,000 MW of projects that Bhutan is planning to build in the next few years.
