Sunkosh River

Agreement on 2,560 MW Sunkosh still eludes two countries

As the Indian Prime Minister Narendra Modi visits Bhutan there will be a slew of projects being launched and MoUs signed but silent in all this is the 2,560 MW Sunkosh project which Bhutan has been pushing since the term of three elected governments.

The project is important because it is the biggest hydropower project in Bhutan till date and unique in the sense that it would be a reservoir project giving more power generation during the lean winter months, when Bhutan even imports power from India.

It would also be the biggest economic project between the two countries –when and if it is agreed to.

According to sources, the project will come up for discussions in the talks between two sides but the project is still under negotiation between officials of both countries making it premature for any agreement to be signed.

A senior official said that it might take another five to six months before anything can be signed on the project.

It has emerged that there are two main sticking points for the project.

The first is financial given the large size of the project estimated to be around Nu 200 bn.

The Bhutanese side wants to stick by the original understanding between the two countries where the project would be 70 loan and 30 percent grant – both arranged by the Indian government.

In the latest discussions so far the Indian side is proposing an 80 percent loan and 20 percent grant formula.

Also, they are proposing that instead of the Indian government giving the loan to Bhutan both countries explore funding options with financial institutions like the EXIM or Export and Import bank.

Then as The Bhutanese revealed in an earlier story the other issue is management control during the construction phase of the project.

Bhutan is comfortable with the current arrangement like in Mangdechu and Punatsangchu but the Indian side has proposed an entirely new Turnkey model that would see little to no Bhutanese participation in the management of the mega project.

Turnkey is a project implementation where the Sunkosh project construction would be given to an Indian company which would do the design and construction with full control and only handover the project after completion, with no Bhutanese participation.

Bhutan has refused to accept such a model and has instead proposed that the current arrangement be kept with some reforms.

Both the Prime Minister Lyonchhen (Dr) Lotay Tshering and the Minister for Economic Affairs Lyonpo Loknath Sharma had earlier told The Bhutanese that they are not in favor of the Turnkey model and would rather favour the current system with some reforms.

The reforms are in line with the Hydropower Committee Report instituted by the former government and the it recommends better technical inputs and accountability at various levels.

Both the PM and the MoEA minister had also told the paper in the recent past that Bhutan is sticking to the 70 loan and 30 grant financing model on Sunkosh.

Interestingly, both of them had also told The Bhutanese earlier that Sunkosh will be pursued once the Mangdechu project is commissioned.

However, except for a formal inauguration and the one last turbine the Mangdechu project is essentially a commissioned one.

A source had earlier told the paper that one of the indications from India to get the Sunkosh project was for Bhutan to go slow or give up on the trilateral Dorjilung project involving Bangladesh. It must be noted that though the project was in the original schedule of the PM’s visit to Bangladesh it was later dropped.

Sunkosh was the crown jewel of the 10,000 MW by 2020 commitment by India to Bhutan in 2008.

However, from 2009 onwards there were indications from Delhi that financing would be a problem and 10,000 MW by 2020 is unlikely.

That was confirmed during the former Indian President Pranabh Mukherjee’s 2014 visit when it was made clear that only 5,050 MW of new projects would be possible by 2022.

Not in this updated list was the 2560 MW Sunkosh project and the 2,640 MW Kuri Gongri project. Funding for the ongoing DPR of the even bigger Kuri Gongri project was put on freeze from September 2014 onwards.

However, the former PDP government which had a better diplomatic relationship with India than its predecessor engaged in hectic diplomacy for three years and pushed hard to revive the Sunkosh and Kuri Gongri projects.

As part of the negotiations at the time the Indian side in 2016 offered to do these mega projects as joint ventures with part Indian ownership due to financing concerns. Bhutan declined to accept such a change.

Then the first breakthrough came in 2016 when the GoI released funds to continue the stalled DPR for the Kuri Gongri project.

The the big breakthrough for the Sunkosh project came in the form of an in-principal commitment given by the Indian government in 2017 and again in 2018 to implement it in the Inter Governmental model or IG model where Bhutan has full ownership.

In 2017 India’s Central Electricity Authority (CEA), approved the DPR of the Sunkosh project paving open the way for both sides to negotiate the project.

With such commitments and movement, the PDP government took the 50 years of Golden Jubilee celebrations in 2018 as an opportune time to announce a formal agreement on Sunkosh in the year itself.

Bhutan’s foreign ministry issued press releases indicating this would happen and the former Prime Minister Dasho Tshering Tobgay even spoke about it in an event at the Indian Embassy in 2018 during one of the 50 year celebrations there, saying it would be a monument to the Indo-Bhutan friendship.

With Sunkosh not happening in 2018 one excuse given was that it was due to elections in Bhutan. Then after the elections in Bhutan got over by October 2018 Sunkosh still did not see any formal agreements.

The new excuse then was that the Mangdechu tariff negotiation takes precedence which was formalized in December 2018. After that the next excuse was that there are general elections in India in May 2019 and it may not be good to disturb the Indian government engaged in election activities. However, even after the Indian elections there is not much visible movement.

The latest excuse, at least form the Bhutanese side, is that Sunkosh will be pursued after the commissioning of the Mangdechu project and so a new deadline has been set at another six months.

The visit of the Indian Prime Minister will hopefully lead to some momentum on a much stalled project whose DPR was completed in 2017.

Sunkosh is economically and strategically important for Bhutan. It would be Bhutan’s first reservoir project allowing it to command higher tariff rates as it can produce power at certain times of the day when demand is highest in India.

Strategically, its larger storage capacity would allow more industries to flourish as industries in Bhutan can come up based only on the winter potential of our projects when production is at an absolute minimum. The large bulk of the power would be exported to India.

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