Sankosh River

Bhutan and India agree to finalize implementation modality soon to start Sunkosh construction

Kholongchu to also be expedited

In what is a strong statement of political intent on the so far static 2,560 MW Sunkosh hydro project, a joint statement during Prime Minister Narendra Modi’s visit made reference to start the construction of the project.

The joint statement of both the governments said, “Both sides also reviewed the ongoing bilateral discussions on the Sunkosh Reservoir hydroelectric project. Given the huge benefits that would accrue to both countries from this project, they agreed to finalize the implementation modalities for the Project at the earliest to enable commencement of construction.”

The above statement, brief as it is, is important in that it shows that both governments discussed the project and also the issues around it and agreed to work to resolve them soon so that the project can start.

The Minister of Economic Affairs Lyonpo Loknath Sharma said that within this year an agreement can be done on the project.

Lyonpo said that once the agreement is signed then first the ancillary works like access roads and others can start before the major works.

The minister said that the final agreement cannot be done at ‘lightening speed over a dinner or dessert,’ but that both governments want to construct the project and are on the same page on this issue.

This joint statement is also expected to add additional political pressure on bureaucrats and experts from both sides who are discussing the financing modality and implementation modality of the project.

The joint statement is important in that it publicly acknowledges at least one of the sticking issues in terms of the implementation modality instead of papering over it with the usual language of commitment to the project.

As reported earlier by The Bhutanese the negotiations have essentially entered a stalemate over the financing of the project and implementation modality.

Given the size of the project which was estimated to be around Nu 200 bn, the Indian side recommended increasing the loan component to 80 percent from the current 70 percent and also jointly securing that loan from a financial institution instead of the Indian government.

Bhutan on the other hand wants to stick to the current 70 loan and 30 grant model with the loan coming from India. The current Bhutanese Prime Minister in an earlier interview to the paper also made this stand clear.

On the implementation modality the Indian side wants to go away from the current model of shared management control to a Turnkey one where full management control is given to an Indian company to design and construct the project and then hand it over.

The Bhutanese side also wants to reform the current management system but not to the extent of losing management control. Both the current PM and the MoEA minister have come out against the Turnkey model in interviews with this paper.

The agreement to finalize the modalities at the ‘earliest’ and start ‘construction,’ adds impetus to a project which is yet to see a formal agreement though its Detailed Project Report was approved in 2017.

However, while this joint statement does show strong political intent and adds a major boost to the project, it is still not entirely clear if an agreement acceptable to both sides can come through by a certain time period.

The project was widely expected to be signed on in 2018 as the main highlight of the 50 years’ diplomatic relations, but it did not happen.

The Sunkosh project along with the bigger 2,640 MW Kuri Gongri project had effectively been shelved when in 2014 the Indian President announced a list of hydro project by 2022 minus Sunkosh and Kuri Gongri. The DPR of Kuri Gongri had also been halted in 2014.

However, the two projects were taken up strongly at the highest levels during the time of the former government with the result that DPR funds were released for Kuri Gongri in 2016 and the GoI in 2017 and 2018 committed to implement the Sunkosh project.

Importantly, the joint statement also mentions the stalled 600 MW Joint Venture Kholongchu project owned 50 percent by DGPC and 50 percent by SJVNL.

The Kholongchu project was held hostage to the Cross Border Trade in Electricity guidelines (CBTE) issued by India on 5th December 2016. There were several issues with the CBTE but in the case of Kholongchu the CBTE restricted market access to sell 30 percent of the project’s power, as agreed to in the Inter Government Agreement (IGA), to its primary power market.

Bhutan, as a result, declined to sign the Concession Agreement on Kholongchu pointing to the issues in CBTE.

In 2018 the Indian government issued fresh guidelines that addressed many issues but the Bhutanese side was waiting for the detailed rules.

On the market access the new guideline removes the earlier restrictions that limited access to India’s primary power market. It instead says that any Indian power trader may, after obtaining approval from the Designated Authority, trade in the Power Exchange in India on behalf of any entity of the neighboring country for a specified quantum as per CERC regulations.

Here again the real level of access will only be known with the final regulations and whether access will be given to the primary market.

The project will move forward only once it is clear that the rules will not hamper the project.

Lyonpo Loknath Sharma said that there is progress and that in fact both SJVNL and DGPC had hired a consultant on the issues of sale of power and tariff for Kholongchu.

In the joint statement both sides emphasized the importance of hydro-power development as one of the most important areas of mutually beneficial bilateral co-operation. It says the two Prime Ministers who formally inaugurated the recently completed 720 MW Mangdechu Hydroelectric Plant appreciated the timely completion of this project, and congratulated the Project Authority and Management for their dedication and competence.

‘Both sides noted that with the coming on stream of this Project, the jointly created generation capacity in Bhutan has crossed 2000 MW. The two leaders expressed their satisfaction on achieving this important milestone, and resolved to continue working together to expedite the completion of other ongoing projects such as Punatsangchhu-1, Punatsangchhu-2 and Kholongchu,’ said the joint statement.

The two Prime Ministers also jointly released Bhutanese stamps commemorating five decades of mutually beneficial Indo-Bhutan cooperation in hydro-power sector. The power purchase agreement for Mangdechu was also signed.

If and when Sunkosh reservoir comes through it will be the biggest economic project between the two countries.

Bhutan is more keen on reservoir projects given its ability to command higher tariff rates as more power can be generated at times when demand is highest and it also mean more stable power generation during the lean winter months in Bhutan.

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