Earlier Bhutan had only 49% ownership. For the additional 1% the 70% loan may be taken against the project itself instead of the Indian PSU’s balance sheets
Earlier a major criticism for the four Joint Venture (JV) hydropower projects was that Bhutan’s Druk Green Power Corporation had only a minority share of 49% compared to the 51% held by Indian PSUs.
However, in a revision of the original arrangement a high powered Indo-Bhutan sub-committee in principal has agreed to share equal stakes in the power projects on 50-50 equity. The sub-committee members included MoEA secretary Dasho Sonam Tshering and the Indian Joint Secretary of Power and they had met in Delhi earlier this month.
This, however, comes in the backdrop of the fact that Indian PSU’s will no longer be solely securing the 70% loan on the project based on the strength of their balance sheets. The JV hydro-projects itself will now be put up as collateral for the 70% loan.
The original arrangement was that in return for 51% equity Indian PSU’s would finance 30% of the equity which still stands and also get the 70% loan component entirely on the strength of their balance sheets. This meant the PSUs were taking the risk on the loan and Bhutan need not show any collateral or mortgage any project asset.
Under the new arrangement Bhutan will have the advantage of securing an equal stake in the project and also more revenue but at the same time the JV project itself will become the collateral. There will be no impact on loan repayment as the project itself has to pay for its loans.
This means that with the four projects costing around Nu 120bn, both sides would arrange the Nu 85bn loan against the project. GOI, however, will still fund entire equity of Nu 35bn including Bhutan’s portion.
Information regarding the proposal was revealed by a credible senior government official on the basis of anonymity.
The same official said it was a case of “misunderstanding in interpretation” that the PSUs shall source 70% of the finances from the Indian market based on their strength of balance sheet. “No financers have agreed to provide loans for a project worth billions based on balance sheets”, he said.
He said the project asset has to be mortgaged with the financers and in addition the JV partners will need to provide a “comfort letter’ or letter of assurance to the financers stating that the JV partners will stand by incase the project does not pick up or if project assets hasn’t developed at all owing to natural disasters. “The JV partners need to provide assurance or comfort letter that we will stand by”, he said.
According to the proposal, the assurance letter he said will be provided by the PSUs given the size and market credibility of the Indian companies. This he said will also help the partners in acquiring loans at minimum interest rates.
The sub-committee was formed during the ninth Empowered Joint Group (EJG) meeting comprising high government officials from Bhutan and India held last month in the capital. The sub- group was formed to sort out the outstanding issues in the Joint Venture draft agreement.
The issue which cropped up was some demands made by Indian PSU’s like; No to mandatory free royalty power to the RGOB which is 12% during the loan repayment period and 18% after the loan is cleared, want project ownership for 35 years and not 30 years, won’t give the project back for free after 30 years but sell it back to RGoB at the then market value, restrict Bhutan’s domestic use of electricity from the four joint venture projects and the project has to take the loan as against the earlier agreement of the PSUs taking the loan.
All of the above demands were rejected by both governments which agreed to follow the hydropower policy of Bhutan. The now request agreed to now seems to be on the 70% loan being taken by the project instead of the Indian PSUs.
The government official said the sub- group after meeting with PSUs in Delhi, India in the first week of July came to a consensus that all the provisions of the MoU between the two governments and the JV agreement will be in line with the hydro power policy. “That has been agreed in totality now”, he said.
If the sub-committee’s proposal is accepted by both governments, 70% of the project finances will now be jointly sourced by DGPC and PSUs as a single joint venture company using the project as collateral. However, both companies will have an equal share.
The government official said the sub-committee has no decision making powers and all the proposal needs to be approved by EJG and the two governments to come to a final agreement.
He said, “The agreement is expected to be signed before the next EJG meeting but we can’t say as multiple PSUs and the two governments are involved”. “But since all the issues have been resolved at the sub- committee level, I think it won’t take much time”, he added.
During the last EJG meeting, the group’s chairman Lyonpo Khandu Wangchuk said the agreement is expected to be signed by the end of this month and works to begin within the year.
A memorandum of understanding (MoU) will be signed between the two governments following which the IPSUs and DGPC will sign the JV agreement.
The four power projects are the Chamkarchu (670MW) in Bumthang, Kholongchu (600 MW) in Yangtse, and Wangchu (600MW) and Bunakha reservoir (180 MW) in Chukha.
IPSUs involved in the projects are Satluj Jal Vidyut Nigam Limited (SJVNL), National Hydro Power Corporation and Tehri Hydropower Development.
The four joint venture projects, with a combined capacity of 2,300mw constitute around one fourth of the 10,000mw that Bhutan targets to harness before 2020.