Bhutan to lose Nu 2.5 bn in annual revenue as India’s Joint Secretary North confirms withdrawal of Chukha tariff subsidy and Excise Duty refund

Power Trading Corporation of India says of the Nu 2 per unit for Chukha 45 cheltrums is subsidy from the MEA. Total revenue loss to be Nu 12.5 bn in five years affecting the 11th plan too

The Joint Secretary North, Akhilesh Mishra of the Ministry of External Affairs (MEA) confirmed to the Bhutanese Ambassador V. Namgyal in Delhi that his Ministry has written to the Power Trading Corporation saying that MEA will no longer be bearing the 45 Cheltrums subsidy on Chukha Power Tariff.

The Joint Secretary also said that MEA does not want to be burdened with subsidies and it would like to do away with all subsidies on Bhutan including the Excise Duty refund given to Bhutan.

This is as per the written communication given by the Ministry of Foreign Affairs, RGOB to the Interim Government on the meeting between the Joint Secretary North and the Bhutanese Ambassador held in Delhi on 2nd July at 4 pm.

This documentary confirmation will now mean that Bhutan’s government stands to lose around Nu 2.5 bn a year in annual revenue from Chukha and Excise duty refund. Of this around Nu 1 bn in losses will be incurred from Chukha due to reduction in tariff while Nu 1.5 bn in revenue loss will be felt from the discontinuation of the Excise Duty refund.

The Bhutanese Ambassador had been asked by the Interim government to meet with the MEA after the Interim Government was informed that subsidies on LPG Gas and Kerosene was being withdrawn along with Chukha tariff subsidies and the Excise duty refund.

The official document said, “Regarding Chukha tariff Mr. Akhilesh Mishra said that the Power Trading Corporation (PTC) was buying Chukha power at Rs 2 per unit and selling it in India for Rs 1.55 per unit. MEA has been subsidizing the difference of 45 paisa and releasing it to PTC. He said that they have written to PTC that they will not be bearing the subsidy and they should negotiate with the clients to whom they are selling the power. They requested their power ministry to coordinate.”

Meanwhile in an exclusive interview to The Bhutanese the Executive Director of PTC Dr. Rajib K Mishra said, “Of the Rs 2 per unit that we pay for the Chukha tariff from Bhutan 45 paisa is subsidized by the MEA. We actually buy our power at Rs 1.55 from Bhutan and sell it for the same rate to our clients like the Indian states of West Bengal, Bihar, Jharkhand and Orissa.”

According to Bhutan’s own government documents the basis for India saying that the 45 cheltrums is a subsidy is evidenced in a letter sent by the then Joint Secretary North, Ranjit Rae in 31st December 2004 to the then Foreign Secretary Dasho Neten Zangmo.

The letter (see image) says, “I am to convey that the Prime Minister has agreed to increase this tariff of Chukha power from Rs 1.50 per unit to Rs 2.00 per unit with effect from 1st January 2005 as requested by the Royal Government of Bhutan during the visit of His Majesty the King of Bhutan (Fourth King) to India on 24-29 November 2004.”

As per the Power Purchase Agreement with India signed in 1986 the tariff which started at Nu 0.19 cheltrums was originally supposed to be hiked once every four years depending on factors like Maintenance costs etc. However, given the good relations between the two countries the tariff was hiked around 6 times in a period of 18 years between 1986 and 2005 usually whenever His Majesty the Fourth King visited Delhi.

The 2005 hike was the largest and most generous hike given on the personal request of His Majesty the Fourth King to the Indian Prime Minister at a time when Indo-Bhutan relations were at a high.

While it is true that the Power Purchase Agreement on Chukha has no mention of subsidy it also has no mention of out of turn hikes and its treatment. According to some Bhutanese officials the Indian government was treating the out of turn hikes as subsidy given by the MEA.

The PTC Executive Director said, “Chukha was a project executed by the two governments and the ultimately the purchase of power is also dependant on the agreement and understanding between the two governments.”

In fact when the DPT government had written to the Government of India for another hike in 2009 from the current Rs 2 per unit rate the Indian government had formally written back saying that another hike was not due until 2014.

The 2004 letter sent to then Foreign Secretary Dasho Neten Zangmo on a special tariff increase from Nu 1.50 to Nu 2 had been forwarded to DGPC MD Dasho Chhewang (see image) who was then the MD of the Chukha Hydro Power Corporation Limited.

The Foreign Ministry’s written communication from Delhi also says that the Kutshab told Mr. Mishra that the Interim Government and Ministry of Foreign Affairs in Thimphu are deeply concerned and shocked with the decision conveyed through a letter on 28th June 2013 stating that subsidy for LPG and Kerosene had been withdrawn.

Mr. Mishra said that the decision to withdraw LGP and Kerosene subsidies is due to budget pressure. The Kutshab was told that in 2008 when the assistance for Bhutan’s 10th plan was finalized it included Rs 1500 crores (Nu 15 bn) for subsidies

to Bhutan. Among the various subsidies the mains ones were for Kerosene and LPG, Chukha Tariff and Excise Duty refund.

“With the release of 300 crores (3 bn) for the Excise Duty refund recently this fund for subsidies has been exhausted. There is no cabinet approval now for any further subsidies. To release more money they have to go back to their cabinet. This was the position of Mr. Bimal Jhulka Special Secretary and Financial Advisor in MEA,”says the written communication.

The communication says, “Mr. Mishra said that MEA does not want to be burdened with subsidies and it would like to do away with all subsidies including Excise duty.”

Mishra said that Excise duty refund removal will require some formal consultations with the Royal government. He said some initial consultations have taken place between the Indian Embassy and the Foreign Ministry in Thimphu.

Earlier the Interim Government’s Ministry of Finance and GNHC Advisor Dasho Karma Ura had written an article in page 20 on Kuensel’s Saturday issue saying that the Indian government had communicated to them withdrawing subsidies on LPG and Kerosene and also withdrawal on subsidies on Chukha tariff and the Excise Duty refund. Later the DGPC MD and Interim Government Advisor Dasho Chhewang though not denying Dasho Karma Ura’s statements claimed that he had not received any official communication on the reduction in Chukha power tariff.

Given the statements from both Interim Government members there was some confusion. However, the document sent from Delhi to the Interim Government now confirms that the MEA will be withdrawing what they see as the 45 chetrum Chukha subsidy and will also be discontinuing the Excise duty refund.

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