The pandemic and travel restrictions have prevented Bhutan and India from discussing the revision of the 336 MW Chukha tariff which is due since January 2021 since the last hike had been effective four years ago from January 2017.
However, with things getting back to normal officials from both sides are expected to meet either in Bhutan or India to discuss the issue of the Chukha tariff revision.
The timing is especially crucial as it comes at a time when the country’s economy is hit by the pandemic due to which the government is struggling to generate revenue.
The 1974 agreement on Chukha project outlines that the tariff will be revised ever four years based on factors like Operation and Maintenance costs, weighted average costs of generation of power in hydro projects in the North East and Eastern region and other factors relevant at the time. The Chukha tariff is reviewed every four years on a cost plus basis.
A Bhutanese official, on the condition of anonymity, said that the Operation and Maintenance costs for Chukha is only going up as the project gets older and it needs major renovation and refurbishment. The official said that the life of electro-mechanical equipment is around 30 to 40 years and it is time to replace them.
On the third aspect of ‘other relevant factors at the time,’ the Bhutanese side is interpreting it as the market conditions.
This time around the market conditions favour Bhutan as power prices are up in India and in fact some places are experiencing a shortage. The Indian Energy Exchange saw prices shooting up to INR 20 per unit before it was capped at a high of INR 12 per unit.
This is compared to the current Chukha tariff of Nu 2.55 per unit.
The official said that Bhutan is also hopeful considering Bhutan’s current economic situation.
The last hike was agreed to in February 2018 and it was made effective from 1st January 2017. At that time Bhutanese officials had proposed a hike of 25 cheltrums but the Indian counterparts wanted to go much lower with some not even keen for a hike.
Finally, the decision was pushed up to the political level between the two then Prime Ministers and a hike of 30 cheltrums per unit was agreed to pushing the Chukha unit price from 2.25 to 2.55 per unit.
This hike meant that the project could earn an additional Nu 540 mn a year since it generated 1,800 million units a year pushing total revenue from 4 bn to around 4.540 bn. The actual exact export revenue figures depend on the annual production of power and also how much of it is exported
The hike before that was in 2014 with 25 cheltrums per unit effective from January 2014 pushing the potential revenue of Chukha at the time from Nu 3.6 bn to around Nu 4 bn a year if everything was exported. At the time too the higher than expected hike was based on the request of the former government.
The first tariff hike was in 1990 when the earlier different rates of Nu 0.13 per unit for secondary energy and Nu 0.26 for firm energy fixed in 1986 was made uniform at Nu 0.26 per unit. The second hike in 1993 which made it Nu 0.37 per unit. The third increase in 1995 made it to Nu 0.50. The fourth hike in 1997 made it Nu 1. The fifth hike in 1999 made it Nu 1.50 and the sixth hike in 2005 made it Nu 2 a unit. The seventh hike in 2014 of 25 cheltrums applicable from 2013 January increased it to Nu 2.25 per unit. The tariff hikes in the past usually coincided with the visits of His Majesty The Fourth King to India.
While there is no figure available from the Bhutanese side for the latest proposed hike it would have to be higher than the 2017 hike given inflation, power costs, O&M costs and the Bhutan’s dire economic situation.