Delayed P II tariff due to efforts to reduce repayment burden

The tariff rate for the 1,020 MW Punatsangchu II project has not yet been finalized, and as a result, Bhutan and India have been unable to sign a Power Purchase Agreement (PPA) which in turn has meant that Bhutan has been unable to export its P II power to India.

According to sources, the tariff rate from India is taking some time as there is a proposal to reduce the loan payment time period and burden in Bhutan for the project. This, in turn, will help reduce the tariff rate.

The official loan repayment period is for 15 years starting two years after commissioning, but India is trying to increase this to 17 years so that the loan burden on Bhutan is reduced. This, in turn, helps reduce the tariff too.

Another thing being looked at is trying to make as much of the early payments, as the 30% grant instead of the 70% loan, so that the loan interest is less on Bhutan which again helps power the tariff rate.

However, such things have to go through a process like the technical negotiation team, the Ministry of Power and the Ministry of External Affairs and the final approval is required from the Indian Cabinet.

A source said given the hundreds of items on the agenda of the Indian Cabinet, anything is usually listed two to three months in advance.

The source said that technical experts from both sides have been talking, and they have broadly agreed on the parameters to calculate the tariff and so the tariff finalization is in the final stages.

This is the need of the hour as the final sixth unit is expected to be inaugurated by 27th August, which will mean the commissioning of the project.

This is the longest known delay in finalizing the tariff rate. Last time around, the 720 MW Mangdechu tariff rate was finalized in December 2018, the PPA was signed on 15th August 2019 and the project itself was commissioned on 17th August 2019.

The P II project has sold 1.309 billion units of power to BPC from December 2024 to June 2025 at a lower domestic rate than the higher cost plus export rate, which is estimated to be around Nu 5 or more per unit.