The Bhutanese Leading the way.
During the Bhutan Innovation Forum session, ‘Harnessing Bhutan’s Renewable Energy Resources,” the Druk Green Power Corporation (DGPC) Managing Director Dasho Chhewang Rinzin was asked by the moderator how the government plan’s to raise 51% financing if it plans to own 51% of all projects.
The DGPC MD said that the first aim is to raise USD 1 to 2 billion as the initial equity for the projects.
For this he said, they are looking at diluting some of the shareholding of DGPC to bring in the initial equity.
A valuation of the DGPC has been done and it is worth a few billion dollars. Currently it is not clear how much of DGPC shares will be sold but sources say that it will not be more than 49% as the government will have to maintain majority shares.
So it can be at 49% or anything below depending on the demand for the equity.
The MD said in the forum that the option is to go to the capital market (stock market and bond market) with the present assets they have and see how they can monetize them and use them.
Getting equity is important for Bhutan, as international banks will require seeing some equity before lending the loan component to projects.
Apart from the above, the MD said they are talking to the multilateral banks and to the private sector.
Dasho said that if they can raise USD 1 to 2 bn then he does not think they should be any problems because they will have so many more projects online.
“Not all 20,000 MW will come up in 2040. We’ll have many coming up along the way. So our revenues will increase and hydropower revenues can be plowed back into doing new new projects. So I think the first step that we are taking today is with the multilateral banks, the private sector, to bring in some of the equity and also diluting some of the shareholding of DGPC is going to bring in the initial equity that we require, and thereafter we feel quite confident that this is a manageable problem that we have in front of us,” said Dasho.
The DGPC MD said that Bhutan was lucky that generation and consumption kept track and we exported too but in the last couple of years this has changed.
Now we have a shortage in winter months generating only 450 MW when demand jumped to 900 MW. This year the demand is 1,100 MW and by next year our demand is 1,600 MW and by 2034 it will be 3,500 MW.
By 2040 we will have 4,000 MW constant internal demand and since we depend on run of the river hydro projects that means increasing our supply 10 fold to 20,000 MW to 25,000 MW so that winter generation is 4,000 MW.
“So our plans are that over the next 15 years, we’ll invest in about 15,000 MW of hydro and about 5,000 to 6000 MW of solar. Total addition that we have to do over the next 15 years is about 20,000 MW, in addition to the 2500 MW that we have in operation just now, and about 3000 MW which are under construction.”
He said from now till 2040 in the next 15 years, Bhutan will need USD 26 bn which is USD 1.5 to 1.6 bn requirement every year to be invested in the energy sector alone when the GDP of the country is about USD 3 billion and so one can understand the immense task ahead.
“We understand, of course, at the end of the day, that our biggest partner will continue to be India, but then we need to diversify in the way we invest, structure the projects, so that by 2035 – 2040, we can assure ourselves that we have sufficient power to supply whatever is needed within Bhutan, at least, and the surplus we can still export, not only to India, but we are looking at the regional market as an opportunity that we can explore.”
Martin Raiser, Vice President for South Asia, the World Bank Group said the challenges are energy diversification given the seasonality of power but Bhutan is already addressing this, second is the sheer scale of investment and major implications on the macro economy, needs for domestic infrastructure, maintaining the unique, pristine nature of Bhutan and its unique environmentally sustainable development path and GLOF.
He said debt raised should be against the revenue of the project and therefore it does not require the government to guarantee the repayment of the debt. That allows a small country to raise larger amounts of money of the revenue that’s earned by the project. He said the WB is helping with Dorjilung project.
Rod Phillips, Vice Chair, Canaccord Genuity, Canada said it is important to have independent energy regulator which Bhutan already has to inspire investors confidence.
Another challenge is distribution where Bhutan has done well despite the mountains.
He said on the positive side, is the vision of His Majesty for any significant institutional investor. One of the considerations that they’re always looking at is the stability as a business partner, directly or indirectly, of the sovereign
On the downside he said Bhutan has not been a recipient of significant private foreign direct investment and there is not enough investors familiarity with Bhutanese laws or its regulations.
He said while there may be environmental challenges and sensitivity by investors over hydro the other options are coal and gas.
He said relationship with India is very important. The nature of the investors that are going to be interested will quite likely already have investments in India.
Martin said familiarity with Bhutan as an investment destination is important and the BIF forum helps with that and is clearly important.
He said, “You know, India has a power exchange, and there are times in the day when power is very expensive. That might be through greater integration, there might be the opportunity to earn quite a bit of upside, and at the same time, developing domestic sources of demand to give you some diversification will also make the projects more attractive for financing.”
Dasho said Bhutan is very committed on social and environmental mitigation measures and safeguards. Bhutan has 70% forest cover and 60% protection in the constitution.
He said Bhutan will keep its forest and environmental commitments to the world and hydro projects will not impact it as Bhutan is committed to follow international standards as far as social and environmental safeguards are concerned.
Rod said, “If you were to introduce the concept of a significant investment opportunity in Bhutan to an average institutional investor based in New York or in Singapore, perhaps they would know a bit more certainly in London, you know, there would be a significant portion of those folks who would would need to refer to an atlas to find the country.”
“Quite evidently, institutional investors, who are already operating in rupees, have expenses in rupees, and have experience in in South Asia, are going to be very interested,” added Rod.
He said when it comes to, large institutional pools of money that , in many cases, have a desire, from a brand and from a diversification perspective, to move to the sustainable space, that’s going to be a group that, again, needs to be educated.
“But we can’t underestimate things like the absence of a credit rating. There are, conditions on some very large funds that would take this investment off the table. So there’s going to be work to be done in that regard.”
Mertin said given the impact of Bhutan’s projects of reducing fossil fuel emissions in the region, the WB is looking at drawing from a regional pot of money, to very significantly expand its financial support to Bhutan in the coming months.
He said, “Traditionally, we were in the range of $50 million per year. We now have a pipeline of $600 million per year. I can’t say exactly how quickly that’s going to come on stream, but it gives you an indication of the commitment that we have because of the importance that we see that Bhutan’s story plays not just for Bhutan, but also for the region more generally.”
The DGPC MD was asked a question of the impact of climate change and how it can lead to reduced hydro production.
The MD said that while the glaciers are receding studies are showing that the monsoons are going to get much more intense pointing rain in October in Bhutan, and therefore the monsoons are changing and the projections are that the river runoffs actually will increase, although they will be more erratic.
“And therefore, I think when we plan into the future and take the projections, we are not only looking now at run of the river schemes, we are looking at augmenting that with solar, but also we are looking at moving to some reservoir projects as our immediate solution to winter shortages, but in the long run, to merge solar with pump storage. And so we are looking at pump storage as something that we work with into the future to deal with climate change,” said Dasho.
