DGPC report shows Punatsangchu I & II and Mangdechu costs to further escalate and lead to higher tariff rates

A Druk Green Power Corporation (DGPC) proposal for revision of tariff rates shows that the completion cost for the three ongoing mega projects ,   1200 MW Punatsangchu I (P I) , 1020 MW Punatsangchu II  (P II) , and  720 MW Mangdechu,  will all rise significantly, thereby, increasing the tariff rates as well.

As per the report P I will increase from the Nu 94 bn to Nu 110 bn, P II will increase from the currently estimated Nu 54 bn to Nu 75 bn and Mangdechu from Nu 38 bn to Nu 45 bn.

The cost increase is significant because it was only recently that the PHPA had presented its cost revision on P I from the 2006 price of Nu 35 bn to a completion cost of Nu 94 bn for 2016.

The DGPC Managing Director (MD) Dasho Chhewang Rinzin said, “Our figures include the interests on the loans portion of the project after its completion. For example, in Tala, the construction cost was around Nu 41 bn but after adding the Nu 7 bn interest during construction it came to around Nu 48 bn.”

The DGPC report shows that the cost escalation in these projects will lead to an increase in the tariff rates for these projects too.

As per the DGPC proposal, the tariff of P I would be around Nu 3.50 per unit and for P II and Mangdechu it would be around Nu 3 per unit each.

Dasho Chhewang said that the tariff rates are calculated after taking into account the construction and financing cost, and also giving a return on the equity investment.

The MD said that these are conservative figures based on some projections, and the final completion cost and tariff rates could even go higher.

The DGPC data is significant because the report warns that when tariff rates increase rapidly in the future, it would cause a huge shock to the domestic electricity market.

Currently, the domestic consumers -be it at homes or in factories, enjoy the lowest electricity tariff rates in the world. However, the increasing costs of the projects and the resultant high tariff rates could rudely affect the domestic tariff rates.

The DGPC’s main intention of presenting the information is to impart the many reasons as to why DGPC’s power generation tariff rate should be increased for domestic consumers.

As per the National Transmission Grid Master Plan, Bhutan’s domestic demand for electricity is expected to go up to 1500 MW with the establishment of several Industrial zones like, Jigmeling, Motanga, Samtse, and the increasing demands from rural and urban areas.

According to Bhutan Chamber of Commerce and Industry (BCCI) members, the domestic demand could even exceed 1500 MW if heavy power dependant industries were established with some individual factories requiring 30 to 40 MW alone.

The records show Bhutan’s domestic market consumed around 296 MW in February 2013 with around 70 percent of the power consumed by the industries.

The fear among both industrialists and other consumers is that a combination of high tariff rates and excessive power demand could both make power very expensive for domestic consumers outstripping even the 12 percent free royalty power given to the government by the projects.

In addition to the cheaper power rates from Tala and Chukha, the government uses the royalty to keep tariff rates lower for consumers in Bhutan.

It is estimated that if 10,000 MW projects are completed by 2020, the government would get around 1200 MW of free royalty power from the projects.

However, in addition to the growing demands, another problem is that it is very unlikely that 10,000 MW will be completed by 2020 due to financing and construction challenges, especially in bigger projects like Sunkosh and Kuri Gongri, which between two of them would cover more than 5,000 MW.

The PHPA Joint Managing Director Phuntsho Norbu said, “As of now we only have the sanctioned costs like Nu 37.8 bn for P II which is at an early stage. Even for P I the Nu 94 bn is yet to officially be approved as a sanctioned cost. All the details have to be scrutinized and the processes have to be completed to get the final sanctioned costs.”

Tenzing Lamsang / Thimphu