DHI does not expect electricity tariffs to increase beyond 15%

With the submission of the electricity tariff review proposals from DGPC and BPC, to the Bhutan Electricity Authority, it seems that a lot of alarm has been created and there are concerns that the electricity prices are going to sky rocket because of BPC and DGPC.

Electricity has become such an essential basic necessity that if tariffs were to increase by 200-300%, all of us even at BPC, DGPC and DHI should be alarmed as it would impact us terribly.

As there still seems to be a lot of misunderstanding about how tariffs are finalized we would like to provide some explanation. During 2010, there was a big outcry about how the electricity tariffs were going to increase by 100-200%, but in the end, it increased only by 2% for high voltage industries and 5% per annum for low voltage customers.

It is not BPC or DGPC, but BEA that determines the electricity tariffs. According to the BEA regulations, every three years, BPC and DGPC are required to submit their calculations for the cost of supplying electricity.

These calculated tariffs based on BEA’s regulations are much higher than the current tariffs and it is this calculated tariff that the media and public have picked up on.

As part of the tariff review process, the BEA holds public hearings, and analyzes DGPC and BPC’s proposals to see if they are accurate and acceptable. The BEA then independently calculates the cost of supply for DGPC and BPC.

While this is the actual cost of supply, if this tariff were approved, it would lead to huge unacceptable increases. Therefore, government intervention through subsidies is required.

At present, DGPC provides 15% of its total generation as royalty power to the government at zero cost. The government uses this and other measures to subsidize the different categories of consumers. While BEA feels that only a small subsidy is provided to the HV customers, we feel that several key parameters of the tariff framework need to be reviewed, as they don’t reflect the actual cost of doing business.

This time also we expect that the Government will heavily subsidize the rural consumers, and this is acceptable, as the rural consumers cannot afford to pay

higher costs for electricity. We also expect that the tariffs for domestic LV consumers will not increase substantially, although in the past their increases have been greater than the increase for the HV consumers.

On the HV tariffs, DHI as a business entity, is fully cognizant that increasing the electricity tariff by over 200-300% will result in closure of industries and does not believe that such increases will ever happen.

However, we are also aware that the present power intensive industries can pay much more than what they are currently paying. From our own analysis, it seems that these industries will be able to bear at least a 10-15% annual increase in tariffs. An increase of this order is what we are expecting.

Our concern is that though the industries could afford it, during the 2010-2013 tariff period, industry tariff increased by only 2% for one year with no increase thereafter. By marginally increasing the tariff, the nation lost out on huge potential revenue for the government, while the industries did very well. It may be noted that there are many industries that are waiting and willing to pay much higher rates for power.


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