Photo Courtesy: Carsten Ten Brink

Financing issues causes delay in starting construction of Kholongchu Hydro Energy Limited

In February this year it was announced that the 600 MW Kholongchu Hydro Energy Limited (KHEL) would start construction by around June 2023 or mid 2023.

This was supposed to happen after securing the funding from the Power Finance Corporation (PFC) and the Rural Electrification Corporation (REC) which are both Public Sector Undertakings of India and are like public banks for power projects.

At the time it was said that Druk Green Power Corporation (DGPC) is hopeful that it can reach financial closure with these two companies with the support of GoI.

However, cut to the end of September 2023 the project is not progressing as initially planned or expected due to difficulties in securing the necessary funding. The project has hit a roadblock for now as the primary challenge at this stage revolves around obtaining the required financing, both in terms of debt and equity.

An official from the DGPC explained, “We are actively working to secure the debt financing required to advance the Kholongchu project. Once we secure the necessary funding, we will resume construction promptly. Even with the present exodus of Bhutanese (staff), the Kholongchu project implementation can be managed through proper planning and management.”

Since its inception, the project has invested over Nu 4.626 billion in building essential infrastructure, such as roads, power facilities, and residential and non-residential structures needed for the project. Some of these infrastructure projects are still ongoing.

The official further stated, “The primary civil construction works for the head race tunnel have already been initiated, and letters of award for major civil dam and power house works have been issued. However, all these major construction efforts are currently on hold due to the absence of financial closure, particularly for debt financing.”

With an installed capacity of 600 MW, the Kholongchu project is expected to generate 2,568 million units (MU) annually. This substantial energy production will enhance domestic energy availability and facilitate surplus energy exports to India, thereby improving grid connectivity and stability. These exports are also anticipated to generate much-needed revenue in the form of Indian Rupees.

Investments of this scale in hydropower projects often stimulate the local economy and increase demand for various goods and services. The local communities living near the project are expected to benefit from employment opportunities, not only with the project, itself, but also with contractors, suppliers, and support services that will emerge to meet project demands.

The improved road access is expected to stimulate local economic development and boost local businesses providing essential goods and services. The project’s support for a shared residential unit development scheme is backed by the project, offering housing options for tenants.

Recognizing the reality of climate change, the project anticipates alterations in hydrological discharges in the river. This includes more intense monsoons and milder winters in the Himalayan region. The project’s design and energy generation plans take these changes into account but remain adaptable over time.

While the project initially had a workforce of 194, it now employs only 31 individuals, primarily focused on continuing infrastructure work and security. Additionally, 63 Indian laborers and 16 Bhutanese laborers are actively engaged in ongoing infrastructure construction projects.

The DGPC regained full ownership by repurchasing Joint Venture partner Satluj Jal Vidyut Nigam (SJVN) Limited’s shares in early 2023.

The DGPC and SJVN joint venture faced several issues from the start, but even as they were resolved some issues could not be resolved. One was the refusal to give 20% of the works on the dam to CDCL, another was over management control and the final issue was differences on raising financing.

The DGPC taking over the project will also give it full flexibility in terms of the management style and project implementation and also the technology to be used.

The aim is to finish the project within 5 to 6 years from the start of construction.

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