Flawed Cabinet decision on dam relocation helps push Punatsangchu I cost to a record Nu 94 bn

Concerns now abound on loan repayment in what has become Bhutan’s most expensive hydro project

The Bhutanese has found that a cabinet decision made on the basis of inaccurate technical information in 2008 played a major role in the ballooning of the Punatsangchu 1 (P  1) project cost to Nu 94 bn.

In June 2008 the cabinet based on a presentation of the Punatsangchu Hydroelectric Project Authority (PHPA) agreed to shift the location of the P 1 dam 1.4 km upstream from the original site chosen by WAPCOS.

The justification given then was that the new location at 7.1 km downstream of the Wangdue Bridge would have an easy to reach hard rock bed surface at 30 meters, and would generate an additional 105 MW at only an additional cost of Nu 1.2 bn on the total project cost of Nu 35.14 bn. This would increase the power generation of 5.2 bn units to 5.7 bn units.

However, when construction started the dam construction company could not find the hard rock at 30 meters and had to dig till a record 74 meters. This additional dam depth hugely increased the entire project cost as the dam is the biggest and most expensive component of any project.

 

The cost shoots up

In 2006 the estimated cost of the dam was Nu 7 bn but in 2009 it was tendered for Nu 12.45 bn to Larsen and Toubro and now in 2013 the completion cost of the dam mainly due to the additional depth was announced at Nu 37 bn. By comparison the entire Tala project was completed for around Nu 41 bn in 2007.

Similarly the P 1 project cost estimated in 2006 was Nu 35.14 bn which in a 2012 interview with this paper was quoted at Nu 66 bn by the PHPA MD R.N Khazanchi. The latest figure is Nu 94 billion.

The MD in reply to a question said that there would be no assurances that the price would not rise beyond 94 bn in the event of something unnatural happening.

PHPA’s latest cost completion figures for P 1 acknowledges that of the 94 bn figure around 54 percent increase was due to geological and design changes including relocating the dam and only 46 percent was due to inflation.

 

Criticism of cabinet decision on dam relocation

The PHPA’s flawed depth perception of 30 meters, the exorbitant increase in the project cost and the cabinet decision which was made without asking for more research or consulting more experts have come in for increasing criticism from both government officials and also those in the private sector.

A government official on the condition of anonymity said, “Our project were among the most cost effective in the world coming to around or less than 1 million USD for 1 MW but this project has increased it to around 1.4 mn USD per MW.”

A Bhutanese contractor involved in the hydro projects who also wanted anonymity said, “What we saw was the dam contractor digging for months and still not finding the rock bed which hugely escalated the cost. The government should have either done more studies or consulted other experts before making such an expensive decision.”

The contractor said that if the cabinet had known that the new location was 74 meters and not 30 meters deep then perhaps more studies could have been done to get a dam site that was not as deep and would still generate 1200 MW saving billions in construction loans for Bhutan.

 

Human Impact

The original dam location of WAPCOS would have flooded only around 20 acres affecting very few households. But the current location of P 1 approved by the cabinet has lead to the submergence of around 70 acres of cultivable land affecting around 90 households. Many of them are not happy with their compensation packages.

 

Loan repayment concerns

There is also now increasing concern on the loan burden of the project given that the funding is 60 percent loan at 10 percent interest with only 40 percent grant. This is compared to Tala which was 40 percent loan at 9 percent interest and 60 percent grant.

Of the 94 bn project cost for P1 Nu 56.4 bn is the loan cost.

Including the interest component P 1 will have to pay around Nu 10 bn every year for 12 years from the date of the completion of the project to pay of its loan. On the other hand if the P 1 project with its currently estimated 5.6 bn units exports at the same tariff price as Tala at Nu 1.95 per unit then the total revenue would only be Nu 10.10 bn. This would only give a profit of Nu 100 mn for P 1 after loan repayment.

This is keeping in mind that the completion cost of Nu 94 bn could increase if there are other geological surprises.

 

Dam increases the highest

The relocation of the dam apart from inflation also increased the cost of the headrace tunnel (HRT) due to the increased length from 7.4 km to 8.9 km and an additional 45 meters of steel lined pressure shaft. The HRT cost went up from Nu 4 bn to Nu 6.8 bn.

As per the completion cost estimate given by PHPA recently the second biggest increase in project cost component after the dam is the power house which increased from 3.8 bn to 11.6 bn which is a 300 percent increase. Other major component like transmission lines increased by around 90 percent, electro mechanical works by 70 percent.

However, the dam by comparison had increased by more the 500 percent mainly due to the unaccounted for depth of the riverbed.

 

PHPA says a mistake was made

The PHPA MD R.N Khazanchi admitted that there had been an error in estimating the dam depth at 30 meters below the river bed due to preliminary studies. He said it was later found that the dam depth was around 74 meters.

He also admitted that since the depth was eventually found at 74 meters it had become a major factor in the increase of the cost of the dam. He said of the Nu 37 dam completion cost around Nu 11 bn would account for inflation and the remaining 25 bn would account for the increase in the depth of the dam.

 

Not a big difference in cost?

The PHPA MD, however, said that even if the dam was constructed at the original WAPCOS site the depth of the dam below the river bed would be 73 meters without the additional 105 MW. He also reasserted that this was the best location scouted for the dam.

He said the new dam was slightly shorter and narrower than the old site dam. According to PHPA figures the current P1 dam is 130 meters in length and 239 meters in breadth while the old site dam would be 137 meters in length and 281.5 meters in breadth. The MD said that dam on the old site would have been as expensive without the benefit of the additional 105MW.

However, contradictory to the PHPA MD’s assertions of the new dam being smaller the Detailed Project Report of P 1 project shows that the old dam would have been 0.660 mn cubic meters compared to the current dam which is around 1.5 mn cubic meters.

The PHPA MD, however, asserted that the 0.660 mn cubic meters in the DPR was an underestimation.

 

The Inflation debate

The MD also said that the Nu 35.14 bn project cost estimated for P 1 in 2006 was a huge underestimation as the 1020 MW Tala had itself been completed at Nu 41 bn in 2006. The MD giving an example of the underestimation said that in the original DPR it was estimated that the 9 meter diameter diversion tunnel of 580 meters would be enough to divert the river to allow for the project construction. He said on the ground the reality was that two 11 meter diameter tunnels with a combined length of 2.7 km was required.

The MD also said that inflation especially in the increasing cost of steel and cement had also played a major factor in increasing the cost of the project.

The increase from the 2006 estimation of 35.14 bn to now the completion cost of Nu 94 bn in 2016 is almost a 300 percent increase in cost of project.

The Bhutanese, however, found that between 2003 and 2012 the cumulative inflation in India was 76.91 percent.

Also in the comparison of prices of steel and cement the PHPA in its presentation had compared 2001 and 2011 prices. PHPA had said that a cement bag that cost Nu 161 per bag in 2001 increased to Nu 253 in 2011. It also said that a metric tonne of steel increased from Nu 18,500 to Nu 44,500.

However, critics have pointed out that comparing 2001 and 2011 prices to justify inflation is inaccurate as the P 1 project cost estimate was made in 2006 and its construction started in 2008.

The Bhutanese, found that on the Whole Sellers Price Index (WPI) of India which is used to measure inflation the price of steel rods in 2005 December was Nu 101.2 which in 2013 had increased to Nu 142.9. On the same scale a 50 kg bag of cement in 2002 was Nu 145.3 and had increased to only Nu 171.9 by 2013.

The MD also gave the example of the Tala project which had increased from its original estimated cost of Nu 14 bn in 1993 to Nu 41 bn in 2007 which was an increase of almost 300 percent.

However, this paper found that this would not be an accurate comparison as the Tala’s price had increased over the period of 14 years while P 1 project cost had been projected to balloon by almost 300 percent in a shorter span of 10 years from the cost estimation in 2006 to its completion in 2016.

 

Tariff hope

On the tariff rate the PHPA MD said that the tariff rate for P 1 would definitely be much higher than that of the Tala project as tariff calculation would be based on the construction costs among others. He said that tariff could even be estimated to go up to even Nu 3.40 per unit which would make the P 1 project a profitable one even after paying all loans.

Ministry of Works and Human Settlement Minister Lyonpo Yeshey Zimba said, “You have to look at the agreement between India and Bhutan. As far as the loan repayment is concerned, it will not be affected much because the power tariffs are based on the cost of construction or building the project.”  “If the project cost is more, power costs will also be more,” he said.

He also said the decision to shift the dam was based on technical findings on the ground such as geological studies. “Much studies has been done on it before the dam site was selected,” said the minister.

 

 

What the cabinet approved in June 2008

Relocation of P 1 dam site by 1.4 km upstream to a place with 30 meter depth turning a 1095 MW project into a 1200 MW one with only Nu 1.2 bn additional cost to the Nu 35.14 bn cost.

What actually happened in 2013

Dam site found to be 74 meter depth which played a major role apart from inflation in pushing project cost from Nu 35 bn to Nu 94 bn.

Consequence

Bhutan may have to pay Nu 10 bn every year for 12 years after completion to pay the huge loan.

Project would not be profitable if Bhutan cannot secure a higher tariff rate than Tala.

90 families affected and 70 acres of paddy land flooded.

Critics say better location of dam with same power generation capacity could have been looked for if cabinet had asked for more research and found that actual depth was 74 meters in June 2008.

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49 comments

  1. so, u expect cabinet to go there at puna I site, dig, see the rock level and then make decision!!! Cabinet or executives make decisions based on recommendations and advice of technical experts. If cabinet hadn’t listened to the expert advice that time, this paper would have been the first to point out and blame cabinet for being dictatorial and not listening to experts.
    Anyway, this kind of negative reporting are expected when election dates are nearing!!! 

    • Another DPT defender comes to the rescue. While it is true that the cabinet are not technical experts they should have asked for more detailed reports than just one man (Khazanchi’s) hunch. The issue reflected in the story is that cabinet disregarded experts technical advice of WAPCOS and went on some incomplete preliminary studies of one man. So yes, the cabinet is responsible for not taking a good decision. 

      • Yah they should be held accountable and it has nothing to do with upcoming election. They should have asked for more analysis before giving blank approval.

      • Another opposition who likes to oppose for the sake of opposing!!! WAPCOS’s recommendation is for the old site and later, the project authority recommended for new site after study which cabinet approved based on their recommendation. WAPCOS did not say anything about new site, so don’t confuse with it. And for your information, no geological studies are perfect in the world. It is done on certain sample drilling and it is very difficult to get the accurate result. By the way, cabinet did not gain anything by making this decision. It was purely decided based on the technical report presented by the puna i authority. Don’t try to gain political mileage on technical error. 

        • Zopola,
          who know this could be another biggest corruption in Bhutan. it is possible in such big projects. We are talking in billions and not in thousand. Whether it is the cabinet or the technical expert some one is wrong here in billions. So Zopola  do not try to hide yourself under this or  that pretext. This govt has no accountability in many cases including for the constitutional case. with this type of mediocre functioning we do not see hope to improve especially on corruption front when this govt is in power.

      • I would say defender of logic and reason… unlike some internet keyboard trolls devoid of such qualities…

      • psuedo engineer

        The decision was made based on the recommendations of the technical experts. I don’t see how pointing out this is relevant to if one is a DPT supporter or not is an issue.

        Did the Dept of Power not say anything? When that one man makes a recommendation, he is representing the whole project and all the technical studies that are supposed to have been done.

        In anycase, WAPCOS did not advise against the current site. They infact moved the dam site from another one recommended by a Japanese pre-feasibility site and the dam that WAPCOS proposed also had a 73 meter depth to bedrock without the increase in power output.

  2. But, one of the Lyonpo mentioned that after the competition of project, Bhutan would be in dilemma where to invest so many INR revenue generated from hydor project.

    • that was bullshit thinking and it undermines the level of profenalism and understanding of the subject. that was oof the curve talk, i guess so.

    • That’s Politics. It’s a game Played on Public intelligence. They will talk as if they had never failed for will never fail. On top of all they will never accept criticism just like one of the reader supported the cabinet and trying to accuse this paper which brought out the truth.  

  3. Till now I thought this paper did a credible reporting by analysis facts and figures, but this article of your completely disillusioned me. If PHPA officials recommeded with all the technical details, why would Cabinet not approve such changes. The reasons for change of the dam site would have had appeared convincing when we can generate 105 MW at additional cost of 1.2b. The title of the article is completely misleading and PHPA should be held accountable. On the tariff, I think RGoB should negotiate for more, as I know power trading companies in India are making hay out of it.

    • Hey dumb ass read the article again. It clearly says that the cabinet is being criticized because they did not consult other experts and went along with just one experts views. 

  4. This is one more example why the old timers must go into quite retirement and some new blood who actually know what they are doing must come in. 

    • I have no comments as to whether the paper has come out with true story or not but one thing I can say such flaws are possible so long as Khandus and Zimbas are chairmaning such project authority more than two decades. Khazanchis and Phuntsho Norbus have been duly rewarded for all these achievements. I still remember Zimba saying a decade ago that Bhutan will have excess liquidity to loan out once the Tala Hydropower Project has been commissioned. We see for ourselves what a crisis we are put into bearing the Beast of Burden which has increased fourfold in our lending ratio.  

  5. People in 50s and early 60s are never considered young in leadership. Young people should not be so ambitious and jealous of power and position. Bhutanese people will decide whom to entrust our nation’s reign. Education and commitment are essential, but experience is always a plus point. Exactly like OL, this paper will never report the success of DPt. The moderator even does not publish some of our critical comments.

  6. stupid lenpos. good for nothing. They are liabilities to people.

  7. The title is highly vindictive and not properly reflective of the contents.

    • psuedo engineer

      I concur about the title.

      The decision was made on “flawed advice/studies”, not a flawed decision on “sound advice/studies”.

  8. if it happends to be a bhutanese contractors who is involved audit or Acc might have raise so many issues but in this case nobody can dig out issues beacuse bhutanese are scared of indians.

    • For heaven’s sake, what kind of an argument are you trying to put up and for your information, most of our contractors are corrupt. This was clearly an honest mistake, who would knowingly go and dig up the wrong place just to blow up so many billions.

  9. As per ECB notice, such issues are not supposed to be raised at least when the elections are nearing. We should report this to the arbitration unit of ECB.

    • I beg to differ. People need to be informed about such grave mistakes of the government instead of being loaded with buttered up stories at this critical juncture when they are going to decide on who to be put in the cabinet.

      • Zopola,
        who know this could be another biggest corruption in Bhutan. it is possible in such big projects. We are talking in billions and not in thousand. Whether it is the cabinet or the technical expert some one is wrong here in billions. So Zopola  do not try to hide yourself under this or  that pretext. This govt has no accountability in many cases including for the constitutional case. with this type of mediocre functioning we do not see hope to improve especially on corruption front when this govt is in power.

  10. I think it is not proper to put the blame on the cabinet. I don’t think that for every decision they make, they have to seek second or third opinion. The team making the presentation to the CCM/Ministry/concerned departments were technical people with wide field experience and no one would have doubted their incompetence. I also happened to attend to one of their presentations and the way they made the presentation, everything looked rosy. As Kinza pointed out above “to generate 105 MW at additional cost of 1.2b” was very tempting. The flaw lies with the team/engineers/geologists who were responsible for the subsurface investigation of the dam site and I think they should be held accountable if the information given was incorrect. But putting the blame is not going to bring down the cost. 

  11. psuedo engineer

    How the hell can the recommendation to shift the dame have been made without the full geological study? Its not like you are moving a bulldozer from one location to another.

    What were our own engineers and technical advisors doing?

    This has implications on how we depend on incomplete information and the competency of WAPCOS and other high level quasi-private Indian firms presenting assessment for major decisions regarding such projects. This is not the first time. Recent rejection of EIA for other projects (hydro, airports etc) is already reported in the news.

    For the dam, there was flawed geological assessment in the last minute after all the assessments were made. The presentation was made by the highest administrator of the project at that time. There was a lot of concerns from the hurried modification from not only technical but also social and environmental implications. these concerns were recorded in the consultation meetings and witessed by the participants at that time.

    The costs balloons from “variations”, incomplete estimates in planning and estimating. In the end it is the contractors making more money than their bids by saying ground conditions are different from the design and documents.

    Besides the dam relocation, the quarries for Puna 1 is another issue. First stones are brought from other quarries at greater costs than if quarry is alloted to the contractors. Then when quarry is alloted after all studies but this is rejected saying the stone is not of good quality. WTF! money is wasted in the studies, then money is continued to be wasted by transporting stones from further areas and at the same time inconveniencing travellers on the national highway.

    And with such huge amounts of money, this is very certainly a lot of palm greasing going on. A lot of people involved in construction, supply and management are making a lot of money at the expense of the people and nation from such variations. It goes down even to small items for supply of stationary and equipment.

    At the same time we are loosing the opportunity to train our own capacity to take up such works and also limiting the choice of technology by only allowing Indian companies and technology.

    Whether WAPCOS and psuedo-private technical agencies from India and global/indian companies are completely incompetent or there is deliberate hoodwinking of our government and people it’s high time we examine these projects with a microscope.

    Is the financial , social and environmental costs worth it if we are proceeding in such a manner for 10,000 megawats?

    • Not surprising that we have such experienced Ministers and still many shady things happening under their own nose but no accountability or transparency at all. I can smell fish there.

  12. GET NO HAPPINESS

    shove dynamite in the arse of all corrupt ministers and blow

  13. This is how the PHPA MD can fool BHutan. Actually he wanted M/s JAL(Jaiprakash ) to take all this money and he new before hand. He was almost dead when M/s JAL didnt get the contract. Really appreciated the technical capability of MD. He has done similar to Tala and M/s Jaiprakash has immensely benefited from it. Feed up of MD always blaming Geological condition. As per MD, Tala lies in the MCT zones and by now the centerline of machine would have change. All the shooting rocks bolts, unseal plugging holes, pressureshaft welding failures are due to his capacity in hydro expert. He need to be replace at the earliest. By the way, his Aum Tshoki must be hugely benifitting. Millions of unaccounted indirect money has been given.

    • I take this information as shocking truth that had laid buried to this date. I certainly don’t blame the cabinet for passing their decision. Who I certainly blame is the PHPA management for misguiding the Government by feeding incorrect information. What could have motivated the management to feed such incorrect information is anybody’s guess. The management must be held accountable for impoverishing Bhutanese with the debt of Nu 94 billion which we and our future kids have to pay.

      My question is, are we not over trusting some individuals more than others? I think it is high time that we review who are entrusted with what responsibilities, specially when stakes run into several billions. 

      I take above truth being reported in this paper as misplacement of trust and being fooled. Just my view as a concern citizen 

       

         

  14. well..I think the point here is who is approving it. The cabinet is liable on their part in approving the new dam relocation without a thorough field assessment. They need not have to come out in the field themselves, but let experts work on it and listen to them.
    The other most worrying issue is about the new hydropower plants in the pipeline and the  Mangdechu project. i think there is something really going wrong. While I except that the primary field investigation are not rocket science, it is equally unjustifiable for projects to shoot up close to 300 %. Is there any sign of corruptions breeding in such venture!! I am not blaming anyone but the only possibility could result from corruption. 

  15. This sky-rocketing cost will be carried-forward to our kids who will pay the cost increase through tax increases and fees. Therefore, it is unfair to let off the decision makers who had agreed with the proposal to relocate the Dam. They should be implicated for future records and references for their lack of brains and accepting salaries and parks from the tax payers without any hesitation. This is gross misuse of agreed responsibility and should be held accountable. They need to buy additional brains from ebay or amazon if their current brains are below par- which seems to be case now.
    No wonder, when people in other countries have not only achieved earthily comforts, they have conquered space beyond earth compounding their benefits of their lives on earth, while in Bhutan, our policies that are made by decision makers who claim cow-dung brilliance, cannot even clean the clogged drains in the streets.
    So there is a real need to buy additional brains through ebay or amazon to avoid making similar mistakes from now on and to avoid making Bhutan remain in poverty due to massive cow-dung brains.

  16. Such mistakes are bound to happen, and many more will happen so long as we choose to have leaders who think they are always right. Look at some people in high post. They think and act as if they know everything. A plain arts graduate pretends to know about engineering, geology, crop science, animal science, and ecology. Consultation with the experts and specialists is minimum. Most specialists are without job responsibilities and their specialties and experts are untapped, because they are poorly consulted and shoveled into a corner with dim light.

  17. I think Phuntsho Norbu himself is a geologist. He should have known better. Also Khazanchi and his gang of chamchas have enjoyed enough – it is time to throw these people out and infuse the projects with new people with new ideas. If anybody dares to dig deep into these projects, I am sure it will unearth a lot of corruption.

  18. The buck stops with the Cabinet. The technical people and the consultants and the contractors are there to submit the facts and influence the decision-making process but they don’t have the responsibility of serving, above all else, the long-term interest of the people and the nation.  That’s why we, the people must choose our leaders wisely.  And once we have chosen them, keep them responsible and accountable.  
    Given the very valid point’s raised on the manner in which these huge projects are implemented – with little control on our part on the escalation of costs and most of the money ending up in the wrong pockets – as well as the unpredictable future of drying rivers, melting glaciers and so on, we should really revisit the decision to accelerate the hydro power projects.  Like so many of the grand schemes of this government, it may really land our future generations in deep excrement.  We are a tiny, vulnerable country.  We should stop behaving like we are huge, powerful and indestructible…only a couple of our leaders and their followers think like this…by the time enough people realize that we cannot afford leaders like that, it may be too late.  The biggest tragedy is that such people really believe their own delusions.  In their own hearts, they are sincere.  That’s why they are so convincing.  That’s why they are so dangerous for us.

  19. All the people taking the cabinet to task must be the same people who criticized the RGOB for hiring Mckinsey.

  20. Bhutan is now poorer by some Nu 60b! Another bomb…. We genuinely need change for a better Bhutan. Let the oldies go into retreat for good!

  21. This paper seems to get all the important Govt. issues somehow. Hope we are not heading somewhere. Divulging of important policies!

  22. Guys, you should see the logic. More digging means more bucks from the hire of excavators that most of them own and are employed at the project site.

  23. I cannot believe everything as mentioned in this paper because there have always been some mistakes in its reports. So, let’s wait and see if this is really true.

  24. REJOINDER OF PUNATSANGCHHU-I HYDROELECTRIC PROJECT MANAGEMENT on the articles published in ‘The Bhutanese’ Newspaper on 17.04.2013 (Wednesday) titled “Flawed Cabinet decision on dam relocation helps push Punatsangchu I cost to a record Nu 94 bn” and “Punatsangchu I cost escalation and questionable decision making” 

    The following clarifications are for all the citizens of the country who are the owners and will be the beneficiaries of the 1200 MW Punatsangchhu-I Hydroelectric Project, well wishers, the Governments of Bhutan and India and their agencies involved in the implementation of the mega India-Bhutan bilateral Projects. Both the articles published by ‘The Bhutanese’ under the above-mentioned headlines grossly misinform and mislead all the readers and create unnecessary doubts in their minds. 

    The biased and wrong reporting of ‘The Bhutanese’ goes against one of the major national interests for the wellbeing of our future generations, which is the Hydro Power Development (an abundant natural resource).

    We would like to reiterate and again with pain clarify to all the readers as follows:

    1) The Cabinet decision for the dam relocation was based on the best available alternative and the most economically beneficial site location in a stretch of about 6 km of the river course. Therefore, the decision of the Cabinet was flawless. The detailed investigations on the revised location were carried out before starting the bidding process for award of the dam under the close supervision of the best of Experts available in hydropower development through WAPCOS Limited, the Consultant and premier agencies of Government of India such as Central Water Commission, Geological Survey of India, etc. and the depth of dam foundation was found comparable, if not better, than at the DPR location. The relocation of the dam was adopted by the Punatsangchhu-I Hydroelectric Project Authority in keeping with the findings and recommendations of the same expert agencies who had framed the DPR.

    Therefore, the statement made by ‘The Bhutanese’ that technical experts were not consulted is again not correct and has been/is misleading. 

    2) Furthermore, we would like to provide the correct information to the people that the dam relocation has not per se resulted in any additional costs to the Punatsangchhu-I Project, while this change enabled the upgradation of the Power Station’s capacity from 1095 MW to 1200 MW. At the DPR location, the proposed dam had a total height of 137m (73m below riverbed level and 64m above riverbed level) and a dam-top length of 281.5m whereas at the present and revised location, the dam will have a total height of 130m (73m below riverbed level and 57m above riverbed level) and a dam-top length of 239m. Hence, it is obvious that the cost of the dam at the new location has to be in fact lower than the one at the DPR location. However, the relocation at 1.4km upstream has resulted in significant increase in the capacity of the Power Station i.e. by 105 MW just by the addition of 1.4km of Headrace Tunnel, 45m of steel lined Pressure Shafts and the increase in Unit Rating from 182.5 MW to 200 MW, etc. 

    The additional capacity of 105 MW will generate 50 million units annually throughout the life of the Project which will translate to additional annual revenue generation of about Nu. 1750 million. The additional work for 105 MW capacity addition will be achieved at half the per MW price of the rest 1095 MW as had been originally envisaged.

    3) The dam construction was awarded to M/s Larsen & Toubro Limited, India in March 2009 after establishing the revised foundation depth at 70m plus below the riverbed at a price of Nu. 12.45 billion at December 2008 Price Level. However, while the agency was still mobilizing the resources for the work, Punatsangchhu recorded the most unprecedented flood of about 2500 cumecs during May 2009 (Cyclone “Aila”). It is to highlight that the work awarded included excavation of foundation to 70m plus and not 30m as grossly misreported and totally out of context by ‘The Bhutanese’. The entire River Diversion Scheme for construction of the dam had to be changed appreciably. 

    4) On the Cost-to-Completion Estimate of Nu. 94.00 billion for 1200 MW capacity, it is to clarify that the same cannot be compared directly with the DPR sanctioned cost of Nu. 35.14 billion for 1095 MW capacity as the cost is based on December 2006 Price Level, without accounting for the increase in capacity, the major River Diversion Arrangements, the geological surprises and price escalation from December 2006 to December 2016. The completion cost of US$ 1.4 million per MW estimated for Punatsangchhu-I Hydroelectric Project is one of the best prices for hydropower development of such magnitude and complexity even when compared globally today, not to speak of the cost in 2016 i.e. 4 years later. 

    An amount of Nu. 41,250 million was invested for construction of 1020 MW Tala Project over a period of 8 years between 1998-2006. The completion cost of the Project was slightly above Nu. 40.00 million per MW.  In case, Tala Project was to be constructed during 2008-2016, all yearly investments made for its construction would attract price escalation of 10 years. As per the availability of price indices applicable to Hydropower Construction Industry for a period of ten years between 2001-2011 the price escalation for each year of investment would be 98% on an average. Thus the cost of Tala Project if it had to be constructed between 2008-2016 would be Nu. 81,765 million i.e. @ Nu. 80.00 million per MW.
     
    Incidentally the Punatsangchhu-I Project like Tala is also scheduled to be completed in a time frame of 8 years with investment spreading over 2008-2016 duration. The time lag of investment in the two Projects is 10 years and, therefore, the estimated completion cost of 1200 MW Punatsangchhu-I would be Nu. 96.00 billion (1200MW x Nu. 80.00 million).  The Cost-to-Completion of Punatsangchhu-I Project at Nu. 94.00 billion is  more attractive than that of Tala, in spite of the disadvantage of its location (compared to Tala Project)  as it is around 200km farther from the main supply sources  of  materials and machinery and has transmission lines 3 times longer than that of Tala. 

    Unfortunately, ‘The Bhutanese’ has quoted some escalation factors which are not relevant to the Hydropower Construction Industry. ‘The Bhutanese’ has not been faithful in reporting what was informed in an interview given by the Managing Director, PHPA on 16 April 2013. The paper has also refused to accept that the Cost-to-Completion of the dam at the present location is not going to be more than what it would cost at the DPR location. It has to be understood that the cost of dam though highest when compared to other components of the Project is certainly lower, though marginally, than what it would have been at the location indicated in the DPR.

    In keeping with the agreement between the two Governments of India and Bhutan, the tariff would be calculated and fixed on completion of the Project based on the cost of the Project, its financing cost, O&M charges, depreciation applicable to similar Projects and prevalent market conditions, and to be reviewed at the end of every three years. As such, a fair and reasonable tariff would be provided, which would ensure reasonable return on investment after payment of loan installments (to be liquidated in 12 years). Whereas ‘The Bhutanese’ has highlighted that the annual loan installment would be Nu. 10.00 billion, it has assumed an absurd tariff and wrongly reported an annual profit of mere Nu. 100.00 million for the Royal Government of Bhutan. ‘The Bhutanese’ has again wrongly and irresponsibly reported that Nu. 100.00 million will be the estimated net revenue when the information that Nu. 9.00 billion will be the net revenue was provided by the Managing Director, PHPA during the interview with Mr Tenzing Lamsang, Editor in Chief  of ‘The Bhutanese’ on 16 April 2013. 

    ‘The Bhutanese’ is, therefore, requested to refrain from this sort of unethical and untrue reporting as they lead to misconceptions and false alarm amongst the people of the country.

    Editors Note:  Most of the clarification provided above has already been mentioned as part of the original story and is being re-repeated here in some cases by taking and shaping it out of context. The article never said that technical experts were not consulted instead it said that more experts were not consulted resulting in the cabinet approving a 30 meter depth dam that turned out to be a 74 meter one. The Bhutanese has ‘not refused’ to accepted any cost completion arguments but has instead extensively quoted the PHPA MD on his version. The expected tariff rate of Nu 3.40 (not finalized) as mentioned by the PHPA MD was reported faithfully. The paper only said that if P 1 got Tala’s current tariff rate then it would only generate Nu 100 mn in profit. 

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