Desilting Chamber of PHPA-1

Hydro Committee calls for better standards and more Bhutanese participation

The Hydropower Committee has identified a slew of technical issues that affect the quality and implementation of hydro power projects.

The committee has also called for more Bhutanese participation in the management and construction of these projects to allow for better accountability and capacity building.

The Hydropower Committee was constituted in 15 May 2017 by the former Cabinet to come with a clear, robust and consistent strategy for hydropower development in Bhutan.

The Chairperson of the committee is the DHI CEO Dasho Karma Yezer Raydi and its members are DGPC MD Dasho Chhewang Rinzin, MoEA Secretary Dasho Yeshi Wangdi, GNHC Secretary Thinley Namgyel and Karma Yonten the head of the Office of Performance Management in His Majesty’s Secretariat.

The report is currently in the cabinet and is expected to be taken up for consideration.

Titled, ‘Hydropower Development Strategy Report,’ it says that a lot of lessons have been learned in the last four decades and also pitfalls to be avoided.

Project planning and investigation

Calling for better hydrological data from river basins that would lead to more effective study, planning and optimization of hydropower projects, the report says, “Not only does Bhutan not have hydrological database of any significant number of years, there are also discontinuities and erroneous data.”

The viability of investments in hydropower will depend on such data.

It says that investments should continue to be made in the establishment of river measurement stations in all river basins of Bhutan.

The report calls for more meteorological data stations and capacity in weather and river forecasts.

Such forecasts would also help farmers and disaster management too.

It points out that irrespective of the source of the funding, project investigations are almost exclusively carried out by external agencies with the role of the Bhutanese limited to coordination and liaison.

“Shortfalls in commitment and due diligence, inadequate time and efforts, and sometimes funding issues have significantly impacted the quality of project investigations that have eventually resulted in “geological” surprises, and time and cost overruns during implementation,” says the report.

It recommends that clear guidelines are required for carrying out project investigations in keeping with best international practices while taking into consideration the specific requirements of Bhutan. It calls for a designated Bhutanese counterpart to take on the lead role to build Bhutanese capacity and ensure ownership and accountability instead of a multitude of agencies.

The report says there are too many agencies, both external and internal, in project investigations leading to sub-optimal utilization of time and resources, and undermining the efforts for local competency building.

It says that clear delineation of roles, responsibilities and guidelines for every agency involved in projects investigations would ensure credibility and accountability of project investigation reports, and ensure that capacity is built within the designated organization.

Project management

With projects being delayed and facing huge cost overruns, the report says there is a need for expert committees that are duly empowered to interact with project managements and act on any or all technical matters on behalf of the governing bodies in bilateral projects.

It says the practice of appointing management teams by respective governments could be done away with and instead the governing bodies should agree to select and appoint professional management teams based on competencies and whose retention should be based on performance.

It also says management of projects should ensure the building of Bhutanese capacity.

The recommendation is that project governance bodies and the management teams should be professional, dynamic and transparent, and supported by competent technical expert committees.

The report calls for competitive selection processes in the selection and appointment of project employees, while there should be, preference should be given to Bhutanese and to building local capacity. It also says that far as possible, remuneration should be based on ‘equal pay for equal work’.

Project Financing

A separation of consultants between project investigations and actual project implementation is recommended, as it says the practice of retaining the same consulting firm that prepared the DPR for the implementation of the project compromises the possibilities for changes and innovations through optimization and adoption of better technologies.

This, the report says, could also be extended to financing of DPRs and construction as there generally appears to be a conflict of interest when financing for DPRs are tied to project financing as DPRs could be compromised in trying to keep project costs low.

It points out that DPRs should consider as to how the future energy markets might evolve. “Giving priority to the traditional run of river schemes while the future trends are for reservoirs and pumped storage schemes could be costly,” says the report.

“With Bhutan bearing greater risks and liabilities, Bhutanese need to have a much bigger role in the management of the projects,” says the report.

Bilateral debt equity financing by India, the report says, has evolved with the grant component reducing from 60% for the Chhukha project to the present 15% for the JV projects. It says the interest component on the loans have also increased from 5% for Chhukha to 10% for the ongoing IG projects and that debt financing for the JV projects will be on commercial terms.

With increased Bhutanese stakein the GOI assisted IG and JV projects, the report calls for more active participation of the Bhutanese from the preparation of DPRs to the approval of DPRs to project financing and management. It says that there are capacities built up with the Bhutanese to take on many of these responsibilities.

It says that, unless otherwise required, the project governance and management should basically comprise of Bhutanese with priority for down the line employment given entirely to Bhutanese unless specific expertise are not available within Bhutan. “Even then, Bhutanese counterparts should be engaged for transfer of expertise at the earliest,” adds the report.

Giving the examples of Dagachu and Nikachu, it says other sources of financing like soft term multilateral, EXIM, bonds and other capital markets are available but competencies need to be built amongst the Bhutanese to deal with such financing options, especially hedging against foreign currency fluctuations and ensuring tariffs are fixed in the same currency.

Alluding to cost issues raised by Indian JV partners on financing of transmission towers within Bhutan it says the n-1 tower as per Bhutanese Grid Code should not be compromised.

It says, “Transmission systems should be designed and built to cater to future growth in energy transfer and expected right of way issues instead of building transmission systems to cater to specific projects for the moment.”

Contracts

The report says that other than the main civil, electro-mechanical and hydro-mechanical works, there are no standards adopted for packaging of contracts.

It says there appears to be no clarity on how the risks are appropriated between the client and the contractors.

In underground works, the entire risks tend to eventually be passed onto the client like in Tala and other ongoing projects adding to the costs of the projects, says the report. The report says that a review of item-rate contracts vis-à-vis Engineering, Procurement and Construction (EPC) contracts would be relevant for every project

The recommendation is in order to get value for money, contracting of all major works should be through competitive bidding.

Other recommendations are that factors such as the capacity of the developer or management, the capabilities of the contractors and suppliers, the role of the consultants, the equitable sharing of risks, and the cost implications to the project should be considered in deciding on the mode of contracting. It says that the mode of contracting adopted should ensure that the risks are with the entity (client or the contractor) that can best handle the risk

With so many projects completed and under construction, the report says that Bhutan, by now, should have acquired “water to wire” capabilities to undertake studies and construct projects but this has not happened.

It says that these days, priority is given to build Bhutanese capacity, but there is reluctance on the part of development partners to accommodate it, notwithstanding that the same partners went through similar routes to build their capacity some decades back.

“Bhutanese entities must be given preference and priority in every aspect of the development of the hydropower sector – from investigations to construction – through appropriate changes in the procurement systems even at the risk of slightly higher costs in the initial stages,” says the report. It points out that DGPC, CDCL and BHSL are already well established and can be expected to further build on their capacities only if works are allocated to them.

On taxes, the report says that GOI financed hydropower projects are exempted of many of the taxes but the same taxes are applicable to projects financed through other funds.

The report recommends that imposition or exemption of taxes on projects should be uniform notwithstanding the mode of financing and implementation.

Project implementation

The report says that based on past experience, changes in design and engineering at the implementation phase of projects are usually required to adapt to the site conditions, and also for improvements and optimizations.

This, the report says, points to the need for design and engineering units for each project that is responsible to review design and drawings submitted by the contractors and consultants.

“The costs of poor quality in the form of remediation works and production loss once the projects are commissioned are very high as experienced with the Tala project,” says the report.

Therefore, it calls for the need to institute proper quality management system in the implementation of project and quality assurance plans and test laboratories with independent quality inspectors.

The report says that as per international practice, the appointment of the DPR consultant as the Owners’ Engineering Consultants (OEC) is considered a conflict of interest. For the GOI assisted projects, WAPCOS and CWC is almost always nominated as the DPR consultant as well as the OEC.

“From the experiences of Tala and now with the Punatsangchu 1 and 2 projects, the OEC has not served the purpose well,” says the report calling for an independent and competent OEC to be selected through competitive bidding.

“Even if on nomination, the capacity of the OEC needs to be properly assessed and strengthened and the owner should be able to engage independent review consultants,” said the report.

Pointing out the labor intensive construction methods in Bhutan’s projects the report recommends mechanized construction technologies to make hydropower construction faster, safer, cheaper and attractive for the Bhutanese environment. This, it says, would also help Bhutan avoid the problems associated with the huge influx of expatriate workers.

“Experience shows that defects and shortcomings in construction and supplies manifest themselves very soon after the expiry of the normal one year guarantee period,” says the report.

It says that the liability of the suppliers and contractors should be for a reasonable period beyond commissioning of projects and there should be provisions to blacklist suppliers and contractors for delays and poor quality of works.

Operation and Maintenance (O&M) & BHEL

The report says that there could still a lot of room for easing the difficulties faced at the O&M stage with bettersupervision during the construction stages and with the adoption of the best technologies.

DGPC, according to the report, inherited numerous teething problems with the civil structures, and equipment on taking over of the Tala project.

“Many of the teething problems could have been avoided with timely interventions when geotechnical problems had cropped up in the power house and with closer supervision of the works, especially for the electro-mechanical (E&M) equipment package under BHEL,” says the report.

It says that all records and information, both technical and contractual, that are vital for reference should be properly documented and handed to the management responsible for O&M.

The report says that with BHEL enjoying a monopoly on all E&M equipment in GOI assisted projects, BHEL continues to impose non-negotiable terms and conditions for supply of spares or services without commitment to quality, time and costs.

It says that while prices have remained high, the quality and level of technology of equipment supplied by BHEL have continued to remain suspect.

“Further, while BHEL has from time to time acquired technologies at the cost of projects in Bhutan, BHEL has not delivered the same quality of those technologies to Bhutan’s projects,” says the report.

It says that while the ‘sensitivities’ of the two governments should be respected, BHEL should be treated like any other supplier. It says this can be possible only through competitive bidding process.

The report recommends that bidding as per international norms should be encouraged instead of encouraging monopolies based on financing-tied sourcing.

Leadership and Competency

Pointing out the importance of hydropower in Bhutan’s socio-economic development aspirations, the report says that as a strategic sector with long term implications on the sovereignty of the country, the resource needs to be in the hands of the Bhutanese.

It says there are a lot more Bhutanese available in almost all fields of the hydropower sector.

“While the GOI assisted projects continue to be dominated by Indians, Bhutanese are managing the construction of projects like Dagachu and Nikachu. The O&M of the existing hydropower plants are fully being manned and managed by Bhutanese nationals,” says the report.

It points out that Bhutan has already made entry into the consultancy and construction aspects of hydropower and plans to expand beyond reclamation to manufacturing of hydro-mechanical equipment.

Pointing out Bhutan’s success in the hydropower sector it says Bhutan has the opportunity to continue to build expertise and gain experience in all aspects of the “water to wire” business of hydropower.

It says that with a strategized approach in building competency and professionalism, Bhutan has the potential to emerge as a leader in hydropower development, that could pave the way for Bhutan to offer hydropower expertise and services beyond its borders in future.

“There is intention to establish a research and development center for hydropower to further build on the competencies,” says the report.

The recommendation is that initiatives in the “water to wire” business will require nurturing and support to keep the whole of the hydropower sector motivated to work for Bhutan’s future.

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