Lyonchhen Dr Lotay Tshering with Prime Minister Narendra Modi at the Hyderabad House in New Delhi, India

India agrees to Nu 4.12 tariff and Nu 45 bn for 12th plan

A separate Nu 4 bn to tide over the GST transition

The main priority of Lyonchhen (Dr) Lotay Tshering’s Delhi state visit of 27-29 December was in securing a good tariff rate for the upcoming 720 MW Mangdechu project.

It has now emerged that the Indian government has agreed to a Nu 4.12 per unit rate which is higher than the Indian officials’ final offer from their side which was Nu 3.80 per unit but lower than Bhutan’s final expectation of Nu 4.27 per unit.

To reduce Bhutan’s annual loan repayment for the project the Indian side has agreed to extend the loan repayment period beyond 15 years to around 17 years.

The tariff rate will go up 10% every five years during the loan repayment period and it is supposed

to increase five percent every five years once the loan repayment is done.

Efforts are on to extend the 10% tariff increase for two more terms beyond the loan repayment period.

After the third round of tariff meeting in 9th May 2018 India had offered an initial Nu 3.50 per unit and Bhutan asked for Nu 4.90 per unit.

The wide difference was due to the different modalities used by both sides with Bhutan sticking to the traditional cost plus model used in the 1020 MW Tala project. The Indian side wanted to restrict the return on equity of 15 percent and limit the role of the free or royalty power of 15 percent in calculating the tariff rate.

Both sides held seven meetings in total where various combinations and figures were proposed from both sides.

With a stalemate at the Mangdechu tariff negotiation committee level the final decision was expected to be a political one by the political leadership in New Delhi.

It appears that the Indian government followed the 2006 Tala example where Bhutanese and Indian officials could not agree on a tariff rate for Tala. At the time the India government took a political decision and agreed to give a rate higher than what the Indian bureaucrats had calculated but lower than what Bhutan had wanted.

With Mangdechu project expected to generate 3 billion units in a year the Nu 4.12 per unit will mean 12.36 bn in annual revenue of which around half will go to loan repayment.

Apart from the tariff rate the other important agenda was seeking assistance for the 12th plan plan.

In a first move of its kind, Bhutan did not seek more aid in the 12th plan over the 11th plan and asked for the same amount in the 11th plan as part of its national objective of self-sufficiency.

The former PDP government first took this stand while drafting the 12th plan and the new DNT government supported and stood by this stand cutting across two governments.

This means that India will be funding only around 14.5 percent of the Nu 310 bn 12th plan compared to 23 percent of the Nu 217 bn 11th plan.

The delegation from Bhutan also raised the issue of doing away with the Central Goods and Service Tax of India on Bhutan though Bhutan is willing to pay the state level GST.

India’s GST is made up of the central and state level GST taxes. The aim is to ensure that Bhutanese exports do not become too expensive in India as some Bhutanese exports have been hit due to the GST issues.

India could not waive off the CGST for Bhutan but in return it offered Nu 4 bn over a period of five years to help Bhutan.

The Indian side explained that they themselves are going through a transistion in terms of GST.

The PDP government had taken Nu 5 bn in ESP support from India.

Lyonchhen raised the construction of the 2560 MW Sunkosh project where in principal assurances have been given in the past but there has been no final green signal on starting the project or agreeing to the financing and implementation modality.

There is no clarity if any concrete assurances have been given on Sunkosh.

One handicap was that the original visit was meant to be a working visit where technical issues were to be discussed in detail. However, that changed when the visit was converted to a state visit where there is much more pomp and ceremony with more meetings and so some of the issues could not be discussed in detail.

A joint release said that recognizing the importance of further expanding economic co-operation, the two Prime Ministers reviewed the implementation of ongoing bilateral hydro-power projects in Bhutan, and agreed to expedite their implementation. They reiterated their commitment to jointly develop 10,000 MWs of hydropower generating capacity in Bhutan and in this regard discussed the Sunkosh Hydropower Project.

The release said that the two Prime Ministers acknowledged the contribution of commemorative events organized in the Golden Jubilee year to strengthen the close bonds of friendship and understanding between the Governments of peoples of the two countries. In this regard, they recalled the vision and guidance of the Druk Gyalpos’ of Bhutan and successive political leadership in India and Bhutan in nurturing and enhancing close ties of friendship and cooperation between the two countries.

According to the release, Prime Minister Modi stated that in line with Government of India’s ‘Neighborhood First’ policy, India is firmly committed to partner Bhutan in its quest for development and economic prosperity based on the priorities of the people and the Royal Government of Bhutan.

Prime Minister Dr. Lotay Tshering thanked Prime Minister Shri Modi for the invitation to visit India and for the warm reception accorded to him and his delegation. He recalled the unique and historical ties of friendship and understanding that exist between the two countries and that he looked forward to working with the Government of India to further strengthen bilateral ties.

Lyonchhen called on the President of India, Shri Ram Nath Kovind. On Friday he called on the Vice-President of India, Venkaiah Naidu. He held delegation level talks with Prime Minister Narendra Modi, who also hosted a banquet lunch in honor of the visiting dignitary. The External Affairs Minister Sushma Swaraj, Finance Minister Arun Jaitley, Minister for Commerce and Industries Suresh Prabhu, Minister of State (Independent Charge) for Power, New and Renewable Energy, Raj Kumar Singh and the National Security Adviser Ajit Kumar Doval called on PM Dr. Lotay Tshering.

The release said the two Prime Ministers held detailed discussion on a wide range of bilateral and regional issues of mutual interest. They expressed satisfaction at the excellent state of bilateral ties of friendship and cooperation, which are marked by utmost trust, mutual understanding, goodwill, respect for each other’s interests, and reinforced by robust people to people linkages and close economic and development partnership.

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