In what could be an important development for Bhutan’s hydropower sector, the Indian government has set up a special taskforce committee headed by the Power Secretary of India to address Bhutan’s concerns over its Cross Border Trade in Electricity guidelines (CBTE).
The committee was set up on 29th December 2017 and is expected to present its report and recommendations by the end of February 2018.
This is significant as the CBTE issued by India on 5th December 2016 was meant to govern cross border electricity trade between India and all its neighbors.
However, Bhutan objected to certain provisions of the CBTE as it felt was not in the interest of its hydropower sector and even declined to sign the final Concession Agreement of the 600 MW Kholongchu project.
Provisions of the CBTE, was seen to not be in Bhutan’s interests as it put Bhutan at a disadvantage in setting future tariff rates beyond the current government to government formula, denied Bhutan access to India’s primary power market where tariff rates are more competitive and restricted the type of hydropower investments that could be made in Bhutan. CBTE even asked that any power trading company exporting power to India from another country would be required to have 51 percent Indian ownership.
Though senior Indian officials including the Central Electricity Authority (CEA) said exceptions would be made for Bhutan, this was not seen as satisfactory, as Bhutan wanted the rules to be clear in black and white instead of there being any verbal exceptions.
Bhutan communicated its concerns at various level over the past one year. Even when the Indian Foreign Secretary came visiting in October in 2017 the CBTE issue was raised by the government with him as a key stumbling block.
The committee headed by the power secretary has two more members from the power ministry and representation from the Ministry of External Affairs, the Power Grid Corporation of India Limited (PGCIL) which is an Indian power distribution PSU and the CEA which is the main electricity regulator of India.
It has been learnt that the committee will aim to address all or most of the concerns raised by Bhutan. The committee had its first meeting in the first week of January 2018.
The presence of the PGCIL may also help to sort out issues that have to do on transmission rules in CBTE and its potential impact on the trilateral hydropower cooperation between Bhutan, India and Bangladesh.
An Indian source familiar with the issue said that the MEA has been pushing to address Bhutan’s concerns which led to this committee.
One main issue pointed out by Bhutan is that CBTE guidelines restricts Bhutan’s access to the Indian Power Exchange as Bhutan cannot get access to the prime ‘day ahead’ market where power bidders bid competitively for energy rates. Instead Bhutan was given to access to only ‘term ahead’ contracts and contingency contracts which come in only later when there is no competitive bidding.
Bhutan pointed out that this CBTE stipulation also violated the Inter Government Agreement (IGA) between Bhutan and India on Joint Venture projects which says 30 percent of the power can be sold through the market mechanism.
Another issue raised by Bhutan is that the CBTE says that power by India can be bought only from a power trading company in another country that has more than 51 percent Indian ownership.
This would put an end to the government owned Druk Holding and Investments’ (DHI) plans announced in 2016 of exploring the possibility of setting up of a Bhutanese power trading company that takes power from projects in Bhutan and trades it in India. The aim was that it could lead to better prices in the long run with more bargaining power by exploring the Indian market.
Bhutan also requested for the removal of a particular provision in the CBTE which says, “The regulations so framed by the CERC shall be binding on all the participating entities.
Bhutan pointed out that since India, Bangladesh and Bhutan are discussing the development of hydropower projects under trilateral cooperation mode but since CBTE is for bilateral electricity trade, a separate framework is needed for the three countries.
This is because as per CBTE the transmission of electricity through Indian territory would be governed by CBTE even for such trilateral projects.
Bhutan pointed out that in the introduction of CBTE a clause refers to the spirit of the SAARC Framework Agreement for Energy Cooperation and also a need to frame guidelines on cross border trade with neighboring countries by India. Bhutan pointed out that the CBTE appears to cover only India’s bilateral electricity trade.
Bhutan has also asked for a clarification on the CBTE clause which says that Indian entities can import power from projects confined to RGoB and GoI owned, funded or controlled projects and also private companies that have 51 percent Indian ownership. Bhutan has asked what constitutes government owned or controlled as it could have implications on JV and other projects by Bhutan.
Though the India side stated that ownership by the government is as per the laws of that country, Bhutan is concerned that this clause could restrict the hydro investment model in Bhutan. An example, is if the Bangladesh government or a foreign financial institution wanted to invest in Bhutan’s hydropower sector.
Bhutan is also concerned with other issues in the CBTE. One is that the CBTE says that the government to government negotiations on tariff will be adopted for perpetuity leaving out the scope for market mechanisms.
Another issue is that the CBTE says that instead of power suppliers from outside India (like Bhutan) asking for bids they have to put in their bids when Indian entities want the power.
For Bhutan this means instead of inviting bids from the Indian power market to get the highest price projects, it would have to give its lowest bid while competing with other power suppliers within India and the region. This would mean bottom rates for such projects.