Indian officials offer JV and credit route for Sunkosh & Kuri Gongri but Bhutan keen on original agreement

cmyk-sankoshIn December 2015 Bhutan got an important visit in the form of the Joint Secretary North of the Ministry of External Affairs who came with some proposals and ideas on implementing the 2,560 MW Sunkosh and the 2,640 MW Kuri Gongri projects.

He first said what was well known by then, that the Government of India (GoI) will not be able to consider the entire financing of Sunkosh and Kuri Gongri given the size of the investments required. Initial estimates showed that Sunkosh would require above Nu 200 bn while Kuri Gongri would require above Nu 150 bn.

He then said laid out some other options of which one was going the Joint Venture route whereby an Indian public company shares 50 percent ownership of the project for 30 years and another option was credit financing from India’s Export Import (EXIM) Bank which offers concessional interest rates.

A few months later in April 2016 a similar idea based on the Joint Secretary North’s was sounded out again this time by the Joint Secretary Hydro Archana Agarwal of the Ministry of Power. She also said that the estimated cost for the hydropower projects are enormous and GoI is not in a position to inject the amount which is why other options like Joint Venture and etc were suggested.

This is important because the above two Joint Secretaries are two of the three Indian representatives on the Empowered Joint Group that oversees the 10,000 MW by 2020 project. Bhutan has four representatives on the Group with the Minister for Economic Affairs as the Chairman.

The Bhutanese side, both officially and unofficially have clearly stated that both the governments have already identified Sunkosh and Kuri Gongri as Inter Governmental  (IG)mode projects and not JV projects.

The Minister for Economic Affairs Lyonpo Leki Dorji while declining to comment on the above discussions said as per the Protocol to the 2006 agreement signed between the GoI and the Royal Government of Bhutan on Hydropower cooperation, both Sunkosh and Kuri Gongri are IG projects.

However, unofficially the MoEA Secretary in closed door discussions has said it would be open to discussing the EXIM bank credit line at concessional interest rates option as long as it is an IG project where the full ownership of the projects are with Bhutan.

A government official close to the developments said that even the EXIM bank idea discussion is being discussed only as an option as the official stand is that both projects are IG projects with grant and loan components.

A hydropower expert, however, said that EXIM bank will not be big enough to fund Sunkosh and Kuri Gongri and so for any such funding it would have to be a consortium of Financial Institutions in India.

For Bhutan apart from the bad news on not enough funds from India for the two mega projects there are, however, two positive developments.

The completed Detailed Project Report (DPR) of Sunkosh is in the final stages of techno-economic evaluation by the Central Electricity Authority (CEA) with it expected to be complete by 9th or 10th September 2016. Once it is done from there it will go to India’s Ministry of Power which will then push for its implementation with the GoI.

It has been learnt that the Indian Power Secretary P.K Pujari earlier this year assured Bhutanese officials that once the Sunkosh DPR gets the clearance from CEA then various options of implementation including various financing schemes could be discussed. The secretary had assured of GoI’s commitment to implement the project which forms a large chunk of the 10,000 MW commitment.

Another encouraging development is that the DPR of the Sunkosh project which was halted in September 2014 has now been given the green signal with the recent release of Nu 120 mn in funds from India. The total DPR is expected to cost Nu 400 mn. Works are expected to start soon.

The signal to go ahead with the DPR on Kuri Gongri is important because in September 2014 when the DPR work was stopped the GoI at the time had conveyed its inability to commit anything regarding the next steps of implementation of the two IG projects though GoI’s commitment to the 10,000 MW was still there.

It has been learnt that the new lease of life to both the stalled projects has been due to hectic and constant follow up by the Bhutan government and its officials. However, major challenges remain in terms of ensuring that the two projects can get funding and take off.

Both the mega projects are very important for Bhutan as they are reservoir projects which can store large amounts of water that can be used to generate the more valued peaking power at certain points of the day and also save water for the dry winter months.

Sunkosh will generate 5,900 million units a year which when calculated at a very conservative Nu 2 per unit will give Nu 10.8 bn in revenue. Kuri Gongri though almost the same project size will generate more than 10,000 plus million units a year giving potential revenue of more than Nu 20 bn a year. Both of these projects would go a long way in not only achieving 10,000 MW but playing a major role in Bhutan achieving economic self-sufficiency.

Background

In 2008 when the Indian Prime Minister Manmohan Singh made a historic visit to Bhutan a historic announcement was also made on 10,000 MW by 2020.

In a follow up to that a Protocol to the 2006 Hydropower Cooperation agreement was signed in March 2009 between the two countries where 10,000 MW by 2020 was agreed to by both countries.

As per that agreement in March 2009 the first Empowered Joint Group consisting of high level members of both countries identified 10 specific projects of which six was listed as Inter-Governmental where Bhutan has full ownership and four was on the Joint Venture mode where an Indian public company shares 50 percent ownership for 30 years.

The Sunkosh and Kuri Gongri projects were the two biggest IG projects and currently two of them constitute more than half of the 10,000 MW commitment. IG projects in addition to ensuring full ownership would get 30 percent grants and a 70 percent loan from India.

Bhutan had agreed to the four JVs as it was part of a larger 10,000 MW deal where there were six IG projects.

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