Kholongchu held up over Bhutan’s 20% role in construction of Dam and Power house

After crossing several hurdles, the 600 MW Kholongchu had started the process of tendering, but here again disagreements with the Joint Venture partner partner Satluj Jal Vidyut Nigam (SJVN) has held up the project.

An official in the know said that it had been agreed that 20 percent of the construction works would be done by the Bhutanese side to build long term capacity.

The tendering of the Head Race Tunnel went along smoothly as the Construction Development Corporation Limited (CDCL) got 20 percent of the works.

However, when it came to the larger packages of the dam and powerhouse SJVN did not want to give the 20 percent work directly to the Bhutanese side but they wanted to give it fully to an Indian contractor with the Bhutanese side only acting as a sub contractor.

The SJVN side said that the contract documents had already been made and so if Bhutanese side is to be given 20 percent of the works directly then it would mean redrawing those documents.

The Bhutanese side represented by the Druk Green Power Corporation (DGPC) did not agree to this as being sub contractor would impact Bhutan’s capacity development.

While this is the main issue another issue cropping up is the financing of the project. While 30 percent equity has been provided by the Indian government it is the SJVN’s responsibility to get the 70 percent loan for the project.

The concern on the Bhutanese side is the cost of these loans, and its source and so more clarity is awaited.

A key reason why these above issues cannot be resolved is that the board has 50 percent equal voting powers on both the Bhutanese and Indian side and the Chairman from Bhutan has no voting powers.

The Ministry of Economic Affairs has already written to the project saying that such a management structure is not in line with the Companies Act in Bhutan.

A Bhutanese official said the issues right now are mainly at the management level. The management is dominated mainly by the SJVN.

In the visit of the MoEA Minister Lyonpo Loknath Sharma to Delhi last year he raised the issue of the delays in the Kholongchu project with the Power Minister of India.

The Joint Secretary Hydro and Joint Secretary North were also in the meeting.

Both sides are to meet and work together to come up with a solution.

Background

Kholongchu was first listed as one of the four joint venture projects in the 10,000 MW by 2020 list in 2008.

From 2008 onwards Bhutan and India negotiated to come up with a JV agreement which was finally done in April 2014.

The project’s foundation stone was first laid by Prime Minister Narendra Modi when he undertook his first foreign diplomatic visit to Bhutan in June 16, 2014.

September 2015 saw the start of the pre-construction works like the access road and other building infrastructure which by today have come close to Nu 3 bn.

However, early on problems developed as DGPC’s JV partner Satluj Jal Vidyut Nigam (SJVN) an Indian PSU started imposing several demands that went well beyond the Inter-Governmental Agreement for the Joint Venture Projects.

Bhutanese officials at the time requested the support of GoI to resolve the issues first only after which it can sign the CA.

Just when these issues were resolved the end of 2016 saw the CBTE guideline from India that restricted the sale of Bhutanese power in India’s prime market and this impacted Kholongchu which as per the JV agreement had to sell 30 percent of its power in precisely this commercial market.

After much discussions a new CBTE guideline’ was issued by the end of 2018 which addressed Bhutan’s concerns and so Bhutan would be able to trade this 30 percent power in India energy exchange.

Another hurdle after this was on selling the 70 percent of the power which was resolved after it was agreed that the 70 percent of the power will be sold based on the inter-governmental model.

The Concession Agreement was signed on 29th June 2020 between the Ministry of Economic Affairs (MoEA) representing the Royal Government of Bhutan and the Kholongchu Hydro Energy Limited (KHEL) in the virtual presence of dignitaries of both countries.

It was expected that the project would now finally take off before this latest issue cropped up.

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