Lyonchhen with PM Narendra Modi & Lyonchhen with the Indian President

Lyonchhen gets commitments from India for 12th plan funds, fair Mangdechu tariff rate and implementation of mega power projects

Lyonchhen Dasho Tshering Tobgay is on an official visit to India from 5th to 7th July 2018 at the invitation of the Indian Prime Minister Narendra Modi.

Among a host of bilateral issues, the three top issues from Bhutan’s side was seeking a broad Indian commitment for the 12th plan, implementation of 2,585 MW Sunkosh and the tariff rate for the 720 MW Mangdechu project.

Lyonchhen met the Indian Prime Minister on 6th July and said that he held a wide range of bilateral discussions on mutual cooperation with the Indian PM.

Lyonchhen said they held discussions on taking India-Bhutan relations to new heights during the 50th anniversary celebrations on the establishment of formal diplomatic relations between the two countries.

On the 6th of July evening Lyonchhen met the President of India, Ram Nath Kovind.

In the morning, of 6th July Lyonchhen was also called on by Raj Kumar Singh, Minister of State for Power and New and Renewable Energy. Lyonchhen on his twitter account wrote that they talked about bilateral cooperation in hydropower in Bhutan.

“In particular, we talked about the soon-to-be completed 720 MW Mangdechu project and the agreement on the 2,585 MW Sunkosh project,” tweeted the PM.

It is significant that after the meeting with the Indian Prime Minister and Power Minister Lyonchhen also tweeted saying, “Hydropower is not just the cornerstone of the economic cooperation between India and Bhutan; it is the very foundation of our strong bonds of friendship.”

12th plan commitment

“The government of India reiterated its commitment to Bhutan’s socio-economic development and assured full support for Bhutan’s 12th Five Year Plan, which will commence later this year,” said a release by Bhutan’s Foreign Ministry.

It has been learnt that Bhutan will be seeking the same amount of commitment for the 12th plan that India gave in the 11th plan.

India contributed Nu 45 bn in grant in the 11th plan. India also gave a separate Nu 5 bn Economic Stimulus Plan package.

This is aimed at strengthening Bhutan’s long stated goal of self sufficiency, and would mark the first time since the start of planned development in 1961 that Bhutan is not seeking an increase in the grant amount.

The current government has come up with a draft 12th plan of Nu 336 bn and is seeking funding assurances from various donors for the grant components, so that it becomes easier for the next government to get funds after the polls.

“The Royal Government expressed deep appreciation for the generous support received from the government of India which greatly contributed to the successful implementation of the 11th Five Year Plan and for its assurance of continued support to the 12th Five Year Plan for promoting socio-economic development in Bhutan,” said the release.

Lyonchhen did the same during his visits to Japan and the European Union. According to sources, both Japan and EU appreciated such a first ever gesture from the Bhutanese Prime Minister and offered in principal commitments for the 12th plan too.

The 12th plan commitment explains the presence of the Finance Minister Lyonpo Namgay Dorji, Finance Secretary Nim Dorji and the Gross National Happiness Commission Secretary Thinley Namgyel in the delegation.

720 MW Mangdechu tariff rate

The other two major areas are related to hydropower, reflected in the presence of the Secretary of Ministry of Economic Affairs Dasho Yeshi Wangdi and the Druk Green Power Corporation MD Dasho Chhewang Rinzin.

A big hydro issue is with the tariff rate of the 720 MW Mangdechu project which is expected to be commissioned by November 2018.

The Ministry of Foreign Affairs release said, “The government of India provided full assurance that the tariff for the Mangdechu hydropower Project will be finalized to the mutual satisfaction of both sides prior to its inauguration as part of the 50th anniversary celebrations of diplomatic relations.”

The above assurance is important; as in the three meetings held so far between the officials of the two countries to discuss the tariff rate -there has been a wide difference between the two sides.

Bhutan wants to go by the traditional cost plus model along with the return on equity as per the Mangdechu project agreement. This formula was followed in the 1020 MW Tala project too and is considered the template.

Using this formula Bhutan is eligible to a certain higher tariff rate as cost of financing is a major cost component of calculating the tariff rate. The Mangdechu project is 70 percent loan unlike the 40 percent loan Tala project.

The Indian officials were not agreeing too this old system of calculation used in Tala as it means a higher tariff rate for Bhutan.

In an attempt to bring the tariff rates down the Indian side, for the first time, were questioning the 15 percent royalty or free power to be given from the project to the Bhutanese government. The government uses this royalty power to subsidize our power bills every month.

The Indian side was also attempting to restrict the return on equity.

Bhutan has given India the other option of lowering the loan burden by either lowering the loan interest rate or extending the loan repayment period so that a large chunk of the hydro income does not have to go into annual loan repayments. This would essentially mean more revenue for Bhutan.

In the Tala project too, both Bhutanese and Indian officials could not agree to the tariff rate. In the end it was a political decision left to the leadership of both countries who agreed to a rate higher than what the Indian bureaucrats offered but lower than what Bhutanese officials demanded.

With a stalemate in the 720 MW Mangdechu project and major differences; the ultimate tariff rate would come down to a political decision by the leadership of both countries.

2,585 MW Sunkosh

Lyonchhen followed up on the Indian’s commitments to the 2585 MW Sunkosh project. The project was originally put in the deep freezer when the visiting Indian President in November 2014 did not mention Sunkosh in the list of projects.

The foreign ministry press release said, “Discussions were also held on cooperation in new hydropower projects in Bhutan. The two sides recognised the importance of continued hydropower cooperation between India and Bhutan for mutual benefit and expressed satisfaction on the ongoing hydropower projects.”

It was understood that India had financing concerns over the reservoir mega project right from 2009 onwards but could only articulate it officially in 2014. An idea of a joint venture or 50 percent of Indian ownership of the project was mooted as a possible idea.

The Bhutanese government engaged in hectic behind the scenes diplomacy since 2014 and managed to get India to agree to an Inter Governmental project on Sunkosh owned by Bhutan.

The issue now is the funding modality as India has suggested approaching international banks to finance the project as one option. Another suggestion is that an Indian company be given the full right to design and construct the project and then hand it over to Bhutan.

On the funding aspect Bhutan regardless of the source of the funds wants India to give the sovereign guarantee for the 70 percent loans component and then give a separate 30 percent grant component. Bhutan also wants to have management control during construction.

Strengthening ties

During the visit, Dasho Tshering Tobgay called on the Ram Nath Kovind, President of India, and conveyed the warmest greetings of His Majesty The King to the friendly people of India.

Dasho Tshering Tobgay also conveyed the appreciation of the Bhutanese people to the people and government of India for the warm reception accorded to His Majesty The King, Her Majesty The Gyaltsuen and His Royal Highness The Gyalsey during the Royal visit to India last year.

The Royal visit was special as it was the first visit of His Royal Highness The Gyalsey to India.

The Prime Minister of India also hosted a lunch in honour of Dasho Tshering Tobgay at Hyderabad House. Lyonchhen’s program also included meetings with the Ministers for External Affairs, Finance and Railways, Power and the National Security Adviser.

Dasho Tshering Tobgay thanked Prime Minister Narendra Modi for the invitation for an official visit to India and for the warm reception accorded to his delegation and to him

The Prime Ministers of Bhutan and India expressed happiness at the excellent state of bilateral relations that stand out as a model of friendly relations between close neighbours. They held wide-ranging discussions on matters of common interest and renewed their commitment to further strengthen the close ties of friendship and mutually beneficial cooperation.

The leaders expressed satisfaction with the activities of the 50th anniversary celebrations of diplomatic relations that are being held in India and Bhutan. Both sides expressed confidence that these activities would further strengthen the close bonds of friendship and cooperation between the peoples and governments of the two neighbouring countries.

The release said that the people and the Royal Government of Bhutan fondly recall that the first country Prime Minister Narendra Modi visited soon after assuming office was Bhutan, and look forward to receiving him later this year while the two countries are celebrating 50 years of formal diplomatic relations.

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