The Bhutanese Leading the way.
18th September 2015 saw some smiling photo opportunities as the Kholongchu Joint Venture project started its pre-construction activities with a loud bang.
However, hidden behind the smiles and handshakes were serious issues between the two JV partners Druk Green Power Corporation (DGPC) and Satluj Jal Vidyut Nigam (SJVN).
The differences were so strong that it even lead to the postponement of board meetings and the non signing of the Concession Agreement which is vital to do the major works like dam, head race tunnel and power house.
The differences are currently in the process of being resolved and it is hoped that an agreement can be reached soon for the project to continue going ahead.
The problem essentially boiled down to the SJVN management at the time not willing to completely adhere to the larger umbrella ‘Inter-Governmental Agreement for the Joint Venture Projects,” signed between India and Bhutan in April 2014. This agreement was the bible for the four JVs agreed to between the two countries.
The issues were pointed out by the Bhutanese side in April 2016 when a GoI delegation led by the Power Secretary P.K Pujari came to Bhutan for discussions on hydropower.
In spite of the JV agreement mentioning a 30 year concession period where SJVN would own 50 percent of the project, SJVN asked for 35 years.
There were bigger problems in management as the SJVN was not agreeing to place the DGPC nominated Bhutanese Joint Managing Director (JMD) as second in command in the project whereby Director Technical and Director Finance have to report to the Managing Director through the JMD.
This was not in keeping with the Inter Governmental agreement and also the Shareholders Agreement between the two countries.
SJVN instead proposed to sideline the JMD by equating the post to Director Technical and Director Finance in the management structure. SJVN at the time had conveyed that the arrangement was non-negotiable effectively sidelining the JMD in the management structure.
The DGPC at the time had very strong reservations on such an arrangement as an empowered JMD would enable DGPC to have equal say in the 50-50 partnership and would ensure checks and balances in the project implementation.
SJVN also had issues with the service rules which dealt with delegation of power, including the MD and JMD’s powers and also the need for procurement rules to conform to local laws.
SJVN had also shown reluctance to invest upfront in the power transmission system to evacuate power to the Indian border.
The Inter Government agreement says that at the end of the concession agreement the entire project will be transferred to the RGOB at no cost and in good running condition. Here in the Concession Agreement DGPC wanted to say that there should be investment of some money and in the 25th year there should refurbishment works done. Here to SJVN was not willing to agree.
The Bhutanese side at the time mentioned that disagreement over the issues have arisen mainly because the JV partners are not willing to work together with an underlying spirit of mutual respect and equal partnership based on 50-50 shareholdings.
Bhutanese officials impressed on their Indian counterparts that disagreements with regard to management, service rules and procurement rules are common issues for the other three JV projects as well and so requested the support of GoI to resolve the issues first.
This is especially because Kholongchu is the first JV project and so other JV projects would follow its model.
At the time the Indian Power Secretary acknowledged the issues raised by the Bhutanese side and he said such issues would come up since the JV model was being ventured into for the first time.
The Joint Secretary Hydro Archana Agarwal who was also a member of the GoI delegation offered to facilitate meetings in Delhi before the board meeting to resolve issues between the JV partners. She said the GoI had no intention in sidelining the DGPC and the RGOB in implementing the JV projects.
The Bhutanese learnt from a senior official that after that meeting there were several rounds of meetings and discussions and most of the issues have been sorted out.
The procurement rule has been accepted by SJVN and soon they would also accept the service rules.
SJVN has also accepted the important role of the Bhutanese JMD in the project. Another official said that though it has been agreed to on paper the important thing would be to implement this management structure on the ground.
SJVN has also accepted the 30 year concession period and has dropped its demand for more number of years.
In terms of the refurbishment of the project there has been a change in language whereby the Concession Agreement will highlight certain technical parameters under which the project is to be handed back to the RGoB. A small portion of the revenue will also be kept for repairs.
The project can truly take off with the major works only after the finalization of these management changes and signing of the Concession Agreement. Otherwise no major Financial Institution would loan money to a project without such an agreement.
Photo Caption- Smiles upfront but problems within: Dasho Chhewang Rinzin, Managing Director of Druk Green Power Corporation and R.P. Singh, CMD, SJVN exchange the shareholders agreement in 30th September 2014. There were already major differences between the two companies.
