MEA to still withdraw Chhukha tariff subsidy but PTC now finds buyers willing to pay more

Bhutan to still get Nu 2 per unit

Clearing the confusion over the withdrawal of the Chhukha tariff subsidy, the Indian ambassador VP Haran confirmed that the Ministry of External Affairs (MEA) was withdrawing the 45 paisa subsidy given to the Power Trading Corporation (PTC) of India.

However, he said that Bhutan will still continue to get Nu 2 per unit as the PTC has been able to negotiate with its state government clients who are willing to pay the higher

rate even after the withdrawal of subsidy from the MEA.

Prior to the 2013 General Elections, when this paper contacted the executive director of PTC Dr Rajib K Mishra,he had said that the PTC has yet to negotiate with or find any buyers willing to pay a higher rate. This was right after the MEA stated its intention to withdraw the 45 paisa subsidy to power from Chhukha.

In a foreign ministry letter to the Interim Government, the Joint Secretary North, MEA Akhilesh Mishra had also told the Bhutanese ambassador in Delhi that the 45 paisa subsidy would be withdrawn.

According to the Interim Government member Dasho Karma Ura, if the RGoB could not negotiate a higher rate with PTC after the withdrawal of subsidy, then Bhutan stood to lose around Nu 1 bn in annual revenue from just Chhukha.

With the Indian ambassador’s statement, it is now confirmed that the PTC has been able to find state governments in India that are willing to pay the unsubsidized rate.

He said that the tariff had been bilaterally agreed between Indian and Bhutan at Rs 2 per unit.

He said, “The PTC on the Indian side buys the power at Rs 2 per unit, but it was being sold at Rs 1.55 to state governments. The remaining 45 paisa was reimbursed to them as a subsidy and it was called a subsidy.”

The ambassador said, “This situation came about because when the Chhukha tariff was increased from Rs 1.55 to Rs 2 following a request from the RGoB, we were to able to consult the concerned state electricity boards, so we did it from MEA and fixed it at Rs 2 and told PTC that we will reimburse you the balance.”

He said that the intention was that the PTC will have a dialogue with those buying electricity from them so that it goes up to Rs 2 over a period of time.

“Now, unfortunately, that has not happened and so now we have moved forward and told that PTC to locate buyers who are willing to pay Rs 2. I think they have contacted buyers and they have no problem paying Rs 2 so instead of collecting it from the MEA they

will be collecting it from the State Electricity Board. As far as Bhutan is concerned, the revenue will not drop,” said the ambassador.

Following the article by Dasho Karma Ura in Kuensel on July 6 on four subsidy cuts including the Chukha tariff, the Druk Green Power Corporation (DGPC) MD and Interim Government member Dasho Chhewang Rinzin in a July 8 interview in the same newspaper said that there was no official communication on the issue yet, indicating that he was not aware about it.

However, this paper has found that on July 5, the DGPC had sent a note to Interim Government members titled ‘Implications of a Reduction in Chhukha Export Tariff by Nu. 0.50 per unit, Question of GoI Subsidy in Chhukha’.

The note said, “There has been indications given by the Government of India in the past that although the Ministry of External Affairs had agreed to the tariff increases to Bhutan, the States receiving the electricity from Bhutan had not agreed to the increases in the tariffs, and therefore that the Ministry of External Affairs was providing a subsidy for the difference.”

It further said, “For the period July 1999 to December 2004, the subsidy was indicated to be Nu. 0.30 Per unit. When the export tariff was increased to Nu. 2.00 per unit in January 2005, unconfirmed reports put the subsidy at Nu. 0.50 per unit.”

The note further explains that the RGOB has always taken a stand that the adjustments in the Chhukha power tariff was an internal matter of the Government of India, and as far as Bhutan is concerned, the tariff was in keeping with the Bilateral Agreement, which states that power tariff would be reviewed by the two Governments, every four years’ time period.

However, documents with The Bhutanese show that the increase given by India from Nu 1.50 to Nu 2 per unit was based on a special request made by His Majesty the King on a visit to New Delhi in late 2004, after which the increase was shown as an MEA subsidy.

The note states that when Bhutan requested for a review of the Chhukha tariff in 2009, the GOI had taken a stand that earlier reviews had not been done in keeping with the Agreement that provided that the tariff review would be at the end of each four years period. Therefore, the understanding was that the review would become due at the beginning of 2014.In view of this, the RGOB has been pursuing with the GOI for the review of the Chhukha tariff within 2013.

The note also says, “The Ministry of Power of the GOI is presently clarifying with the Ministry of External Affairs of the GOI on a supposed commitment that GOI has made to the States that the Chhukha tariff would be reviewed only in 2016 and that on review, the Chhukha tariff would follow the same model as that of the Tala. Request has already been made to the GOI to clarify on this.”

The DGPC note says, “Bhutan is very clear that there is no subsidy component on the Chhukha tariff as the Chhukha tariff is much lower than the tariffs in India. It is also being insisted that the subsidy if any must be from the GOI to the people of India. It is noted that the MEA’s budget has a provision of Nu 1,000 million under Chhukha power subsidy in the 2013-2014 Budget that is supposedly being passed to the Indian customers.”

The DGPC says that if Nu 45 paisa was taken away as subsidy on Chhukha then the annual revenue loss would be around Nu 885 mn.

The note says that Bhutan’s stand is that the subsidy, if any, is that the MEA provides such a subsidy to its Indian customers and not to Bhutan, as Bhutan’s export power export tariffs are far lower than the tariffs in India. It says, therefore, there is no question of India having to subsidize power from Bhutan.

However, a prominent economist, on the condition of anonymity, said that if the 45 paisa subsidy was to Indian clients of PTC then the power rate should have been dropped from the previous Nu 1.55 to Nu 1.05 for Indian clients. “The fact that Bhutan was given the benefit of the hike shows that the subsidy was for Bhutan as mentioned by the Indian ambassador,” said the economist.