New CBTE guidelines addresses concerns but guidelines awaited

The Cross Border Trade in Electricity (CBTE) of 5th December, 2016 which has been revised and renamed as the ‘Guidelines on Import/Export -2018,’ addresses many of the concerns expressed by Bhutan on the old CBTE.

However, what will now be awaited is the detailed guidelines that will further detail out and expand on the regulations and, then only, one will  really know if the majority of concerns have been addressed.

For the moment, the general consensus in Bhutan is that the guidelines, if reflected in the right spirit in the regulations will resolve all issues.

One main issue was that the 600 MW Joint Venture project Kholongchu was stuck due to the old CBTE guideline.

The Inter Government Agreement on JVs which was signed in April 2014 between both the governments, says that 70 percent of the power would be sold as per the long term power purchase agreement route between the two governments.

It says the remaining power which is 30 percent can be sold through the market mechanism which would mean accessing India’s energy market to aim and get higher prices.

However, the old CBTE restricted this market access for the 30 percent of the power through three provisions.

One was that the old CBTE said that the government to government negotiations on tariff will be adopted for perpetuity leaving out the scope for market mechanisms.

The second issue was that the CBTE said that instead of power suppliers from outside India (like Bhutan) asking for bids they have to put in their bids when Indian entities want the power.

For Bhutan this meant instead of inviting bids from the Indian power market to get the highest price projects, it would have had to give its lowest bid while competing with other power suppliers within India and the region. This would have meant bottom rates for such projects.

The third point raised was that the CBTE did not allow access to India’s Primary Power Exchange market and restricted sale of Bhutanese power to only secondary markets.

The primary power market is where the best power tariff rates are available as power buyers come and buy what power is available from the power market. Once the primary market purchase is done then only the secondary market is left where good rates are not available.

The above three issues in the old CBTE like tariff setting for perpetuity, power bidding disadvantage and no access to India’s primary power market with regard to the JV projects would also have affected the bilateral hydro projects in Bhutan in the long run.

The new Guidelines removes the provision stating that the government to government negotiations on tariff will be adopted for perpetuity. The new provision allows the tariff will continue till the end of the agreement.

This is also important as it could possibly allow bilateral projects to sell power in India’s energy exchange once the natural life of the project is over. However, details will be awaited in the guidelines.

On the bidding part, the new guideline only mentions competitive bidding but does not mention bidding in or out. The guidelines will have to clear this aspect. On the market access the new guideline removes the earlier restrictions that limited access to India’s primary power market. It instead says that any Indian power trader may, after obtaining approval from the Designated Authority, trade in the Power Exchange in India on behalf of any entity of the neighboring country for a specified quantum as per CERC regulations.

Here again the real level of access will only be known with the final regulations and whether access will be given to the primary market. This is in fact was the deal breaker for the Kholongchu whose 30 percent power did not get primary market access as per the IGA agreement.

Apart from that there were other issues in the old CBTE.

One is the old CBTE regulation that power by India can be bought only from a power trading company in another country that has more than 51 percent Indian ownership.

The new guidelines are very clear about this and removes this clause.

The other issue was a restriction on the hydro investment model in Bhutan as the guidelines state that only those power projects which are fully owned by the Indian government or its Public Sector Undertakings (PSUs), owned fully by the Bhutan government or controlled by it, or having 51% Indian company ownership can do cross border electricity trade, after a one-time approval from India’s Central Electricity Authority of India (CEA).

This clause has also been removed allowing for more flexibility.

An additional issue in the old CBTE was that though the guidelines introduction mentioned the SAARC Framework Agreement for Energy Cooperation on electricity, and its objective talks of promoting electricity trade between India and its neighbors, there is no mention of trilateral cooperation in the actual guidelines which goes into great detail on many other issues.

The new guidelines address this issue by mentioning that tripartite agreements will be allowed between the government of India and neighboring countries.

Ultimately the real picture will only be known with the issuance of the detailed regulations, though some major concerns have already been addressed.

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