Nu 2.5 bn more revenue as Tala clears loan by Dec 2018

In what will be welcome additional revenue for Bhutan’s treasury the 1,020 MW Tala project will finally finish paying of its loans by 15th December 2018.

This will mean an additional Nu 2.586 bn in annual revenue for Bhutan as that is the current amount currently being paid every year by Bhutan for servicing its Tala loan.

Tala project in 2016, by itself, earned Nu 9 bn of which Nu 2.586 bn had to be deducted for the loan leaving behind around Nu 6.4 bn for Bhutan. The hydropower sector in 2016 had earned a total of Nu 14.385 bn which includes the 336 MW Chukha project that had already cleared its loan.

The Tala loan repayment started since 1st January 2008.

So far the total loan paid including interest has been Nu 27.80 bn. This means that by 2018 December around Nu 30 bn will have been paid back in both loan principal and interest payments.

Tala project was constructed at a total of Nu 41.25 bn excluding the interest accrued during construction.

Tala was built with 60 percent grant and 40 percent loan basis like Chukha before it. The total loan for the Tala project was Nu 16.503 bn including the loan for transmission assets. The interest accrued during construction was Nu 7.127 bn.

The annual loan repayment was Nu 2.691 bn from 1st January 2008 till 1st January 2012 and Nu 2.586 bin per annum thereafter.

The economic life of a project is 30 years as per Bhutan’s Hydropower Policy. As per Indian standards, it is anywhere from 35-40 years. However, projects are expected to last for a much longer period with proper operation and maintenance.

The Tala project tariff was determined based on the cost plus model which is the cost of building and financing plus some returns. It was originally increased on a pre agreed rate of 10 percent every five years during the loan payment phase which ends in 2018. However, after that the increase will only be  five percent every five years.

This means the next tariff revision will be due on 1st December 2021. It will increase from Nu 2.12 per unit to Nu 2.22 per, an increase by five percent. This five percent increase would mean additional revenue of Nu 380 mn.

The end of the loan repayment means not only additional revenue of Nu 2.586 bn but a part of this money can be used by DGPC and BPC to fund capital expenditure and investment requirements.

It would also mean reduction in the interest expenses by Nu. 653.23 mn on an average annually for both DGPC and BPC.

On the whole the Tala project’s finances show that even with a 60 grant and 40 loan model the project is beneficial to both countries and is good for the economy of both countries.

Bhutan could build a mega project at a favorable financing option, which has become the largest single source of revenue.

For India the favorable financing meant very low tariff rates especially at a time when power rates in India were going through the roof.

The project had also strengthened bilateral ties between the two countries.