The Bhutanese Leading the way.
The 1,020 MW Punatsangchu II project tariff has been under discussion between officials from Bhutan and India for a while.
While the Indian side is amenable to a P II tariff above Nu 5 per unit, going up to Nu 5.25 as proposed by the Bhutanese side last year, a major stumbling block is on future increases.
It has been learnt that initially while the Indian side was receptive to Bhutan’s Nu 5.25 per unit tariff the counter proposal from the Indian was no increase for 40 years.
However, this was not acceptable to the Bhutanese side, and so negotiations continued. Now the 40 years no increase proposal is no longer on the table, and instead the discussion is on whether the tariff can increase every 5 years or every 10 years, and by how much.
The Bhutanese side has made its views known, and now the ball is in India’s court. The Indian Power Secretary is supposed to convene a meeting on the issue for more discussions and to know the latest Indian position or decision.
Initially, Bhutan wanted Nu 5.85 per unit while India offered Nu 4.80 per unit. However, after negotiations both sides seem to have settled for Nu 5.25 per unit. The disagreement came for future increases and that is what delayed the tariff negotiations.
If Nu 5.25 is agreed to along with future increases acceptable to both sides then given that the project is expected to generate 4,357 million units per year, the total revenue expected is Nu 22.874 billion a year.
The tariff is derived on the cost plus model where the cost of construction and cost of financing is taken into account. What also has to be taken into account is the return on equity.
Simply put, the tariff should cover the cost of construction, cost of finance and also give some return.
The project completion cost is around Nu 94 billion.
