The Bhutanese Leading the way.
By 27th August, Punatsangchu II will be fully commissioned at over 1,020 MW, a landmark achievement for Bhutan’s hydropower sector. Yet, without an agreed tariff and a signed Power Purchase Agreement (PPA) with India, not a single unit can be exported. For Bhutan, this is not just a delay, it is a growing economic setback.
The crux of the deadlock is not the starting tariff. India is open to Nu 5 or slightly above, but it is resisting regular and reasonable increases in future. Bhutan, facing the realities of inflation, loan servicing, and operational costs, cannot lock itself into a stagnant tariff for decades. Hydropower is our economic lifeline; its returns must sustain the sector and the nation’s development.
At present, PHPA II is producing over 850 MW from five units, all consumed domestically at a temporary Nu 3 per unit. This is well below the cost required to make the project viable. The repayment grace period of two years offers some breathing room, but every month of delay in exports represents notional losses running into billions.
This is more than lost revenue, it is a threat to our domestic electricity pricing model. Bhutan’s tariff structure relies on blending cheaper power from Tala and Chukha with costlier generation from newer projects like Mangdechu and PHPA II. If PHPA II’s power cannot be sold at export rates, the pressure to raise domestic tariffs will be unavoidable, affecting every household, business, and industry.
From Bhutan’s perspective, the principle is straightforward: our natural resources must be priced to reflect their true value and long-term sustainability. While India is our closest partner and largest power market, friendship should not come at the cost of underpricing the backbone of our economy.
The negotiations must be approached with urgency and clarity. Bhutan cannot afford to have 1,020 MW of peak monsoon generation idling in domestic consumption at a loss. For us, this is not just about selling power, it is about securing fair value for our most vital resource and ensuring the long-term financial health of the nation. In hydropower, delay is not neutral, it is costly.
“Being good is easy, what is difficult is being just.”
Victor Hugo