Punatsangchu I cost escalation and questionable decision making

In June 2008 the cabinet based on a presentation by the well meaning MD of the Punatsangchu Hydroelectric Project Authority approved the relocation of the dam from its original site to the current site.

It was proposed that the dam location be moved a few kilometers upstream up so that it would entail an additional cost of only Nu 1.2 bn to the project cost of Nu 35 bn but convert the 1095 MW project to a 1200 MW one.

Five years later the decision according to the PHPA’s own figures has not proven to be as profitable as originally thought, and in fact many feel it has been a costly one with the dam relocation playing a major role in the ballooning of the project cost to a record Nu 94 bn.

This is primarily because in the new location the bedrock for the dam to stand on was found at 74 meters below the river level instead of the originally estimated 30 meters. This lead to a huge increase in the cost of the project as the biggest and most expensive component of any hydro project is the dam.

The project which was estimated at around Nu 35 bn in 2006 ballooned to Nu 66 bn in 2012 and finally to Nu 94 bn.

As per the PHPA’s own figures 54 percent of the cost increase was due to geological and design changes which included the relocation of the dam. The rest 46 percent was due to inflation, according to the authority.

The dam has cost the nation around an additional Nu 17.55 bn in additional construction cost as the dam had been originally tendered for Nu 12.5 bn IN 2009 that has now increased to Nu 37 bn. Billions more have been incurred to increase other specifications like length of the head race tunnel etc to suit the new dam location.

For a cabinet and government that occasionally complains that they do not have enough financial muscle their one cabinet decision made five years ago has footed an avoidable construction cost bill that would have been enough to finance a large portion of the government budget for one year.

Now, one could make the argument that the cabinet is not a body of technical experts and so would have gone along with the authority’s presentation.

However, the cabinet comprises of the Ministry of Economic Affairs which has an entire Hydropower Department with a lot of technical experts. The government also had at hand experts they could have consulted from Druk Green Power Corporation or even the Tala project.

The cabinet and MoEA could also have referred to experts from WAPCOS who had proposed the original 1095 MW dam site and whose findings the PHPA had countermanded to propose the new site based on preliminary studies.

In short PHPA was just one of the many organizations that the cabinet should have consulted instead of just going along with only PHPA’s presentation and adding billions in the construction bill.

There is no doubt that the PHPA must be appreciated for increasing the capacity of the new site from 1095 MW to 1200 MW but the fact remains that huge additional expenditure could have been avoided if everyone had checked more closely. If closer studies at the time had shown that the dam would cost more than estimated due to the depth then it may also have been possible to still generate 1200 MW by looking for a better site with less depth or opting for lesser generation to keep construction costs down.

The cabinet has every right to make decisions but they must be for the interest of the country and must also be taken based on a variety of sound advice, especially on technical matters where huge sums of money are involved.

Blame must also be laid at the door of the Ministry of Economic Affairs for not doing its due diligence . The ministry should have asked for homework to be done before allowing the cabinet to make a decision.

The cost escalation of the Punatsangchu I project hurts the economic interests of the nation because Bhutan will have to pay huge loan installments for many more years to make up the additional cost.

However, the hasty decision of the cabinet on the Punatsangchu I project is just one more in a series of decisions where the cabinet has taken quick decisions without adequate consultation. Only this time it has cost the nation money it can ill afford in the face of a rupee and credit crisis that refuses to go away.

One more area of concern is that Bhutan is already overloaded with external debt especially on account of the hydro projects. Though the government has explained away the debts as being self liquidating we can ill afford to take on such huge, additional and avoidable debts due to uninformed decision making.

 

 

 “A Man’s management of his own purse speaks volumes about character”
Thomas Jefferson

 

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