Dagachu Project

Strong dollar and euro wipes out Nu 1 bn in profits of 126 MW Dagachu Project

The Dagachu Hydro Power Corporation Ltd (DHPC) in its 8 years of operations has made a total profit of Nu 673.675 million (mn). The profit margins were affected by the forex losses aggregating to Nu. 1,068.923 mn or Nu 1 billion (bn) over the same period.

Without the forex losses the profit would have been around Nu 1.7 bn.

The forex losses were due to the fact that a large portion of the loans were in US dollars and Euros which were at a much lower value compared to the Ngultrum when they were taken, but over the years the two currencies strengthened against the INR and hence the Nu which is pegged to the INR.

This mean that Bhutan was repaying the foreign currency loans at the much higher value (see details in box 2).

The project had taken USD 51 mn soft loan from ADB, Euro 41.23 mn loan from the EXIM bank, Nu 2.122 bn from ADB and MoF and Nu 807.84 mn from NPPF.

The forex losses came in repaying the EXIM and ADB loans but mainly due to the EXIM bank loan which is commercial in nature.

The NPPF loan has been liquidated. The EXIM commercial loan will be paid off within 2025. The other soft term loans from ADB will be paid off between 2034 and 2038 (see details in box 1).

Dagachu hydropower plant is a separate legal entity with shareholdings of DGPC (59%), Tata Power Company (26%) and NPPF (15%). It was the first project in the country that had a private foreign company investing in it.

The company is able to meet all expenses including loan repayment obligations from its electricity sales proceeds. The profitability of the company is expected to improve substantially on liquidating the EXIM commercial loan in January 2025. The company is not faced with any cash flow problems.

The forex losses show the limitations of taking foreign currency loans to build power projects in Bhutan as they can impact the profit margin if the foreign currency strengthens over time.

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